November 13, 2011


How Walmart Is Changing China: The world's biggest corporation and the world's most populous nation have launched a bold experiment in consumer behavior and environmental stewardship: to set green standards for 20,000 suppliers making several hundred thousand items sold to billions of shoppers worldwide. Will that effort take hold, or will it unravel in a recriminatory tangle of misguided expectations and broken promises? (Orville Schell, December 2011, Atlantic)

Originally hired by Sam Walton to work in Walmart's transport division, Lee Scott, who became president and CEO in 2000, is pretty much the stereotype of what many might imagine a Walmart executive to be. Tall, with sandy hair and a pale, almost forgettable face, he radiates a reassuring, no-nonsense air and Great Plains earnestness--a middle American who grew up in a small southeastern-Kansas town pumping gas at his father's filling station and earned his degree at a state university while living in a trailer and working in a tire-mold factory.

Fed up with being viewed as an environmental despoiler and everyone's punching bag, Scott had already begun questioning how he might turn around Walmart's image, if not the corporation itself. In 2004, he connected with Jib Ellison, a former river guide who had recently set up a small consulting firm, Blu Skye Sustainability, in Sonoma County, California. "When I first met Lee, the guy was just getting pummeled," Ellison told me. "I mean, the world was really turning upside down for him!"

After a discreet courtship, Ellison managed to break through the "Bentonville bubble," as he calls it, and convince Scott that it was not enough to "limit Walmart's exposure" to environmental criticism. He also had "an opportunity to use sustainability to 'do well by doing good.'" According to Edward Humes, the author of Force of Nature: The Unlikely Story of Walmart's Green Revolution, Ellison insisted "that inefficiency and waste were omnipresent, even in a notoriously stingy company like Walmart, with the waste not only damaging the environment, but damaging the company's bottom line as well." Identify and cut out the waste in areas like packaging, shipping, and energy use, Ellison said, and Scott would solve his company's image problem and make a better return on investment.

It was a beguiling dream, so much so that Ellison persuaded Scott to make tiny Blu Skye a Walmart consultant, a decision that helped send the massive company off on an environmental odyssey and won Ellison the handle of "CEO whisperer." Soon, Scott was inviting the longtime banes of Walmart's existence--nongovernmental organizations like the Rocky Mountain Institute and the Environmental Defense Fund--to Bentonville for discussions with his executives.

In the company's corporate narrative, October 24, 2005, is spoken of as "a defining day in the history of Walmart." This was the day Lee Scott gave his "Twenty First Century Leadership" speech, broadcast via video to all Walmart stores and suppliers. In the same way Chinese Communist cadres quote from the revolutionary scripture of their Big Leader's collected works, Scott began by citing Walmart's founder. "Sam Walton's dream to serve the underserved changed the world," he said. "We didn't get where we are today by being like everyone else and driving the middle of the road. We became Walmart by being different, radically different."

Scott acknowledged that the company was "in uncharted territory as a business," but he said that "after a year of listening, the time has come to speak, to better define who we are in the world, and what leadership means for Walmart in the 21st century." Then Scott got to the point. "Environmental loss threatens our health and the health of the natural systems we depend on," he told his audience. "As one of the largest companies in the world, with an expanding global presence, environmental problems are our problems."

Scott acknowledged that naysayers would "think that if a company addresses the environment, it will lose its shirt." But, he countered, "I believe they are wrong. I believe, in fact, that being a good steward of the environment and in our communities, and being an efficient and profitable business, are not mutually exclusive. In fact, they are one and the same."

Walmart was a company with a reputation for having already "gotten religion" through Sam Walton. But now, it seemed on the verge of being reborn in a different way. In the most practical language, Scott tersely laid out three long-term goals, which he described as "both ambitious and aspirational":

    1. To be supplied 100 percent by renewable energy.
    2. To create zero waste.
    3. To sell products that sustain our resources and environment.

"I'm not sure how to achieve them," he admitted. "At least not yet."

Scott left a stunned audience, but soon the company was examining every aspect of itself to find inefficiencies and waste. It condensed products like laundry detergent into small, more easily packed and shipped containers; retrofitted 7,000 big rigs with small auxiliary motors so that drivers would not run their engines just to cool their cabs while they slept; reduced the amount of cardboard and plastic used in packaging; and started buying directly from farmers to ensure cheaper, fresher, and more reliable organic lines of fresh food. The goal was to save money by becoming greener.

With some 30,000 Chinese factories making things for Walmart, the company's future was tied to China in the most elemental way. So Scott and his team knew that Walmart could never truly "green" its supply chain without taking on its Chinese partners. But, if China was going to be the laboratory of the future, it was difficult to imagine how even Walmart could wrangle such a far-flung and disparate range of suppliers into a responsive group.

On October 22, 2008, the CEOs and factory managers of more than 1,000 Chinese Walmart suppliers sat waiting in the Valley Wing Grand Ballroom of Beijing's Shangri-La Hotel, for the beginning of Walmart's China Sustainability Summit. Many of the attendees anticipated a significant new environmental announcement, and not a few of them were concerned. After all, Walmart was famous for pressuring suppliers to cut costs and reduce prices to the point where profit margins vanished. Moreover, the world economy had begun to careen toward breakdown, with countries like the United States cutting back precipitously on orders from abroad.

Heralded by a blast of pop music, Lee Scott strode to the podium. In characteristically flat tones, he started off with a few pleasantries about the Olympic Games, complimenting his Chinese audience for being part of a nation "that really gets things done." Then he leaned into the topic at hand. "When Walmart first came to China," he declared, "the government said that it expected us to be a model retailer. We have worked hard to try to meet those expectations ... and to save money in the process." He spoke without any dramatic oratorical pauses or expressive hand gestures. "And with the Chinese government expanding its goals for sustainability ... it just makes sense that Walmart would be committed to being a more sustainable company here in China."

As Scott continued in the cavernous and, by now, completely still room, he conveyed utter conviction. "Look around: we have 1,000 suppliers here. A year from now, each and every one of you who chooses to make a commitment will be a more socially and environmentally responsible company. And that will make a difference. It will make a difference for you, for Walmart, for China, for our customers, and yes, for the planet."

Acknowledging that Walmart customers "need low prices," he said he also believed that "more and more, they will be looking at the entire life cycle of a product: How is it made, how is it sold, how is it used, and how is it reused? To meet these customer expectations, we need to ask ourselves: Is a product made in a factory that is a responsible steward of the environment and our natural resources?"

On the crucial role of energy use, Scott declared, "The final factor that I see at work in bringing us here today is an increase in the global demand for energy and what that means for climate change." Then, as if he were, in fact, a foreign minister, Scott warned: "This will be one of the greatest economic, environmental, and perhaps security challenges that the world will face in the 21st century ... Meeting social and environmental standards is not optional. I firmly believe that a company that cheats on overtime and on the age of its labor, that dumps its scraps and its chemicals in our rivers, that does not pay its taxes or honor its contracts, will ultimately cheat on the quality of its products."

As his listeners were digesting all this, Scott assured them that Walmart was willing to "work with" them. But then he dropped the trap door: "If a factory does not meet these requirements, they will be expected to put forth a plan to fix any problems. If they still do not improve, they will be banned from making products for Walmart." Like a priest admonishing parishioners to accept Communion or be excommunicated, Scott explained that each supplier would have to make a commitment to comply with these environmental standards. (Ultimately, they would also be required to open themselves to third-party auditors.)

"Some may wonder, even inside Walmart: With all that is going on in the global economy, should being a socially and environmentally responsible company still be a priority?" Scott did not yield an inch. "You're darn right sustainability should be a priority!"

He was all but preaching now. With his hint of a southern accent and his almost religious sense of the righteousness--not to say the profitability!--of his cause, he seemed to be crescendoing toward some sort of evangelical climax. But, ever the model of middle-American restraint, Scott resisted the urge to overstep the bounds of oratorical modesty.

"I believe that as a businessman. I believe it as a person who has a responsibility to shareholders. And I believe it as a father and a grandfather. We will have better companies, better communities, and an even stronger commitment to a cause that is greater than each of us and unites us all. And we will leave a better world for future generations."


I turned to a Sichuan factory manager standing beside me and asked what he thought of Scott's speech. He gave a worried frown.

At the press conference that followed, a Wall Street Journal reporter asked Scott, almost accusatorily, if these new demands on suppliers would simply presage a further squeeze of their already meager profit margins. In a tone as close to testy as he could come, Scott asked the reporter if she wouldn't rather pay a few cents more for something that was made well and would not harm the environment.

What made Scott's sermon so timely was the buildup in China of political and economic forces that augured well for the idea of a large and trustworthy foreign-owned company "going green." Whereas up until about 2005, Party leaders had been dedicated to unfettered development, whatever its environmental cost, the five-year plan that went into effect in 2006 introduced the concept of kexue fazhan, or "scientific development," which was a way of injecting the idea of a more environmentally sound kind of development into the equation without directly impugning all the previous efforts to promote economic progress. Then, over the next few years, the Party began heralding the notion of kechixude fazhan, or "sustainable development."

As it happened, just at this time, growing numbers of Chinese were also becoming worried, even frightened and angry, about pollution, adulterated foods, and the corruption that kept local government agencies from taking remedial actions. And because more and more Chinese were not only erupting into spontaneous protests as a way to get action, but also looking to NGOs rather than to the government for relief, and because even the press had become more activist, the government became concerned about the impact of environmental damage on the stability of the country.

The number of scares involving illegal chemical additives in food was creating particular alarm. In 2008, milk products were found to contain melamine, a coal-based industrial chemical that, when ingested, can cause kidney stones and renal failure. (Melamine had been regularly used to give milk powder and baby formula a seemingly higher protein content.) As a result, some 300,000 Chinese consumers were sickened and at least six infants died. The Chinese government reorganized its food-inspection system in response, and its new Food Safety Law went into effect in 2009. Nonetheless, the dairy industry was hit again with scandals this year.

In the spring, hundreds were sent to the hospital when hogs from 16 provinces were found to have been fed a "lean meat powder" containing the toxic chemical additives ractopamine or clenbuterol, to produce less-fatty pork. In Guangdong province, authorities discovered and destroyed 45 tons of vermicelli noodles adulterated with industrial wax and ink; in Shenyang, police seized 40 tons of bean sprouts that had been illegally bathed in urea, sodium nitrite, antibiotics, and the plant hormone 6-benzyladenine, to make them grow faster and appear fresher. The food-safety situation became so serious that on April 14, Premier Wen Jiabao took the unprecedented step of speaking out, saying the recent scandals indicated that "dishonesty and moral degradation" had become a serious problem.

No wonder, then, that many in China's burgeoning middle class, especially those with children, are seeking refuge in brand-name restaurants--particularly fast-food chains such as McDonald's and KFC--and grocery markets such as Walmart. Walmart has several times come under fire in China for selling produce tainted with toxic chemical residues, and for mixing organic and nonorganic foodstuffs: this fall, for example, the Chongqing municipal government fined Walmart, and temporarily closed some of its stores, for mislabeling pork as organic. Still, because Walmart is a well-known multi-national corporation with so much at stake in terms of its global brand, Chinese shoppers have assumed that it will be a more trustworthy outlet.

It's pretty comical the way the Right opposes making the economy more efficient just because cutting waste and using energy more wisely is tainted by Environmentalism.

Posted by at November 13, 2011 8:05 AM

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