Wal-Mart Hogs the News: On Fear and Loathing in Bentonville

No company made more news this year than Bentonville-based Wal-Mart Stores Inc., the world’s largest retailer. Wal-Mart launched a major public relations blitz as critics ramped up attacks and the company’s No. 2 executive resigned amid allegations of theft and fraud.

Wal-Mart started the year by placing full-page advertisements in 100 large newspapers across the nation and getting CEO Lee Scott on ABC’s “Good Morning America” so people could hear the truth “unfiltered” by journalists.

What ABC viewers got on Jan. 13 was a dour Scott who evaded Charlie Gibson’s question about why Wal-Mart pays women less than men.

After being asked the same question three times, Scott finally responded with: “We do not have an institutional program to pay women less.”

That pretty much set the tone for what would come throughout the year.

Jay Allen, who was then Wal-Mart’s primary spokesman, made the company’s stance clear in January. When the Business Journal asked him if Wal-Mart believes the press is biased against the company, Allen said, “I don’t see it that way in general … But I do think the media has a bias for confrontation and a bias to see the big guy fall.”

Coughlin

Sure enough, the big guy was about to fall.

After 25 years with the company, Thomas Coughlin retired on Jan. 24 as the head of all U.S. Wal-Mart and Sam’s Club stores. Coughlin said in December 2004 that he would remain on the company’s board until June 3.

But on March 25, Coughlin resigned from the board. In a filing that same day, Wal-Mart told the Securities & Exchange Commission that it had requested Coughlin’s resignation because of a disagreement concerning gift-card use and reimbursements valued between $100,000 and $500,000. Wal-Mart froze Coughlin’s benefits in April.

Through his lawyer, William W. Taylor III of Washington, D.C., Coughlin has denied any wrongdoing, saying the money was “reimbursement” for “union activities.”

Wal-Mart referred the case to Bob Balfe, U.S. attorney for the Western District of Arkansas, who is conducting an investigation.

In the meantime, at least seven other Wal-Mart executives were fired for allegedly assisting Coughlin in defrauding the company.

Former Wal-Mart Vice President Jared Bowen sued the company for defamation saying Wal-Mart fired him for blowing the whistle on Coughlin.

Wal-Mart said it wasn’t Bowen, but an unnamed female employee who initially blew the whistle on the gift-card scheme. Bowen, Wal-Mart said, had assisted Coughlin in defrauding the company. Bowen sued Wal-Mart for $75,000.

In April, Texas authorities confirmed that two other fired Wal-Mart executives, Kenneth Reese and Terry Pharr, were named in documents generated during an ongoing fraud investigation in that state.

In a June 10 SEC filing, Wal-Mart said it fired Coughlin retroactively to Jan. 22 for “gross misconduct.”

Wal-Mart filed a lawsuit in July saying Coughlin’s $12 million retirement agreement should be voided because he had been defrauding the company for seven years.

The lawsuit noted that Coughlin once told the Cleveland Plain Dealer, “Anyone who is taking money from associates and shareholders ought to be shot. That greed will catch up to you.”

The suit contained copies of receipts for $36,000 for fake hunting leases in south Texas and $15,000 for hunting trips that allegedly never took place.

The lawsuit listed $223,709 worth of items Coughlin allegedly purchased with fraudulently obtained gift cards or with fake invoices. The list included $1,350 for “hornback gator” cowboy boots; $2,480 for a Beretta shotgun; $714 for taxidermy of a wild boar with a rattlesnake in its mouth; $107 for a karaoke machine; $771 for an emerald; $387 for a Chris Farley DVD, rib-eye steaks, sausage, other food items and lite beer; and $40 for mascara, a blush brush, foundation, lipstick and a DVD.

According to the lawsuit, Coughlin received $1 million in base salary and $9.9 million in benefits in fiscal 2004, which ended Jan. 31, 2004. In the most recent fiscal year, he received $1 million in salary and $3.1 million in benefits. He also received $2.8 million each year in incentive pay.

But Benton County Circuit Judge Jay Finch sided with Coughlin in the first go-around. Wal-Mart has since redrafted and refiled its brief with the court.

On Nov. 7, Robert E. Hey Jr., former vice president of operations development for Wal-Mart, pleaded guilty to three counts of wire fraud in U.S. District Court in Fort Smith. Hey worked for Coughlin and may be cooperating with authorities now in the investigation of his former boss.

The three counts concerned:

• $8,640 billed to Wal-Mart for meeting rooms, lodging and food for “Sporting Goods Winners,” but the money actually paid for an eight-person hunting trip.

• $6,500 billed to Wal-Mart for “25 people for Sporting Goods Seminar” in Texas, but the money actually paid for a hunting lease for Coughlin (referred to in the suit as John Doe).

• $2,695 billed to Wal-Mart as “meeting expense reimbursement” from Step-up Truck Accessories of Bentonville for upgrades to “John Doe’s” 1999 Ford truck. This was billed to Wal-Mart as “meeting expense reimbursement.”

Hey began working for Wal-Mart 23 years ago, stocking shelves in a store in Parsons, Kan.

In a news release, Balfe said Hey used his position at Wal-Mart from 1997 to 2004 to “execute a scheme to illegally manipulate the employee travel reimbursement and vendor invoice accounting system at Wal-Mart to embezzle monies, gift cards and products which were provided to a senior Wal-Mart executive for the executive’s personal benefit and use.”

Hey has yet to be sentenced, but the maximum would be 90 years in prison and a $3 million fine.

PR Blitz

Soon after the Coughlin story broke, Wal-Mart held its first-ever media conference in April.

But the Coughlin scandal dominated headlines throughout much of the year, garnering front-page coverage in The Wall Street Journal and newspapers across the nation.

Wal-Mart’s reputation took another blow in July when a California judge certified a discrimination lawsuit against the company as a class action. The suit claims the retailer paid women less than their male counterparts earned for doing the same jobs. Someone sues Wal-Mart almost every day of the year, but with 1.6 million current and former female Wal-Mart employees, the discrimination suit has the potential to be the largest private class-action suit in history.

Throughout the year, two union-funded anti Wal-Mart groups — Wal-Mart Watch and WakeUpWalMart.com — stepped up campaigns against the retailer.

Instead of ignoring the attacks, as it had done in previous years, Wal-Mart responded quickly to the various allegations. The company referred people to its Web site, Walmartstores.com, for the “facts” on a variety of topics, including wages and medical insurance for employees. Wal-Mart said its low prices save every American family $2,300 per year.

Wal-Mart’s real PR boost came in late August when the company used its state-of-the-art supply-chain system to get necessities to New Orleans and the Gulf Coast after Hurricane Katrina.

Wal-Mart had done what the Federal Emergency Management Agency couldn’t, making the U.S. government appear even more inept in the wake of the biggest natural disaster in American history.

Wal-Mart gave $20 million in in-kind donations to the hurricane-ravaged areas, the most of any of the Fortune 500 companies.

In November, Forbes magazine ranked Wal-Mart No. 9 in its list of most charitable companies. That ranking was based on percentage of 2003 income given to charities. Wal-Mart gave $197.9 million that year. Wal-Mart’s rival Target Corp. ranked No. 1, giving $88.8 million in 2003.

But November also saw the release of “Wal-Mart: The High Cost of Low Prices,” a documentary film by Robert Greenwald. The movie attempted to show that Wal-Mart exploits workers and government welfare programs, goes after unions, neglects the environment and uses suppliers that have overseas sweatshops.

Fortune magazine’s Geoffrey Colvin wrote that the film, although “awful” was really “a response to the great social disrupter of our time — the emergence of a friction-free global economy.”

Eric Parkinson, president of Hannover House, a DVD distribution company in Fayetteville, released a pro-Wal-Mart film that same month. “Why Wal-Mart Works” was produced and directed by Ron Galloway. Hannover House is a Wal-Mart supplier. Neither film will make it to commercial movie theaters, but both are for sale on DVD.

Wal-Mart by the Numbers

Wal-Mart has 1.2 million employees worldwide and 45,000 in Arkansas. Another 67,000 people in the state work for Wal-Mart suppliers. Wal-Mart paid $86 million in state and local taxes last year, while donating more than $21 million to various Arkansas causes and organizations, the company said.

For the first 10 months of the fiscal year, Wal-Mart had $249.5 billion in sales, up 10 percent from where it was at the same time last year. That number puts Wal-Mart well on the way to breaking last year’s sales record of $285.2 billion.

But throughout 2005, Wal-Mart’s stock has struggled. The stock began the year at $54.60 per share and was at $42.30 in mid-December.

At the April media conference, Tom Schoewe, Wal-Mart’s chief financial officer, said the company didn’t really know why the stock price wasn’t doing better. Schoewe noted that Wal-Mart’s other statistics indicated the company was healthy.

Schoewe spent 24 hours in jail in August after he pleaded guilty for driving 110 miles per hour on Interstate 540 near Bentonville in a red Corvette on New Year’s Day.

As the global economy changes, apparently so do things at Wal-Mart.