By Anna Pot, John Howchin and Kris Douma
Walmart is currently recruiting a new director of labour relations. The job description on its website states that the role of the director is inter alia to “support continued union free workplace”. So why should investors care?
Research shows a positive correlation between good labour relations and financial success. Conclusions from analysis on US companies (Edmans, Journal of Financial Economics, 2010) showed higher employee satisfaction is associated with stronger company (share price) performance. This means good labour relations are essential for long-term success.
For a retail company in particular, how workers perform on the “shop floor” determines to a large degree how satisfied customers are. Happy consumers are more likely to return and increase sales, and this is conducive to creating shareholder value.
In its 2011 corporate social responsibility report, Walmart acknowledges the role of its associates – ie employees – in the success of the company. It has developed surveys to monitor employee satisfaction and outlined to investors how it acts on concerns expressed by its associates. However, the range of complaints by workers in Walmart stores suggests there is still room for improvement.
Walmart has made significant progress in developing a serious programme to address sustainability issues over the past two years. But it has yet to bring its approach to labour relations in line with international best practice. A class action on gender discrimination that is currently before the US Supreme Court shows this is of serious concern.
Our pension fund clients and their participants expect investee companies to operate in line with the United Nations Global Compact Principles. One of those principles includes the freedom for workers to establish and join organisations. Workers should not be prevented from taking part in collective bargaining.
Several investors filed a shareholder proposal at the 2008 annual general meeting requesting that Walmart adopt the standards of the International Labour Organisation. They withdrew the motion as Walmart was willing to discuss its approach with investors. However, despite lengthy dialogue with investors, including Dutch asset managers APG, MN Services and the Swedish AP Funds, Walmart has not yet put this principle into practice.
A much broader church of investors actively takes account of how companies manage labour issues. More than 736 (mostly institutional) investors worldwide, as signatories to the UN Principles for Responsible Investment (UNPRI), are committed to taking environmental, social and governance factors into account in their investment process.
As part of its growth strategy, Walmart plans to increase the number of medium and small format stores (from seven to 30-40 in 2012). Competition to enter urban areas, where workforces are usually unionised, is fierce. In light of ongoing lawsuits by individual employees, Walmart risks opposition to its expansion plans in particular in urban areas in the US, as well as in South Africa, where unionisation is the norm.
Other retail companies operating in the US, such as Kroger and Safeway, maintain a labour relations policy that does not obstruct workers’ right to organise themselves. Dutch retail company Ahold also operates in the US. In response to concerns that Ahold may be restricting union activity, the company has reconfirmed to APG and publicly at its AGM that employees are free to join unions. We will monitor developments.
Retail companies – and their investors – benefit from good relations between management and one of its key stakeholders: employees and their representatives. Therefore, we as investors and the pension funds on whose behalf we invest believe it is essential for investee companies to uphold the right for workers to organise freely.
Anna Pot is senior sustainability specialist at APG Asset Management; John Howchin is secretary general of the Ethical Council of the Swedish AP funds; Kris Douma is head of responsible investment at MN Services.