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Donald G. Soderquist: Wal-Mart Way Produces Accolades, Criticism, Growth

Donald G. Soderquist joined Wal-Mart Stores Inc. as executive vice president in 1980, and served in several other executive positions until his appointment in early 1988 to vice chairman and chief operating officer. In January 1999 he was promoted to senior vice chairman of the corporation. Prior to his joining Wal-Mart, Don served 16 years with Ben Franklin, including six years as president and chief executive officer. He retired from day-to-day duties at Wal-Mart in 2000, and retired from the board in 2002.

During his tenure at Wal-Mart, the company grew from $1 billion in revenue to $244 billion (fiscal 2003), from 276 stores to 4,000 stores, and from 26,000 employees (or associates, as Wal-Mart calls them) to more than one million. In the 2007 Fortune Global 500 report, Wal-Mart had $351 billion in revenue with 1,900,000 employees and was listed as the No. 1 global company in the world.

Soderquist received his bachelor’s degree in business administration in 1955 from Wheaton College, Wheaton, Illinois. He has been awarded numerous honorary doctorates. In 1990, he received the Outstanding Business Leader Award from the Northwood Institute in Palm Beach, Florida. In 1996, he was inducted into the Retailing Hall of Fame.

He has served on the board of directors for ARVEST Bank, John Brown University, the Salvation Army, Wal-Mart Stores, and Servicemaster. Soderquist is past chairman of the International Mass Retail Association and Children’s Miracle Network.

In 1998, John Brown University created the Soderquist Center for Leadership and Ethics in his honor. The Center provides ethical leadership training for undergraduates, two masters programs (including an MBA) and organizational leadership and team development seminars for business and nonprofit organizations.

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Dealing With Criticism

Ethix: How has all of the recent criticism of Wal-Mart affected you personally? Wal-Mart went from Fortune magazine’s Most Admired Company in 2004 to perhaps the most vilified just a short time later.

Donald G. Soderquist: I want to start by saying that I think today the company has really moved beyond this criticism. Ninety percent of Americans will shop at a Wal-Mart this year. The average person knows that Wal-Mart still believes what Sam Walton believed throughout his life: “Give customers what they want — and a little more.”

The criticism Wal-Mart has faced hurt on a personal level, of course. If Sam Walton was aware, he would have been deeply hurt. He was a person who poured his life into retailing, with incredibly pure motives. He wanted to create opportunity for the average person to have a better life. He was interested in creating jobs in communities that were dying. He worked hard in managing costs to enable his stores to deliver on the promise of bringing quality merchandise at an affordable price.

Most of the criticism Wal-Mart has faced was incorrect and unfair, like it often is. When you’re big, some people will try to tear you down. But Wal-Mart must be doing something right. When we open a new store, it is not uncommon for us to get several thousand applicants for the roughly 400 open jobs.

The flip side of all of this criticism is how heartily Wal-Mart has been accepted. Some years ago, we tried to open a store in Chicago and were met with strong opposition. One alderwoman, from a economically struggling part of town, saw the number of jobs that would be created, dared to go against the grain, and invited us into her neighborhood. We have been embraced by that neighborhood and many others like it. In fact, other local politicians from nearby areas have asked Wal-Mart to open stores in their communities too.

The media has also been unfair to Wal-Mart at times. Let me tell you a story. In 1989, The New York Times ran a story on how Wal-Mart had come to Independence, Iowa, a small town of 6,100 people. They claimed that by opening their new store, Wal-Mart had destroyed the heart of downtown. As witness, they showed a picture of the mayor of the town standing in the middle of a forsaken street at the heart of the town. This large feature started a wave of negative publicity about the company.

Here is what actually happened. Like much of small town America, the heart of the town was being eroded by shopping malls on the edge of town with their convenient free parking. Some of these shopping areas were in towns 40–50 miles away, and people would drive there for better selection and lower prices. Meanwhile, parking meters had been installed to control traffic in the center of town making it even more difficult for merchants there. Downtown merchants were not stupid. They started vacating downtown more quickly than town leaders could react. But in Independence, there was still some activity in the core — enough so that it was impossible to take a picture of the mayor in the center of town during the normal shopping times. So The New York Times asked the mayor to pose in his town on Sunday morning — and then said it was vacated because of Wal-Mart. We heard this account from the mayor after the story had appeared.

But then Sam would quickly get past this. He told us to never focus on things outside of our control. Rather, he would get back to work and say, what can we do better? That’s the way he was, and that’s the culture he set at Wal-Mart. I committed myself to continue that culture after Sam died. The right response is to get back to work and see what you can do to make things better.

Does Wal-Mart drive “mom and pop” stores out of business in these rural communities?

If you look at the facts, you would see that the opposite is usually the case. Studies show that often times new businesses spring up around a Wal-Mart and other existing stores benefit from the increased customer flow. In the early days, there were many communities that were so poorly served that people would typically drive 50 miles to find a shopping center with reasonable selection and prices. So I think Wal-Mart offered a solution to this challenge for the people, and they clearly showed that they liked the solution. In addition to benefitting the consumer, Wal-Mart often helps to keep money and jobs in a community, as customers will now stay in town to shop.

Furthermore, there are many well-run specialty stores that were thriving then and continue to thrive today. In this connected world, when consumers have so many choices, including online purchases, you must have a passion for excellence and execution of the business. Wal-Mart’s culture has helped focus on this.

Wal-Mart Culture

What are some things you did to carry on this culture?

We recognized that culture is based on relationships. Therefore it was always important to stay in touch with our people and recognize their personal contributions and accomplishments. All senior management traveled in the stores on a weekly basis and talked with our associates. Sam would do this all the time, whenever we went to a city. I can remember times when he would walk into a store and start talking with the clerks. Sometimes he wasn’t recognized, and some assistant manager would come over and ask what he was doing talking with the employees. He would introduce himself and say he was just keeping in touch. I tried to continue this myself.

How would you describe the culture?

Wal-Mart believes that the values and culture of a company are the most valuable things a company has. Unfortunately, values and culture seem to naturally decay, so it requires significant focus to remember what they are. So there are significant activities at Wal-Mart to remind us of our values. We used to reserve one Saturday morning meeting per month just to focus on the company’s values. Several of Wal-Mart’s key values include:

Integrity • Respect • Teamwork
Communications • Excellence
Accountability • Trust

I would ask a different person each month to prepare something for our Saturday morning management meeting on how our values could be seen in action. We would talk about them when we met in the stores. We would post them prominently.

Some companies put their value statement in the back of the policy manual. It is good to have a set of values, but most people wouldn’t be drawn naturally to the policy manual in their desk drawer when they are wondering what to do. We all need to be reminded constantly in order to maintain the culture.

Unfortunately, values and culture seem to naturally decay, so it requires significant focus to remember what they are.

Wal-Mart’s goal was to have the values and culture at the core of our company and never change, but be prepared to change everything else because the world is constantly changing. The economy changes, technology changes, and the way people live and work change. We must change. But we need the core. Wal-Mart was very pleased to see that Jim Collins recognized our effort in his book Good to Great. When he wrote about Wal-Mart as one of the great companies he said,

“A key factor in Wal-Mart’s trajectory is that it has never changed its DNA. Wal-Mart has been willing to try all sorts of new things. The company keeps what works and gets rid of what doesn’t, but always remains guided by its core traits, which have not changed in more than 40 years.”

Did your culture also include learning from others?

This was very important. Perhaps a story would help illustrate this point. One year we were opening three new stores in Huntsville, Alabama, all at about the same time. One was north of town, one south of town, and one at the center of town. We usually didn’t open multiple stores in the same location at the same time, but this came about through acquisitions that took place at the same time we had planned to open our own new store.

In any case, whenever we went to a city, in addition to visiting our own stores, we would visit competitors to see what they were up to. On this particular occasion in Huntsville, we went to a competitor store. When we got to the door, Sam went one way, and I went another. After 45 minutes or so we met back at the car and he asked me what I had seen. I told him I had seen a store in total disarray. It was dirty. The clerks were obviously unhappy. There were boxes in the aisles, and shelves that were empty. This store was no competition at all.

Then I realized I should ask him what he had seen. It was almost like he was waiting for me to ask. His first reply was, “Did you see the rack they used to display their pantyhose?” I told him I must have missed that, so he went on, “It is better than anything we use in our stores. I pulled it out and looked at it carefully. Here is the manufacturer. We need to get these for our stores.”

When I asked him if he had any other observations, he went on to describe several other things he had seen that would bring value to our stores. He was always looking for better ways to do things, and could see beyond the mess I saw to find these things. I learned an important lesson that day about leadership and culture. The criticism is too easy, but learning from others takes effort. That is the way he was, and that is part of the culture we tried to sustain at Wal-Mart.

Going Green

Wal-Mart has recently been gaining some recognition for environmental concerns through the “green” movement. Could you share with us how this came about and why you moved in this direction?

I am proud of the way Wal-Mart is leading the way with its sustainability efforts. Once again, it came as no surprise to people at Wal-Mart that you can be an efficient and profitable business and still be a good steward of the environment. A great example is how the company learned that it could take something as easy and simple as reducing packaging on some of its toys and save thousands of trees and more than 1,000 barrels of oil. Another great story is how just this year, a Wal-Mart associate working at a store in North Carolina suggested removing the lights from the vending machines in the break rooms. This small change will not only save energy but will also save the company over a million dollars a year. It is great to see Wal-Mart innovation applied in ways that help our environment.

Over the years Wal-Mart has been known for its policy of selling family-friendly entertainment, including music that is stripped of its offensive lyrics. Was that decision driven by values or a long-term profit strategy such as attracting family-values oriented consumers?

That decision was driven by our values, pure and simple. From a values standpoint, Wal-Mart simply decided that certain forms of entertainment were inconsistent with who we were. We wanted parents to feel safe and comfortable bringing families into our stories. If that worked in our favor, that’s fine, but it wasn’t our intent. If maximizing profit was our primary goal, we probably would have been done better if we sold the forms of entertainment our competitors carried.

Dealing With Size

Some criticism comes just because you are big. The large company, large nation, wealthy person, winning team, etc., will always be criticized by those around them. How does Wal-Mart deal with its “bigness”?

There are two sides to this. You can’t necessarily do anything (except continue to try to get better) about the external criticism. But bigness causes a challenge from the inside as well. And Wal-Mart has tried very hard to deal with this. Sam would make it a point to visit our stores wherever he went. When he was in a store he would talk with the managers, but also with the hourly associates. He was always trying to learn how we were doing and wanted to hear it from everyone. He was also quick to compliment people on the work they were doing, their smile, and the way they had organized the department.

But, of course, as Wal-Mart grew, one person personally could not visit all of the stores. So we had our annual shareholders meeting where we always invited at least one person from every store. We would set up an agenda for this person to meet our buyers, talk with the leaders, etc. He even would call on people (a truck driver, and hourly person) to give a testimony at our meeting. And he would ask the people to go back to their store and share what they had learned.

Wal-Mart also made use of technology. We have a satellite transmission capability allowing us to broadcast to individual stores. I would often direct comments to individual stores, talking about how much we want to value and satisfy the customers, the good work people are doing, key events in the life of the store, and so forth. Or we could broadcast to a region, or even to all of the stores.

None of these things by itself was enough. But each was done to try to maintain a small-company feel as we grew. In the mid 1990s we had Jack Welch, then the chairman and CEO from GE, down to visit our Saturday morning meeting and speak with our people. He was so impressed with how we were handling our growth and maintaining our culture that he invited me to visit Crotenville (the GE Leadership Center) to share “the Wal-Mart Way.” For years after this, he would forward emails to me from his people, talking about what they were doing with “the Wal-Mart Way.”

Worker Pay

Another area of criticism has come from the low wages you pay your workers. Could you talk about this?

Let me start by saying that Wal-Mart pays competitive wages and offers good benefits — that is why when Wal-Mart opens a new store, thousands of people apply for just a few hundred jobs. For example, in January of 2006, 25,000 people applied for 325 available jobs at a store opening in Chicago. Wal-Mart offers good jobs and employs over 1.3 million Americans. Those facts really say it all. Despite what our critics may say, people know Wal-Mart is a great place to work.

I think it is also important to talk about the opportunity Wal-Mart provides. Many of Wal-Mart’s associates are seniors who need extra income or students who want to gain work experience. For folks seeking a career, Wal-Mart is also about opportunity — more than 75 percent of Wal-Mart store managers started out as hourly associates.

Some of the strength of the compensation in the past was the stock program. But Wal-Mart stock has been flat since the late 1990s. What has Wal-Mart done to allow current people to do well?

As I mentioned, Wal-Mart offers good benefits and pays wages that are competitive. Wal-Mart associates can receive performance based bonuses. The company still continues to grow and still provides excellent opportunities for people to build careers.

Supplier Relationships

According to reports I have read, there are many suppliers who fear Wal-Mart. In fact, “Always low prices” is often cited as the focus that forces a supplier to cut costs below where they can make a profit? Is this a good thing?

It would be foolish for Wal-Mart to create enemies of its suppliers or force them to the point where they will go out of business, because we don’t make anything ourselves, and we depend on them for the products we offer. Wal-Mart wants to be thought of as tough but fair. Fair is very important because it is the fundamental part of our DNA. Our buyers won’t even accept a lunch or dinner from a supplier because we don’t want to develop biases toward a vendor that would cause us to be unfair. On the other hand, we are tough on ourselves in looking at our costs and understanding what it takes to deliver value to the customer, and we are tough with our vendors in this area as well. Many of our suppliers have told me that Wal-Mart is the toughest negotiator in the retail business. But they usually add that we are also the fairest, and that they are better because of their relationship with us.

In this connected world, when consumers have so many choices, including onlince purchases, you must have a passion for excellence and execution of the business.

Wal-Mart doesn’t just tell suppliers to lower costs. We work with our suppliers to show them how to lower costs. We have opened up our communications with suppliers as a way to make both them and us better, because it would do no good for Wal-Mart to get better but not have our suppliers improve. After all, it is one big system that we are a part of, and we need to work together for the good of our customers.

We also pay our bills on time. We don’t stretch out our accounts payable and make our suppliers suffer in hidden financial ways.

The purpose of our focus on “Always Low Prices” is to remind Wal-Mart to do things effectively and efficiently. The only way we will be able to do this is to keep at it every day, even with the little things. There used to be a sign in the bathroom at the stores reminding you to turn out the lights if you were the last one out. Whenever Wal-Mart people would travel, we would share a hotel room. This would remind us of costs. You can’t pay your people, offer quality merchandise, and have low prices if you are not careful about your costs.

Aesthetics

One more area of criticism I think should be mentioned. Many of your stores are not big on aesthetics, a big box with a large parking lot and not much to beautify the area. What is your thinking on the way your stores fit in the communities where they are located?

As you know, there is a balance between cost and aesthetics. We have always complied with the community ordinances when we build our stores. Some areas require brick fronts or a certain number of trees, and we meet these standards. Perhaps some of the stores you are referring to are ones that have been in place for a long time. Many small towns welcomed Wal-Mart with open arms in the early days and hadn’t done much thinking about their building standards. They wanted low prices for their people, with convenient shopping and good choices, and we were a big help to these communities. Now many have added aesthetic requirements, and we always meet these requirements.

Globalization

At one point you had a “buy America” policy. And then this seemed to quietly go away. What happened?

Sam Walton was a passionate patriot, and he was concerned about losing jobs overseas. He was also very cost conscious. He looked at some of the early data on outsourcing and observed that even with low-cost labor and lower product cost, this was not necessarily a good thing for Wal-Mart and its customers. First, it led to loss of jobs here. Second, the shipping added cost and time to our supply-chain system. We wanted to preserve local suppliers for all of these reasons.

But then several things happened. The overseas suppliers improved their quality and costs as their volumes grew. And many manufacturers in the U.S. just got out of the business. It no longer became feasible for us to buy from local manufacturers only.

We took criticism here again. On several occasions we were criticized when a customer found a shirt made in Bangladesh or some other country on the rack with our “American made” products. This was just an error in the store in putting it there, but people loved to jump on anything they could. Then as the whole market shifted to overseas manufacturing, we were blamed for causing this to happen. It would have happened whether we were in business or not.

Further, the situation is rather more complicated than it seems. I remember a time when Bill Clinton was still the governor of Arkansas and he came to Sam Walton with a concern. It seems another seller of televisions had cancelled a major order from a Japanese firm manufacturing televisions in Arkansas. He asked if we would be able to help because the company was going to shut down the factory and its 500 jobs. We placed an order for 10 million TVs from them and preserved the factory for awhile. Obviously, this was not a U.S. company, but it did involve U.S. jobs.

There are new challenges when you move from being an American company to a multinational company. What were some of these challenges, and what did you learn from the process?

We learned when we went to other countries that customers and associates all over the world liked being treated with respect and dignity and really appreciated our everyday low prices. And finally they liked one-stop shopping for everyday staple goods and the broad assortment of quality name-brand merchandise. One of the challenges was being sensitive to the different culture in each country and blending it with the Wal-Mart culture.

Technology at Wal-Mart

Didn’t you get started at Wal-Mart through technology?

Yes, I first met Sam in 1963 when he was visiting the Ben Franklin store where I was working in the information systems department. I had no idea why he wanted to visit with me, but he came one afternoon and started asking me questions about what computers could do, what we were now doing with them, and what I saw as the future of computing. This conversation went on for several hours. He was very curious, asked good questions, and wrote everything down. I think he saw the possibility of how technology could help his business even in those very early times.

After that time, he recruited me to come to work for him. I didn’t at the time, and became president of Ben Franklin stores. But finally did go to work for him in 1980.

As Wal-Mart grew, we continued to press the use of technology. We used it to manage distribution, manage inventory, process orders, process checks with the suppliers. We moved into RFID (radio frequency identification) for tracking many of our goods.

Technology is very expensive, so Wal-Mart was never the first one to acquire a technology. But we were often the first to use it on a large scale. Technology continues to be a vital factor in the operation and the future of Wal-Mart. Looking ahead, I am certain there is new technology coming on that will continue to change the way Wal-Mart does business.

When I visited Wal-Mart headquarters a couple of years ago, I saw the incredible automated warehouse system you have, where goods from vendors arrive at one end of the warehouse, and boxes are loaded onto trucks for delivery to the various stores in the region, almost without anyone touching them. Someone told me that this whole process from unload to load might mean that a box is in the warehouse about 30 minutes. How did this system come about and when was it implemented?

The first warehouses went in early in the 1970s before I arrived. They were born out of necessity, since Wal-Mart stores were in rural areas, and it would have been difficult to accommodate all of the trucks from different vendors that would have been needed to come to each store individually. Inventory costs money, and so do empty shelves. So Wal-Mart continued to develop improved warehouse capability to reduce our costs, simplify the job of our suppliers, and make goods available to the customers. We became very good at measuring and tracking everything, and this was a very important component in the profitable growth of Wal-Mart.

I also observed that the computer center seemed to be better protected than the headquarters building itself, with jersey barriers making it difficult to get even close to the building. That seemed to be a symbol of how important technology is to Wal-Mart.

After the terrorist attacks, we had to take extra precaution. As a company, we depend on the technology for our operations.

Looking Ahead

What are your hopes for the future of Wal-Mart?

As the company continues to grow, whether domestically or in the international arena, it can always find new and better ways to do what it has always done: Save our customers money so they can live better. I hope Wal-Mart never takes its eye off of satisfying the needs of every single customer. I also hope that Wal-Mart will never forget what made the company great — our people and our culture.

What about today? Tell us a bit about the Soderquist Center.

I am currently doing a great deal of outside speaking and am an executive in residence at the Soderquist Center at John Brown University. The center provides a values-based approach to leadership, organizational and team development. We recognize that leaders who operate from a foundation of high ethical standards are key to an organization’s profitability and sustainability. The center partners with organizations to help them with redefining their vision and value, developing their high-potential leaders, working with generational issues, succeeding with change management, succession planning and facing various other current leadership challenges. All programs are customized to meet the specific needs of each organization we serve. I am really excited about the significant impact we have had on the lives both of individuals and organizations. You can learn more about the center at www.soderquist.org.

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