March 01, 2012

Interview: Phyllis Harris

Milo Mason

Phyllis Harris is the Senior Vice President and Chief Compliance Officer for Wal-Mart Stores, Inc. Ms. Harris leads an interdisciplinary team of compliance professionals who identify, mitigate, and monitor the operational compliance risks for domestic business divisions. Previously, she served as Wal-Mart’s Vice President for Environmental Health and Safety Compliance and was responsible for developing and overseeing environmental compliance programs.

Prior to Wal-Mart, Ms. Harris served as the Deputy Assistant Administrator for the U.S. Environmental Protection Agency in Washington, D.C., where she was responsible for leading the nation’s environmental enforcement and compliance assurance programs. In 2001, Ms. Harris was the recipient of the Presidential Rank Award by President George W. Bush for sustained leadership and performance.

NR&E: Hi. Thank you for this interview, Phyllis. How did you arrive at Wal-Mart?

Harris: I had been with EPA for almost 20 years. I moved from Atlanta to Washington, D.C. in 2002 to become the deputy assistant administrator. In 2004, the assistant administrator J.P. Suarez left EPA to become the general counsel for Sam’s Club. Shortly after his arrival at Sam’s Club, he asked me if I would consider coming to work for Wal-Mart. It took me about 10 months to even go to Bentonville to visit. However, when I got there I really liked everything about it. Suarez said, “You’re not coming for an interview. I just want you to meet some people.” When I got there he said, “The first person I want you to meet is Mike Duke.” The meeting with Mike Duke was an hour long. Mike Duke, at that time, was the CEO of Wal-Mart Stores. In our conversation, he spoke of the three basic beliefs of our company: respect for the individual, striving for excellence, and customer service. He was just so sincere about those things and, in particular, respect for the individual. He really was concerned about my family. He insisted that my entire clan come to Bentonville before a decision was made. Wal-Mart’s values were not that different from those values that I had come to appreciate in federal service. At the end of the day, it wasn’t a hard transition from government service.

NR&E: You’re the chief compliance officer for Wal-Mart?

Harris: Yes, I am the chief compliance officer. However, when I got to the company I was asked to take on a role to learn the company, and that was as a senior director for asset protection, which was a position where I was overseeing shoplifting issues and the security of company assets for the stores and facilities in the southeast. About six months later, I was promoted to vice president of environmental compliance. At that time it was something quite new to have a vice president with this role at any retailer. The program began with myself and a couple other staff people. The team eventually grew to more than 40 associates.

NR&E: How long did that take?

Harris: Assembling a team and understanding the legal obligations did not take that long. The more complicated tasks are around operational execution.

NR&E: You spent a significant portion of your career at EPA. How did that prepare you for addressing compliance and environmental matters at one of the largest regulated companies in the world?

Harris: It prepared me well actually. My entire career at EPA was in compliance. I started in Superfund doing PRP searches and enforcing against parties at abandoned waste sites, and then eventually to regional counsel for the Atlanta office and responsible for all of the enforcement compliance in Atlanta. As I stated earlier, I moved to D.C. and was the senior career official for compliance. So my experiences gave me several perspectives. First, I came with a mindset of understanding what regulators want to see, how they want companies to behave, and what their expectations are. Second, I left EPA in a place where I had some good relationships. I had people there who I could still talk with and people who respected me and whom I respected. And third, I understood overall what a compliance program should look like because I signed hundreds of compliance agreements as deputy assistant administrator. I was very familiar with what an effective program needed to have. So it was a matter of flipping the switch and thinking in terms of, what would EPA want, and that’s where we wanted to go.

NR&E: Are most of Wal-Mart’s compliance issues just with EPA, or are there a lot more issues being regulated by others—local, state, etc.?

Harris: We’re located in 50 states and Puerto Rico, so we seek to build programs that we know will meet all of the federal requirements, and then we layer on top of that the more stringent state requirements—which, as you can imagine, is a huge task because states can and should have the ability to have more stringent standards, and we understand that. Last year we had more than 2,800 inspections by various federal and state agencies on environmental issues.

NR&E: Retailers are subject to an increasing number of regulations affecting not only their operations but also the products they sell. What are the challenges of environmental compliance issues facing retailers today?

Harris: I think the number one challenge would be meeting the obligations of the Resource Conservation and Recovery Act. First of all it’s a statute that was enacted almost 30 years ago. At that time, the state of the environment was such that we were putting in some very foundational environmental expectations for chemical plants, oil refineries, and manufacturing facilities. No one envisioned a retail store. The regulations were designed for very sophisticated facilities that must manage a few very hazardous waste streams. In contrast, the retailer is managing thousands of consumer products as hazardous waste streams and must train thousands of associates to understand a very complicated regulatory framework. Wal-Mart has more than a million associates in the United States. And so when we look at what the regulations entail under RCRA for the retailer, it is extremely difficult to be 100 percent compliant every day. However, that is our goal day in and day out. We teach more than a million associates every year how to manage consumer products as a hazardous waste in a commercial setting. Associates are taught to characterize the waste, to segregate it, to store it in the manner in which it should be stored under RCRA. Yet, these same regulations allow these very same materials to be thrown away in the trash can at home. The statute has not, in my mind, lived up to the intent of the statute: Resource Recovery and Resource Conservation. The regulations are not very helpful in providing incentives for retailers to recycle and to have sustainable materials management. For example, take the aerosol can. If it’s a hazardous waste, you can’t put it on a truck to send it to a facility to recycle it—because putting it on a truck would require that truck to have a hazardous waste DOT license, which is not something any retailer would do. So you miss the opportunity to extract the fluids for viable purposes and to take the empty can and recycle it. The regulations have not been looked at very hard in terms of really promoting sustainable materials management, and certainly that’s counterproductive to Wal-Mart because of all of the things that we do around sustainability, and I think for most retailers as well.

NR&E: What kind of incentives would be needed?

Harris: Perhaps looking at some of the regulatory framework that we have for colleges and universities where environmental management is the goal in a less burdensome way. It’s not that the materials are not handled in an environmentally sound manner, but some of the burdens are not the same as if you are managing materials in an industrial setting or a manufacturing facility. So, for example, perhaps look at consumer products as a universal waste that would not have all of the requirements for fully regulated hazardous wastes. I think some of those materials could possibly be managed in a more sustainable way rather than just defaulting to a subtitle C landfill.

NR&E: Is Wal-Mart having trouble complying with all these regulations?

Harris: We’re not having trouble. We comply. We don’t have difficulty. We have hired some incredible talent from several state agencies, as well as EPA, so we consider ourselves far beyond most of our competitors in our programs.

NR&E: My question is if Wal-Mart were having difficulty with RCRA, how does a main street retailer comply? I guess it’s a lot to do with education about what to do with each piece of waste?

Harris: I would say that’s the case. We have very environmentally aware associates. I’m positive that the training that we provide, in combination with standard operating procedures and job aids, has put us in a good place in terms of compliance.

NR&E: What do you do in that regard? They now know not to dump?

Harris: Of course they understand how to manage these materials. They now know. I think the greatest degree of satisfaction that I’ve had in this position is seeing the transformation of our associates who really understand these obligations and making wholesale changes in their own personal lives because of what they’re having to do day in and day out in the stores.

NR&E: How does the size and scope of Wal-Mart’s operation impact your environmental compliance? Can you gain more efficiencies? Or is it as hard as an aircraft carrier to turn?

Harris: That’s actually a fairly good analogy. I think it makes you a lot more strategic about the logistical aspects of change. The issue may be as simple as cutting a step out of a process. To cut out that extra step means we’ve got to figure out: retraining, new standard operating procedures, and job aids. You have to think logistically and understand that whatever that process change is, it’s going to take some degree of time before we begin to see the results of the change. We have some very, very sophisticated ways that we audit and assess how well the change is taking effect. When I see that a regulation is changing, the first thing we’re thinking through is: How do we do this? How do we do that? We’re mapping it out because we’ve got to hit 4,200 stores, and they’re not all the same formats.

NR&E: And what causes compliance? Why does a company comply?

Harris: I can only speak for my company. I think we comply because it’s the right thing to do. That’s the obligation; that’s the responsibility that you have for being a corporate citizen. I’m not saying we’re perfect by any stretch of the imagination, but I like to say we do strive every day for excellence. We want to be better. I came to the company very consciously looking, number one, to hire great talent to help us and get where we wanted to go, and we hired some great people from various environmental regulatory agencies. We hired individuals who were enforcers at their agencies. Because we were all former regulators, we understood clearly that “we comply with the law; we’re going to do the right thing; do it better than any other retailer.” We might look for ways to do it more efficiently, but not complying has never been an option.

NR&E: I thought your first answer to the question would be: “What causes compliance would be to hire a good compliance officer, but . . .”

Harris: Well that goes without saying.

NR&E: (Laughing) No, I’m being serious. What best causes compliance? Regulators need to know how you can get it. Some companies do want to comply or have that ethic of compliance, which it sounds like Wal-Mart has. But how does that come about?

Harris: It’s interesting. If I had to look at other companies, I think the talent matters a lot. Wal-Mart’s decision to hire the best talent has made the difference and signaled to regulators that we were taking the issue of compliance very seriously. Our talent is across the board in all of our areas of compliance. We have, I think, some of the best people in areas such as food safety, product safety, and financial services. The list goes on and on of the things that we have to comply with. But, I think it starts with hiring the best talent and the best cadre of people who have integrity, because at the end of the day compliance is doing the right thing every day.

NR&E: So it’s not the carrot or the stick that causes compliance in the retail industry?

Harris: I think that for any company there is a healthy dose of stick. You have to have accountability. You have to set forth some very clear expectations, and you have to make tough decisions when necessary around those expectations when people don’t do what they should do within the organization.

NR&E: Does Wal-Mart have a chief compliance officer for every store, or how does it work?

Harris: In my view, to have an effective compliance program, while you may not need a chief compliance officer for a store, you certainly have to have people who have specific roles and responsibilities, and those roles and responsibilities are in their positions, and they’re held accountable to those.

NR&E: So you don’t just send out memos from northern Arkansas?

Harris: No, we train. And we have associates who are responsible for executing in alignment with standard operating procedures. We establish performance standards and hold them accountable to them. And certainly, this is what I would hope most people in this area would do.

NR&E: How do sustainability and environmental compliance relate to one another?

Harris: I’d like to say that compliance is the foundation. It’s what everything else is built upon. You have to have that down, and then from there you build sustainability because in many respects, sustainability is about going beyond compliance. Most states don’t require you to do these initiatives that we undertake. We undertake these initiatives because we know it’s the right thing to do. But regulators do require and expect us to be compliant. However, fundamentally, compliance is the foundation and sustainability builds from there.

NR&E: Consumer attitudes toward environmental compliance and sustainability. Has that changed over the years?

Harris: I think that our customers expect our company to be a good corporate citizen. I think they want sustainable products. They would like not to pay a whole lot for them because our customers are families who are trying to get their kids through school; some of them may have lost their jobs in this economy, and they’d like to buy the CFL light bulb. They’d like to buy organic food. They’d like to buy all these things, but they want them at prices that meet their budgets. We hope that’s the value proposition that we can provide for them. In terms of compliance, I think most consumers, they really don’t think about it. I think that for most of them the store’s open, it’s been permitted; that means that you’re doing everything you need to do to have an operating store that complies with the local, state, and federal laws.

NR&E: Or it wouldn’t be there.

Harris: Or it wouldn’t be there.

NR&E: Does each Wal-Mart participate in Earth Day celebrations and awareness and community action?

Harris: Of course.

NR&E: Is the recent push toward green in the retail industry simply a reaction to changes in consumer demands, or is there more to it?

Harris: I think there’s some reaction to consumer demands, but again it kind of goes back to what I just said. I think our consumers, what they demand from us is they want to see the proposition that we’ve laid out, which is to save money so that they can live better. The cool thing about green products is that it is another way for people to live better. But at the end of the day, they want to live better and take those extra savings and go on the vacation they may not otherwise get or do something special for the family. So, at the end of the day we want to be everything to all of our customers, and we want to provide them with products that are green or sustainable, and hopefully we’re doing that at the lowest price.

NR&E: So the next question is how does Wal-Mart define sustainability? Do you crank out ISO 14000 memos every day?

Harris: No, we would not crank those out. But I think we would say that sustainability is about lessening the impacts that we have on the environment, on people. We also do this through the supply chain. We have tools such as the supplier sustainability and assessment tool where we ask a series of questions around issues such as materials management and energy usage. I think the incredible thing about Wal-Mart is the relationship that we have with the supply chain. We have more than 100,000 suppliers who understand that this is important to us, and real change will come as we work to make our supply chain more sustainable. And we know that’s necessary in order to really turn the ship.

NR&E: And how do you do that?

Harris: I think, for example, one of the great examples of how we can work with our suppliers to make a difference is the simple liquid laundry detergent. Through our partnership with Unilever, we were able to get All’s concentrated laundry detergent “Small & Mighty” on the shelves. From there we began to talk to other key suppliers while setting aggressive goals. By May 2010 the only liquid detergent that we were carrying was concentrated. The results are reductions in water usage, in packaging, and lower transportation costs.

NR&E: And the consumer doesn’t have to lug all that water in unconcentrated detergent up and down stairs or to the Laundromat. Sweet.

Harris: As the mother of three, concentrated laundry detergent has really helped me.

NR&E: Those are small steps. They’re important, and that’s not a small one probably.

Harris: No, that was huge.

NR&E: For as big as an operation and as much packaging as Wal-Mart and the retailers of America have to deal with . . .

Harris: Those are the constant conversations that we’re having with our supply chain.

NR&E: And you’re having more and more of those?

Harris: Yes.

NR&E: What sustainability goals has Wal-Mart set for itself?

Harris: The first goal is to be supplied 100 percent by renewable energy. The second goal (and these are very aspirational in that we are continuously working in this direction) is to create zero waste. The third goal is to sell products that sustain people and the environment. In California last May, we announced that we had reached a goal of reducing solid waste in landfills by 80 percent. Looking at our transportation fleet, and a base year of 2005, we’ve become 65 percent more efficient. When I think back on my days at EPA when we would have these conversations about sustainability with companies, there were some of us who were thinking “What are you going to get out of it at the end of the day?” However, for Wal-Mart it’s good for the environment and makes good business sense. We have realized incredible savings that we can plow back into lowering costs to, in turn, pass those savings along to our customers.

NR&E: As part of the “ saving people money so they can live better”?

Harris: You got it!

NR&E: Has the company reconciled its sustainability efforts and definitions with the policies of its suppliers who may or may not have the same definition regarding sustainability? Do you have a sustainability requirement for those suppliers or at least a checklist toward ISO 14000s?

Harris: It goes back to the supplier sustainability assessment. We have great supplier partners who also understand that sustainability is good for the environment and good for business.

NR&E: Do you visit factories in China?

Harris: Yes we do. In 2008, our CEO, Mike Duke, met with more than 10,000 suppliers in China. He laid out expectations for the supply chain. Number one, that the factories that manufactured goods that would be coming to Wal-Mart must comply with local environmental laws and regulations. We have an Ethical Sourcing Team that is charged with auditing factories including factories in China.

NR&E: And is there an ISO 14000 checklist that they have to deal with or just your own?

Harris: We have our own assessment process.

NR&E: What kind of effect on Wal-Mart’s bottom line have these compliance and sustainability efforts made?

Harris: Think about this: Just last year, one year, we were able to document savings of $500 million in and around energy saving just through sustainable transportation practices. Wal-Mart sets very specific goals around efficiency, particularly in an environment and an economy where fuel costs are rising. So it could be something as simple as just figuring out how to reduce the number of times you’re going back and forth to the store. Packaging is important because if you can make things smaller you can get more on the truck and you don’t have to make so many trips. Our trucks have become much more efficient over the past several years. But I think fundamentally we have some really, really smart people who understand logistics and supply chain dynamics very well—our initiative around supplying through local farmers, for example. There used to be a time that you would get your vegetables from California to stock in a store in Arkansas. However, once we started establishing relationships with the local farmers, we found that we could source from the farm that is two hours away versus trying to source from California.

Another example would be the “Super Sandwich Bale,” where we recycle all plastics and cardboard. This effort alone has resulted in substantial savings that leads directly to helping reduce our costs so that we can lower prices for our customers.

NR&E: The savings can add up pretty quickly.

Harris: The savings do add up quickly. For Wal-Mart, it’s a winning proposition because it adds to the bottom line.

NR&E: Do you have any thoughts about your role or Wal-Mart’s role in the next five, ten, twenty years?

Harris: I think our CEO has spoken very thoughtfully about the notion of a next generation of Wal-Mart and aligning brick and mortar with e-commerce, taking advantage of our size, and doing good things such as sustainability. At the end of the day, we are just doing what’s right. I’m incredibly proud to work for Wal-Mart. I feel really honored to have the position that I have as chief compliance officer because it’s a company that cares about its obligations, it cares about its associates, it cares about the communities that we operate in. I just feel like I’m really lucky.

NR&E: Thank you, Phyllis.

Harris: Thank you. I appreciate it.

Milo Mason