Goal IX Newsletter

Fall 2004, Volume 10, Number 4

Wal-Mart Legal Department Diversity: by Thomas Mars

Thomas Mars

Due to the enthusiastic response to Mr. Mars speech, delivered to the members of the Minority Counsel Program on September 30, 2004, we are publishing the text here for others to read.

It’s great to be here in Chicago, where soon we hope to build Wal-Mart stores that will offer great values at the lowest prices to all the residents of this thriving metropolitan area. If you’ve been reading the papers lately, you probably noticed, however, that our entry into this market has not been as smooth or as easy as we had hoped for. The same could be said about our expansion plans in California.

For years, Wal-Mart believed that it could keep a low profile and that the Company would be better off not talking about the details of our business and just doing the right thing. More recently, however, it’s become evident that by not telling our story, we’ve allowed others to define our reputation in the media. Indeed, as we confront opposition to expansion in new markets, it’s become increasingly clear that we need to do a better job of telling our story and setting the record straight when our antagonists have distorted the truth.

We’ve also come to realize how important it is to be visible at events like this one and to be open about some of our successes - as well as our challenges. So, tonight, we’re pleased to have the opportunity to speak with you about our Company and to share with you some things about Wal-Mart that you won’t see in the newspapers. Don’t get the wrong idea, however. We’re here to share some of our experiences in the area of diversity - not to blow our own horn or debate the economic benefits of Wal-Marts being built in Chicago or elsewhere.

But we can’t talk about diversity from the Wal-Mart perspective without providing a little background about Wal-Mart, its culture, and what makes our Company - and our Legal Department - truly unique. So, if you’ll indulge me for just a few minutes, I’ll try to set the stage to explain what we’ve been doing lately to build and maintain a bigger, more diverse, and more inclusive Legal Department.

The Wal-Mart story began in 1962 with one store in Rogers, Arkansas, and one man’s vision of a new approach to discount retailing. After years of studying the discount retail business, Sam Walton started Wal-Mart based on the philosophy that, by keeping costs to a minimum and selling merchandise at the lowest prices, Wal-Mart could become a successful community business leader in small towns all across America. The same year that Mr. Sam opened the first Wal-Mart store with that strategy in mind, the founders of Kmart, Woolco and Target opened their first stores - but all of them had a very different business plan. It wasn’t long before Kmart had 250 stores compared to Wal-Mart’s 19. But over time, Sam Walton grew Wal-Mart one store at a time, took the company public in 1970, and kept on using his simple business strategy to expand Wal-Mart’s reach beyond the mid-South. By the end of the 1980’s Wal-Mart had stores in twenty five states and was reporting annual sales of more than $25 billion.

As you can imagine, Wal-Mart went through a lot of change in those years. Throughout this period of growth, however, some things remained constant. First, Sam Walton never lost sight of the importance of maintaining a strong corporate culture based on three core principles: (1) service to the customer; (2) striving for excellence; and (3) respect for the individual. Years later, these three core principles are still the cornerstones of Wal-Mart’s culture. Second, even after posting one billion dollars in profits, Mr. Sam and his management team continued to control expenses more so than the competition, always sleeping two to a room when traveling and walking when possible instead of taking cabs. Third, even after Wal-Mart’s workforce had expanded to cover almost half the nation, Mr. Walton continued to visit stores every week and talk to the Company’s Associates about what was selling and what wasn’t. Today, these practices are still in place, and the Company’s culture is still based on Mr. Sam’s three core principles.

Shortly before his death in 1992, Mr. Sam received the Presidential Medal of Freedom - the nation’s highest civilian honor. President Bush described him as a visionary with a unique concern for his employees and a commitment to communities. By that time in our Company‘s history, Wal-Mart had passed K-Mart and Sears to become the nation’s largest retailer, reporting annual sales of around $43 billion, with more than 1,700 stores in 40 plus states.

That was more than ten years ago. Despite predictions by our critics that Wal-Mart would reach a plateau upon the death of the Company’s founder, Wal-Mart has grown over the last ten years to become the largest and one of the most visible companies in America. In 2001, Wal-Mart topped the Fortune list for the first time with $219 billion in sales, placing it ahead of Exxon, General Motors and Ford Motor Company. Wal-Mart continued to grow its sales in recent years, reaching $256.3 billion in 2003.

To provide some context for what our Company requires in legal support, let me share with you some other business data points on Wal-Mart:

  • Wal-Mart has roughly 1.5 employees around the world.
  • Wal-Mart serves more than 130 million customers a week in more than 3,600 multi-format units in the US, plus more than 1,500 additional units in England, Scotland, Germany, Canada, Brazil, Argentina, China, Japan and Korea.
  • Last year, Wal-Mart processed about 5 billion cases of merchandise through 108 Distribution Centers in the US.
  • Wal-Mart has commercial relationships with more than 16,000 suppliers around the globe.
  • Today, Wal-Mart’s technology system has 455 terabytes of data - almost five times the amount of data in the print collection of the Library of Congress.

Against this background, it’s quite obvious that there is plenty of legal work to do at Wal-Mart. To put it in the Arkansas vernacular, we have more poured out that we can smooth over on any given day.

What’s more, when I joined Wal-Mart in 2002, the Company was a defendant in more than 6,000 lawsuits. Although the total number of cases has been reduced, and cycle times are down in tort, commercial and employment litigation, we still manage one of the heaviest caseloads in America -- perhaps the heaviest when one considers the roughly seventy putative class actions in which we are defendants.

In 2002, when considering how to implement sweeping changes in the Wal-Mart Legal Department, we engaged outside consultants, benchmarked with DuPont and other companies, and studied all the established models that leading corporate legal departments had followed in the areas of diversity, department structure, and relationships with outside counsel. In some areas, such as outside counsel convergence, we eventually concluded that what had worked well for other companies was not likely to work for Wal-Mart - simply because of the sheer size and scope or our highly decentralized global operations. In other areas such as diversity and recruiting, however, we gained a valuable head start by learning from the experiences of other corporate legal departments. In the final analysis, we settled on a simple plan to build a bigger, better and more diverse Legal Department capable of handling an unprecedented volume of complex legal work for the world‘s largest company.

In hindsight, there are some things we should have done differently and could have done better. (At Wal-Mart, we call those “opportunities.”) But under the difficult circumstances we faced, we feel pretty good about how far we’ve come in a very short time.

When we started this makeover in 2002, Wal-Mart had about 50 in-house lawyers in Bentonville. Although we had some very talented lawyers in the department, very few of them were minorities. None of the senior leadership positions in the department were occupied by minorities or women.

Today, we have 116 lawyers in Bentonville. In addition, there are 138 lawyers in the Wal-Mart legal departments that support our International retail operations in the countries I mentioned earlier. Altogether, we therefore have more than 250 in-house lawyers working in ten countries on three different continents.

Of the nine Division General Counsels who form my direct report group in the Home Office, two are women, two are Hispanic, and one is African American. Two of our Division General Counsels were presidential appointees before joining Wal-Mart, one was a General Counsel for the Latin American operations of a prominent multi-national company, and the rest come from different - but equally impressive - backgrounds in government or private practice.

Ignoring for the moment the incredible range of diversity that exists in our foreign legal departments, our US legal department ranges from 15 to 20 percent minority representation among the attorney group, with 35 to 40 percent of the attorneys being women. Within those groups, we’ve worked hard to make sure that minorities and women hold key Associate General Counsel positions - placing them in line for promotion to GC-Vice President positions in the department. Moreover, in the last year or so, the Legal Department has become a recruiting pool for the business and business support units, allowing minority attorneys, among others, to leave the legal department, gain valuable business experience and later return to the department in a more senior position.

A number of other lawyers (including minorities) have left the Legal Department and have advanced to senior positions in other areas of our business. A good example is Charlyn Porter, the Senior Vice President who heads up the Wal-Mart Office of Diversity. Charlyn started her Wal-Mart career in the Legal Department, then worked in the US operations division, and now holds one of the most important Senior Vice President positions in our Company.

In the past two and a half years, we’ve hired more than 70 lawyers to work in Wal-Mart’s US Legal Department in Bentonville. In addition, we’ve hired a number of new lawyers to work in our legal departments in Asia and South America. Most of our new attorneys in the US have come from places like Los Angeles, Washington DC, New Jersey, Florida, Detroit, Chicago, and my birthplace - New York. I’m proud to say that all of these new hires were pre-screened using rigorous academic and professional experience standards that meet or exceed the standards of the biggest firms in the country. Although we could have hired more lawyers than we did, we rejected a number of highly qualified candidates because they appeared to lack the people skills that are so important to success in our Company.

I hope it doesn’t sound like an excuse to say we could have done even better if our Home Office were not located in Bentonville, Arkansas. But the truth of the matter is that we missed some outstanding minority candidates simply because the environment in Northwest Arkansas requires a considerable adjustment for urban dwellers. On the other hand, for those who are interested in a more rural lifestyle, with a few urban amenities like our new Starbucks, the move to Northwest Arkansas can be a very positive one. At any rate, today we have a large group of former city dwellers who are very glad they made the move to Bentonville, where the air is clean, crime is low, the schools are safe, and the commute to work averages about ten minutes.

It’s often been said that creating a good diversity record is a process, and we would agree with that. For us, that process has really just begun. Considering what we’ve learned in the last two years, we fully expect to establish an even better diversity record in 2005.

In case you are with a firm or company that wants to improve your diversity record, let me share with you what it took for us to achieve the progress I‘ve described:

  • Defined Diversity Broadly. Wal-Mart defines diversity broadly to include minorities, women, and differences in culture and lifestyle.
  • Networking. We established mutually supportive relationships with the MCCA, the HNBA, NAPBA, the NBA and other organizations that promote diversity in the legal profession. Not only do we contribute financially to these organizations in significant amounts, but we make sure our attorneys - both junior and senior - are actively involved in these organizations.
  • Compensation. To hire the best people, we had to adjust our compensation to be competitive on a national basis. In a company where the operations executives still stay two in a room at the LaQuinta on store visits, we were nervous about proposing such sweeping changes in attorney compensation. After all, our Company’s success was built on rigorous expense control. However, our CEO fully understood the importance of competitive compensation in recruiting the best lawyers and didn’t hesitate to budget the funds we needed.
  • Search Firms. We used several search firms, some on a retained basis, to locate and help us hire attorneys in certain specialty areas. We required those search firms to present minority candidates for those positions.
  • Set Recruiting Goals for Division General Counsels. All of my direct reports have monthly recruiting goals that involve attending events that promote diversity and networking with legal minority organizations. We discuss their progress in diversity recruiting at our weekly direct report meeting.
  • Established a Link Between Officer Compensation and Diversity Goals. The compensation of all Wal-Mart officers is tied to the accomplishment of certain diversity goals. That, of course, includes the officers in the Legal Department.
  • Placed Greater Emphasis on Diversity in Selecting Outside Counsel. Today, we use more than 400 law firms in the US. Like many companies, we are in the process of reducing the number of firms we use and being more thoughtful about how we can achieve efficiencies with preferred providers. As we establish a network of preferred law firms in all fifty states and a corresponding network of specialty firms, we have made selection decisions in some states - and with respect to some specialty firms - based entirely on a firm’s commitment to diversity. We are monitoring law firms’ commitment to diversity at a number of levels and constantly communicating with those firms about the importance of diversity in their relationship with Wal-Mart.
  • Provided Diversity and Inclusiveness Training to all General Counsels. All ten officers in the Legal Department have gone through a full day of outside training in diversity and inclusiveness.
  • Placed Minority and Female Attorneys in Structured Leadership Development Programs. We have placed several minority and female attorneys in outside leadership development programs. Tom Evans, an African-American who is the GC of our Logistics Division, is currently enrolled in the Company’s most prestigious leadership school, a course that is reserved for Vice Presidents and Senior Vice Presidents who have been identified as having high potential for advancement.
  • Implemented New Training for Lawyers on Wal-Mart’s Business. All Wal-Mart lawyers are encouraged to learn the business outside their practice area. Just recently, we put all 116 of our attorneys in Bentonville through a training course to teach them the finer points of our business strategies and culture.
  • Created Opportunities for US Lawyers to Work Abroad. Wal-Mart has always believed in cross-training its Associates as part of their development. That’s also true for our lawyers. It’s quite common for a lawyer to spend a year or so in litigation, for example, and then move to one of the Divisions in Legal that supports operations. In addition, lawyers from our foreign legal departments visit Bentonville frequently to share best practices with our US lawyers. Beyond sharing best practices on our home turf, we have sent US Wal-Mart lawyers to Japan for as long as three months to assist with expansion plans and developing legal support for our Seiyu stores. Last year, we also sent a Bentonville-based lawyer and his family to England for eleven months to work with our colleagues at ASDA House in Leeds - the Home Office for our UK operations.
  • Mentoring. All ten Legal Department officers mentor three other Associates as part of a structured mentoring program. In addition, all of our attorneys are encouraged to develop mentoring relationships - both in the Legal Department and outside of Legal.

We’re hoping to fill another 30 attorney positions in Bentonville in the next year. Quite frankly, we don’t think we’ll have much difficulty finding the right people with impressive credentials, even though we intend to set the bar higher than it was set two years ago.

As we continue to learn from our experiences - and we take advantage of opportunities for us to improve -- we hope you’ll start to think about Wal-Mart as an emerging leader and change agent in the advancement of diversity in the legal profession. We’re committed, so we invite you to watch our legal department as we work to improve our diversity record and to become an example for law firms and other corporate legal departments that don’t yet understand the importance of increasing opportunities for the advancement of minority lawyers.

Before I sit down, I’d like to say thank you to the MCCA, the HNBA, NAPBA, the NBA and, in particular, Mr. Lloyd Johnson, for helping us in so many ways as we worked on improving our diversity record in the past two and a half years. I’ll always be grateful to Mr. Johnson and the leaders of all those great organizations for their invaluable advice about diversity, for believing in us when we reached out for help, and for their enthusiastic encouragement as we set out to build a bigger, more diverse, and more inclusive Legal Department at Wal-Mart.

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