Eating Wal-Mart's Lunch

Some headlines that many might find unsavory plagued retail giant Wal-Mart (NYSE: WMT) earlier this week. According to allegations waged in court in California, Wal-Mart bilked its employees out of the unpaid lunch breaks they were entitled to under that state's laws -- paltry half hour that those required breaks may have been. But wait a minute, you say. Shareholders (gulp) require that companies save money and make profits, and sometimes that stands squarely in opposition of some employee benefits.

Should investors throw up their hands and dismiss a story like this because of what could be called the natural antithesis between the concepts of happy employees and happy shareholders, particularly in the retail universe?

After all, some argue that Motley Fool Stock Advisor pick Costco (Nasdaq: COST) hinders its own growth because of what might be described as an "excessive" interest in the welfare of its employees. That has caused pressure on its profit margins, and it's the reason why Wall Street and some investors have, at times, punished the stock.

Regardless, I'd argue that treating one's employees with respect and fairness doesn't have to be a drain of resources or a drag on profitability -- in fact, it can better the outlook for a company by a long shot, and not simply in terms of generating good PR. One well-known powerhouse, Whole Foods Market (Nasdaq: WFMI), jumped out at me as an example.

In Whole Foods' proxy statement (available for free from the SEC), it states: "We have a company philosophy of 'shared fate' which recognizes there is a community of interest among all our stakeholders... . We believe that happy Team Members create happy customers who grow our business and produce happy shareholders." Among the innovative ways the company does this is by providing transparency of pay scale so that all employees know what everyone else makes, and by granting stock options to employees across the board -- not just to executives. It also caps the amount executives can make over and above regular employees.

Another company that springs to mind is Starbucks (Nasdaq: SBUX). The coffee powerhouse is known for treating its employees with great respect, providing many with generous health insurance, stock plans, and other perks that many similar companies cut corners on.

Whole Foods and Starbucks are both prime examples of companies that made some socially responsible elements part of their impressive financial success. Both are known for their happy customers and happy employees, and it's arguable that people feel good about frequenting them -- and investing in them -- for these reasons.

It's OK if some of us say, "Shame on Wal-Mart" (although just as many may defend its practices, arguing that it often provides much-needed jobs in the first place). In this day and age, where more and more people realize that investing is a way to put their dollars to work for them, more and more people also realize that being a shareholder means a company is accountable to them. In that vein, it seems that many shareholders are going to begin to expect certain ethics that makes them feel at ease with their investments.

This is by no means the first time Wal-Mart has found itself in hot water because of the way it treats its employees. On the other hand, Wal-Mart deserves credit for guranteeing all Wal-Mart employees displaced by Hurricane Katrina a job in any Wal-Mart store in the country.

The thing to remember is these days, there are plenty of alternatives for investors' dollars, some of which may fulfill a more socially progressive angle.

For more on similar issues, such as Wal-Mart's track record or socially responsible investing, please see the following Foolish content:

• A Better Portfolio, A Better World, by David Gardner
• Does Wal-Mart Deserve to Be Hated? by Stephen Simpson
• Wal-Mart's Bum Rap, by Chris Mallon

Costco is a Motley Fool Stock Advisor pick. To find out what other companies have been singled out by David and Tom Gardner, please click here for a 30-day free trial.