Black Friday, Unions, and Stakeholder Value

It’s time to rethink what value really means, in investing and in life.

Alyce Lomax
Alyce Lomax
Nov 21, 2012 at 3:02PM
Consumer Goods

This year, we've been given some food for thought to go with our Thanksgiving feasts. Even as big-box companies like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) are stirring up controversy by starting up the holiday shopping frenzy on Thanksgiving Day instead of the traditional Black Friday kick-off, some Wal-Mart workers are threatening to strike, with a little nudging and support from a union-backed group.

This controversy is about more than unions versus big corporations. It's the perfect time to think about stakeholder value -- which takes employees and suppliers into account as well as shareholders -- and how shareholders can adjust their thinking about corporate cost structures and management priorities.

The Twinkie offense
Unions have been top of mind given the recent Hostess controversy, which involved a nationwide strike after the company's management sought to cut costs at the expense of workers' pay and benefits.

Granted, unionization wasn't the only culprit in the Hostess debacle. Consider changing perceptions of healthy fare, high sugar prices, and allegations that management, which wasn't even comprised of "true bakery operators," took sweet, lucrative pay deals even while fighting worker's demands. Last but not least, this isn't even the first time Hostess has struggled with insolvency; it's been stale for a while.

In this case, though, we can at least address one fatal flaw of unions: When a company's in bad enough shape, strikes over cost containment only hasten companies' demises, and end up generating nothing but pink slips, which can't really be defined as "progress" or "pro-worker." (In fact, the Hostess situation could threaten nearly 19,000 jobs.) After all, there's a point when economic reality intervenes. Companies can -- and do -- go bankrupt.

If anything, the Hostess situation probably points out that one very important set of stakeholders -- companies' workers -- are in double jeopardy if they are at the mercy of greedy management, overly zealous unions, or heaven forbid, some poisonous combination of both.

Wal-Mart's "no-can-do" attitude on workers
That dramatic and well-publicized skirmish between unions and corporate America brings us to the next high-profile labor news, just in time for the holidays: the Black Friday protests against Wal-Mart organized by a union-backed group, OUR Wal-Mart.

Although Wal-Mart isn't unionized, some workers plan to protest anyway. These actions aren't simply due to the fact that some Wal-Mart workers will have to work on Thanksgiving, although the timing certainly lines up as a proverbial "last straw," perhaps, not to mention a perfect time for publicity. Other grievances include low wages, lack of affordable health care, and low hours.

Apparently Wal-Mart's taking this threat so seriously that it has filed a complaint with the National Labor Relations Board, a step it hasn't felt compelled to take in a decade.

As much as union demands can be completely unrealistic -- recall that the unholy alliance between demanding unions and overpaid management at old General Motors led to that company's financial downfall -- Wal-Mart richly deserves the criticism.

Wal-Mart has been struggling to give its sales and profits more pizzazz. However, its market cap is $231 billion, and it generated $464.41 billion in annual sales in the last 12 months. Although Wall Street analysts and short-term traders may be looking for more "wow" from Wal-Mart lately, the truth is, Wal-Mart is a stalwart and a profitable company. It's hardly struggling for survival.

Along those lines, though, of Wal-Mart's greatest competitive achievements -- like low prices -- may be one of its lowest moments. Its rock-bottom prices often come at the expense of worker and supplier financial well-being. One would think a company as powerful as Wal-Mart could treat its workers better. Like many other companies, it simply chooses not to make that kind of innovation a priority.

Fringe benefits for all stakeholders
Right now, retailers that treat workers well are relatively rare, but they do exist. Whole Foods Market (NASDAQ:WFM), Costco (NASDAQ:COST), and Starbucks (NASDAQ:SBUX) are among the companies that choose to give their employees pay and benefits signifying respect. Health care benefits, stock plans and options, and above industry-standard pay are among the selection of benefits those companies offer their employees.

Some investors -- including myself -- believe that the recognition of stakeholder value is an essential component of a great company, and that long-term shareholders are richly rewarded by companies that practice it. Happy workplaces create satisfied customers, and loyal customers will result in growing shareholder value. It's pretty simple, really, but too many corporate managements and investors refuse to see that big-picture view.

Furthermore, even regular Americans should visualize the complex meaning of how they spend their money. Low-priced goods at Wal-Mart at least partially come at the expense of American workers' pay and benefits, not to mention extremely cheap labor in China.

Furthermore, Americans who choose to shop on Thanksgiving are setting an ugly precedent; that's one less commerce-free holiday when retailer workers can spend time with their families, and retailers won't continue to open on Thanksgiving if consumers don't take the bait. Getting paid time and a half may be some consolation to affected workers, but let's not forget that lost moments with loved ones can never be gotten back.

Stakeholder value is more important to business and investing success than the short-term "shareholder value" focus. This Thanksgiving, let's ponder what "value" really means and adjust our spending and investing accordingly.