COMMENTARY - Wal-Mart Fails to Learn Lessons from Hewlett-Packard
Issue: As Wal-Mart’s Investigation Practices Hit the NY Times, Wal-Mart Pays a PR Price for Authoritarian Policies
Commentary by: David Vinjamuri
Last Summer, an epic struggle for control of the board of Hewlett-Packard exploded when it was revealed that HP Board Chair Patricia Dunn had authorized pre-texting to investigate its own outside directors. The news cast a cloud over the comeback story of Hewlett-Packard, and the scandal was far worse in PR terms than the leaks the investigation was intended to uncover. As this advertising blog commented at the time, the real lesson of the scandal was that any corporation should understand that treatment of (and trust in) its own emloyees is directly connected to the equity of the brand with its consumers. By that we meant that if a company does not trust its own employees, it should not expect consumers to trust them. Some employees will always misbehave and either break the law or the company’s code of ethics. But when the company fosters an atmosphere of mistrust, it ensures that this mistrust will be transferred down to consumers, either through employees or the media.
Today, a scandal brewing for the past four months hit the front page of the New York Times, virtually ensuring a publicity nightmare for Wal-Mart. The source? In January of 2006, Wal-Mart hired marketing star away from Chrysler Julie Roehm to lead the push for a new agency and new image for the Bentonville giant. On December 7th, Wal-Mart publicly fired her, stating that she had violated company policy by having a relationship with a subordinate, accepting unethical favors from agencies vying for agency-of-record status (most famously a ride in Draft FCB chairman Howard Draft’s Aston Martin) and broke expense rules.
It is unusual for the departure of a senior executive to be positioned as a ‘firing’ (even former HP CEO Carly Fiorina had to insist that her termination be made public as such) and much more unusual for the corporation to reveal the reasons behind the dismissal. To do so courts negative publicity and a lawsuit. In this case Wal-Mart got both - Roehm sued and the story was picked up by the business press.
Wal-Mart has one of the best publicity teams in the World, (run by Edelman PR) but it’s difficult to understand what they thought they might accomplish by treating the termination of Roehm as a war. Certainly any financial loss to Roehm in a lawsuit (or any gain in a counter-suit) will be dwarfed by the negative publicity surrounding the case. Wal-Mart does not carry the presumption of innocence in the public mind, so this kind of story weighs even heavier on them than it might on other brands.
The very public battle over Roehm’s termination created an even bigger risk for Wal-Mart: that it would reveal a pattern of behavior on the part of the retailer that could make for more interesting and more mainstream story for the press. That happened today with the New York times expose piece on Wal-Mart’s surveillance practices.
Whatever the truth of this story, the damage has now been done. And it is clear that what invited this story was Wal-Mart’s aggressive approach to ending its employment relationship with Julie Roehm. Whether or not Ms. Roehm merited this treatment, whether or not Wal-Mart was ‘right’ in factual terms, it has certainly hurt the brand. When senior Wal-Mart employees consider their everyday actions in light of whether they are ‘adding value’ they should consider the health of the Wal-Mart brand and not just the shelf cost of the products. And, as with the Hewlett-Packard incident, the suspicion of employees - even when justified - hurts the brand far worse than their misdeeds.
March 31st, 2007 at 9:40 am
On thing seems to be overlooked. This is the fact Julie Roehm brought the case to court, not Wal-Mart. Roehm was caught red-handed flouting numerous Wal-Mart policies, this involving the rewarding of a half-billion dollar marketing contract - not small potatoes, as they say.
Roehm accepted gifts from one suiter, provided inside information to this agency (information provided to none of the others involved in pitching the business) and sought to secure high-profile, very profitable employment with this advertising agency once the account had been awarded. This borders on the criminal, particularly in this day of Sarbanes-Oxley regulations. It also cost Wal-Mart considerable added money to re-start the agency review. It put the company in a horrendous light within the marketing community (and, to lesser extend, the overall business community).
None of the current heightening of strife and publicity have been instigated by Julie Roehm and her partner at work, “in crime” and in bed (Sean Womack). These two were the first to engage in a public pilloring of Wal-Mart, filing the court case and bringing what appear to be obviously false claims against Wal-Mart. The due has since hit the speaking trail, holding themselves up as the victims of a company that couldn’t “embrace change” or modern marketing ideas. If you speak with marketing professionals who have been following the details of this for far longer than the mainstream press, Roehm deservers all she gets.
As for corporate surveillance, who doesn’t believe Wal-Mart - or any other, large corporation - doesn’t employ a serious security department. And it’s not like Wal-Mart has done an inordinate amount of digging. Many of the e-mail mentioned came not from the company, but from Sean Womack’s estranged wife, who discoverd his “secret” e-mail account full of incriminating messages.
I am no fan of Wal-Mart. I came from a small town whose locally owned stores suffered greatly when Wal-Mart came to town. I believe the corporation is hardly the “good-hearted citizen” Edelman works so hard to promote. But I won’t fault them for what they’ve done in this case. They are rightly protecting themselves against a false attack which has been highly publicized by Roehm for her own benefit. What invited this story was Roehm, not Wal-Mart. Read any number of the online Advertising blogs or trade magazines, and you’ll see the entire picture. I hardly think the common, Wal-Mart customer even knows about this story.
March 31st, 2007 at 11:45 am
Theo,
There are certainly reasons to believe that Wal-Mart may have correctly spotted inappropriate behavior in this case - I was actually carefully not trying to have an opinion on the lawsuit or counter-suit because it is not the point I was trying to make.
My point is that Wal-Mart did have an option here - to go to Roehm, show her evidence and come to a settlement where she agreed to leave voluntarily and not disparage or sue the company.
It appears that you may not have read the New York Times article on Friday about Wal-Mart’s surveillance practices, which do seem to go beyond industry norms. Here is the link:
In short, the Julie Roehm scandal spurred the New York Times to investigate further and their conclusion was that Wal-Mart does do an inordinate amount of digging into the private lives of employees for work-related misbehavior. Again I don’t have an opinion on the truth of this - my point is simply that Wal-Mart would have avoided this bad publicity by not letting the Roehm scandal get out of hand. The negative publicity value of this scandal is far greater than any settlement with Roehm would have cost.
The other point I was trying to make is that all of this results from an atmosphere of distrust of employees that appears to exist in Wal-Mart. That has to bleed through to customers. Do you ever wonder why Nordstrom accepts returns without a receipt, even for items they have never sold (they’ve taken back tires, for instance)? They know the cost and they know that some consumers are defrauding them. But they realize that the atmosphere they create is much friendlier to their good customers and that keeping the goodwill of their good customers is worth the price. Companies that treat their employees with less trust invariably treat their customers in the same manner.
David
March 31st, 2007 at 11:47 am
NY TImes article link: http://www.nytimes.com/2007/03/29/business/29walmart.html?_r=1&oref=slogin
March 31st, 2007 at 4:06 pm
David
You seem to have the wrong end of the stick here with your comments on Wal-Mart’s firing of Julie Roehm. The company only made public the lurid details of her dismissal when she sued them for wrongful termination.
Your statement that… “The real lesson of the HP scandal was that any corporation should understand that treatment of (and trust in) its own employees is directly connected to the equity of the brand with its consumers”…. Fails to take into account that when she accepted the position with Wal-Mart, I must assume that she signed a contract, and I am sure that part of the conditions of employment in that contract included not doing the four things I am sure Wal-Mart will prove she did in a court of law.
Having sexual relations with another employee.
Accepting gifts and favors from a vendor, which as you only choose to mention her having a ride in Howard Draft’s Aston Martin, I should point out also included $450 cases of vodka and $2000 dinners. – By the way, Howard’s Aston failed to start!
Providing confidential Wal-Mart information and communications to Draft/FCB
But what was really egregious, and should make her unemployable by any right minded company in the future, was that while engaged in an agency search on behalf of Wal-Mart, which she was unquestionably tipping in Draft/FCB’s direction, she and Sean Womack were negotiating themselves a future job with the agency. Not only is this in flagrant breach of her contract, it’s also highly unethical, and may even verge on being criminal!
I also take issue with your statement… “And it is clear that what invited this story was Wal-Mart’s aggressive approach to ending its employment relationship with Julie Roehm.” No. Julie invited this story by filing suit and then giving interviews in innumerable papers and magazines to present herself as the “Victim” of big bad Wal-Mart. To the point were in her latest interview she is playing the “Sexist” card by stating that the real reason for her dismissal was that a bunch of Good-Old-Boys down in Bentonville didn’t like the idea of taking the advice of a female.
I don’t agree with you that Wal-Mart’s actions have hurt the brand. But I would insist that Julie’s actions have probably killed hers. Unless she sees a future as the Tonya Harding of the marketing world.
You can read much more from me on this subject, and the many, many comments of others at one of my blogs… www.adscam.typepad.com
Finally, I agree with Theo Kie, I doubt if a single Wal-Mart customer is aware of this situation, so how it is damaging the brand is beyond my ken. Your example of Nordstrom treating customers well by taking back tires they never sold (which is a myth, by the way, there is absolutely no record of this ever happening, but it does make a good story to use during presentations) has no relevance. Julie wasn’t a customer, she was an employee, and don’t think the average Wal-Mart customer gives a fig that the “Associates” serving them have little health care, often work overtime without pay, and have to rely on Medicaid for their children’s health needs. What they are truly concerned about is if they can buy a six pack of Bud a nickel cheaper than at CosCo! Nordstrom customers they aint. And they don’t read the New York Times.
Cheers/George
March 31st, 2007 at 6:10 pm
Thanks for the comments back, David. A couple more thoughts tossed into the pot….
First, I’m not sure Wal-Mart had the option of keeping this quiet. They’d just hosted a highly anticipated, much publicized review of their $560 million advertising account - one of the largest pitches of 2006. After a long review process, they awarded the account to Draft/FCB. Many considered the agency a “dark horse”, which only increased the media attention. Only days later, Wal-Mart was forced to pull the account from Draft/FCB. This is unheard of and demanded an explanation, which Wal-Mart did it’s best to downplay. The company did not reveal details about Roehm when she was let go, something they avoided this at the expense of their own reputation. The marketing media and advertising blogs were all over Wal-Mart, calling it inept, full of small-town marketing yokels and far worse. I believe the New York Times was one of the publications who skewered Wal-Mart for their ineptness in being able to run a reveiw.
Still, Wal-Mart took the blows and kept the PR machine quiet. They could have sacrificed Roehm and Womack, but they didn’t. Roehm then filed her wrongful termination suit and went to the press. She made numerous media appearances, painting herself as a victim. Only at this point did Wal-Mart file their counter-suit. The details of this suit weren’t heralded by the company, but emerged when the filing made its way into the court system. Given this, it seems Wal-Mart avoided publicity until its hand was forced by Roehm.
As for negative publicity value, I don’t believe there is much. Consider this:
- Corporate peers and investors will say Wal-Mart’s deep dig into Roehm’s doings was more than justified. Her actions cost the company greatly in terms of agency review costs and unwanted media scrutiny. Roehm’s actions were grossly unethical and, had she and Womack been given jobs by Draft/FCB, their actions might have crossed the line nto criminal.
- The marketing industry has already sided with Wal-Mart. An AdWeek poll from last week ranked Roehm and Howard Draft as today’s #1 and #2 most vilified advertising professionals. Nobody came close to their poll numbers.
- The NYC market, where much of the New York Times’ circulation is based, has no Wal-Marts. There is no local downside. How much does the average Times reader relate to the story or care?
- The rest of American has heard virtually nothing of this. Most Americans love Wal-Mart - and they view the Times as just another member of the liberal, media elite who don’t “get” real America.
I entirely agree to your point that there’s much mistrust between Wal-Mart’s associates and the management. Yet Roehm wasn’t one of the associates. Far from it, she was of the mistrusted managerial class. Think for a minute: gourmet dinners in New York, convertible rides in an Astin Martin sports car, cases of imported vodka shipped to her house (where she served it at parties around her mini-mansion’s swimming pool), a feewheeling affair carried on in company-paid-for luxury hotels. These are exactly the kinds of misdeeds that make the associate class wonder where the money goes that should provide better wages and insurance. For Wal-Mart to investigate and counter-sue Roehm is much like a monster consuming one of its own. For a moment you might feel bad, but then you remember how that little, tiny monster was eating your sheep every night.
Again, I’m no Wal-Mart apologist. I simply believe your theory doesn’t take into account the realities of the business marketplace. And I believe it places too much stock in the level of empathy hourly workers will have for someone like Roehm - particularly given the things for which she’s been accused.
…theo
March 31st, 2007 at 6:14 pm
One addendum to my comments. All of Roehm’s claims and Wal-Mart’s counter-claims are yet to be determined in court. I am only commenting on what the media has reported. This isn’t a formal judgement that Roehm or Womack are guilty as charged in the counter-suit, not until the courts have a final say-so. So there you go.
March 31st, 2007 at 9:30 pm
David,
I believe a lot of us observers have not considered the matter from a legal perspective.
Anyone in a managerial position with hiring and firing authority understands the HR paranoia surrounding terminations. Specifically, it’s imperative that terminations be handled carefully, with lots of documentation to defend against potential lawsuits. Even in “employment-at-will” states, bosses are schooled on the need for documentation and clear cause for termination.
So it’s not at all surprising that Wal-Mart would take extreme measures when firing a high-level officer like Roehm. Despite the charges in the New York Times story, it’s unlikely the company regularly and routinely investigates its employees to such a degree. And even if they do, it’s their prerogative.
It’s not the employer’s role to seek an amicable divorce with an employee, particularly when the employee allegedly violated numerous key mandates. This is not the case of some corporate downsizing or “unfair” termination. Roehm should have known she was breaking numerous company policies. Any high-level officer who claims ignorance of the rules as Roehm has done, well, it certainly seems to confirm Wal-Mart’s gripes.
As others have stated, Wal-Mart did not start the legal actions — Roehm did. Wal-Mart did not publicly defend their position until Roehm publicly aired her grievances. Remember, Wal-Mart filed a countersuit, not an initiating suit.
Yes, it’s unfortunate and highly likely that Wal-Mart’s actions put new strains on the relationships between employees and employers. However, in an industry under continued scrutiny for everything from inappropriate billing and accounting to lack of diversity, Roehm’s actions tarnish the landscape far worse than Wal-Mart’s Big Brother tactics. You should take a closer reading of the charges against Roehm that have been publicized in numerous sources that are as esteemed as the New York Times.
Finally, do you really think it’s appropriate to contrast Wal-Mart and Nordstrom? Sorry, but Wal-Mart doesn’t even deserve to be compared to direct rival Target.
(P.S., Your bio information indicates history with Johnson & Johnson and Coca-Cola. Surely those corporations have their own quirky policies and corporate personas in league with Wal-Mart’s. In fact, I know they do.)
April 3rd, 2007 at 1:28 pm
Theo & George,
I think you have both made some excellent points.
I should clarify that:
1. I’m not automatically against Wal-Mart. In fact if you go into the archives of this blog under the ‘Wal-Mart’ category you’ll see that I was strong for Wal-Marts move into retail banking because I believed they could do some good for an underbanked segment of their consumer base.
2. I don’t defend Julie Roehm or what she may have done. I don’t know the truth of the Wal-Mart claims but I have read the court document for the countersuit and it is pretty awful if it is true.
3. I do think ordinary people have the opinion that Wal-Mart is not a benevolent employer.
4. I do believe that the New York Times influences what other papers cover. I’ve seen the Times story on Wal-Mart’s surveillance practice picked up in a couple of other media outlets to date. So while I agree with Theo’s point that the NY market is not Wal-Mart’s market, I think that it would be unfair to say that a front page NY Times article does no damage to Wal-Mart.
5. I am not suggesting that settling with Roehm before litigation would be the morally or ethically right thing to do. I am suggesting that it would have been the wise thing to do in this case, for PR reasons.
6. I am also not suggesting that all companies should let employees get away with this type of behavior.
7. I do, however, think that an overly suspicious attitude towards employees transmits to customers. Think about the last legacy airline carrier or fast food outlet you’ve experienced and you’ll know what I mean by this. Only if employees have the trust and respect of the company can they trust consumers. The NY Times article - even the facts openly disclosed by Wal-Mart - suggests the type of intelligence operation that makes it hard to believe that an atmosphere of trust pervades there.
8. Finally, yes I have worked in a number of large corporations (J&J, Coca-Cola, Citibank) and there is a big difference with those who have a trusting atmosphere from my personal experience …
Thanks for all the impassioned comments. I hope this dialogue has been useful for the community.
David
May 15th, 2007 at 3:50 pm
There’s just something about being on a salary that makes some people itch for action on the side. I expect her action on the side collided with someone more senior’s private business. Colorfully put, Wal-Mart dismissed Roehm with all the aplomb of a screeching nouveau-riche housewife chasing a silver-pilfering gigolo out the front door. The ensuing public questions include “What was that ‘intruder’ doing in your house?” and “Why didn’t you call the police?” and “My goodness you sure have a lot of poolboys” (which isn’t so much a question as an observation). In this metaphor the stockholders would be the husband, who should likewise be wondering how many more “poolboys” lounge about his cabana.