Community Bankers Association of Illinois

MID-TERM ELECTIONS IMPACT ON WAL-MART, OBAMA ENTERS DEBATE
01/12/07

U.S. stocks fell after mid-term elections resulted in Democrats ousting the Republicans from power in the U.S. House of Representatives and Senate. Shares of retailer Wal-Mart Stores Inc. and other companies slid as investors worried Democrats would not be as friendly to such companies as a Republican-controlled Congress. Wal-Mart, specifically, is expected to face increased pressure from the new Democrat-controlled Congress on a range of issues, from its application for a banking license to healthcare provision and wages.

Though Wal-Mart has historically been closer to Republicans, it has been trying to court politicians from both parties. While it has donated 69% of its federal political contributions to Republicans and 31% to Democrats, it recently hired Leslie Dach, a Democratic operative and former political adviser to Al Gore, as head of its government relations and corporate communications. It has also stepped up its political contributions to politicians of both parties at the state and local levels (see BusinessWeek.com, 9/28/06, "Wal-Mart Doesn't Discount Politicians").

Wal-Mart has significantly increased political spending over the past four years. During the recent mid-term elections, roughly two-thirds of the money went to Republican candidates. Its largest individual contributions of $10,000 went to five Republicans in the fiercely contested Senate races in Virginia, Ohio, Minnesota, Missouri and Arizona, with only one - Senator Jon Kyl of Arizona - emerging victorious.

After shunning politics for years, Wal-Mart, the nation's largest private employer, recently launched a voter registration and education campaign targeted at its 1.3 million employees. Wal-Mart is demonstrating a new readiness to engage in campaign debates, using its new support group, Working Families for Wal-Mart, to respond aggressively to criticisms from Democratic candidates of its healthcare and wages.

Observers believe that Wal-Mart will struggle in this effort because it is counterintuitive to think most of its employees are going to vote for pro-business candidates. If Wal-Mart's employees formed a massive voting bloc, it would have better-than-average representation in categories traditionally dominated by Democrats: women and minorities. Of Wal-Mart's U.S. employees, 60.5 percent are female and nearly 32 percent minority. Nearly 17 percent of Wal-Mart's employees are 55 or older.

OBAMA, DEMOCRATS WEIGH IN

In a much-publicized event on Nov. 15, Senator Barack Obama (D-Ill.) and former Senator John Edwards (D.-N.C.) lent their voices and their political clout to the effort to pressure Wal-Mart Stores (WMT), the world's largest retailer, to change its workplace practices. The two participated in evening conference calls with Wal-Mart workers, organized by the union-funded group WakeUpWalMart.com. The conference calls officially launched a six-week campaign titled "Hope for the Holidays," during which the watchdog group plans to push for changes at Wal-Mart.

The Obama-Edwards conference calls are a clear sign that, with the ascendancy of Democrats in Washington, political pressure on Wal-Mart is on the rise. Other Democrats have appeared in rallies that call for Wal-Mart to change. And in a column in The Wall Street Journal on Nov. 15, Democratic Senator-elect Jim Webb (D-Va.) laments that tax codes protect the rich and American corporations. "The average CEO of a sizeable corporation makes more than $10 million a year, while the minimum wage for workers amounts to about $10,000 a year, and has not been raised in nearly a decade," Webb wrote.

A spokesman for Mr. Obama said he was participating "because he believes all workers in America, no matter who they work for, deserve to be paid a living wage and have access to comprehensive healthcare their families can afford."

WakeUpWalMart.com. was set up by the United Food & Commercial Workers International Union. "The Hope for the Holidays" campaign is designed to change what the group calls Wal-Mart's "anti-family business practices" and persuade the company to provide a "living wage and affordable health care" to employees. The campaign particularly targets the company's new round of workplace restrictions-wage caps, cutting the number of hours with a corresponding cut in wages, compelling part-time workers to be available for shifts around the clock, and a stringent attendance policy. Along with these changes, Wal-Mart is looking to transform its workforce from 20% part-time to 40% part-time. Some employees say that the company wants to push out full-time and unhealthy employees because they are too expensive for the company to retain (see BusinessWeek.com, 10/17/06, "Wal-Mart Workers Walk Out").

The call was intended to inform the group's membership, which it puts at more than 285,000, about plans for rallies and other holiday events aimed at putting public pressure on Wal-Mart to change business practices that the critics say are antifamily, such as work scheduling changes and pay caps introduced this year.

Obama, a possible Democratic presidential candidate for 2008, was the first to weigh in, in a call that started at 7 p.m. EST. "Unlike the manufacturers who are under enormous competitive pressure from global low-cost producers, Wal-Mart is making enormous profits and yet it has chosen to go with low wages and diminished benefits," he said. "The battle to engage Wal-Mart and force them to examine their corporate values and policies is absolutely vital to America today."

"As two of the brightest stars in American politics who have fought to put families first their entire lives, we couldn't be prouder that Senator Obama and Senator Edwards are joining with us to change Wal-Mart and change America for the better," WakeUpWalMart spokesman Chris Kofinis said.

The politicians are offering Wal-Mart advice, along with their criticism. Obama pointed to Wal-Mart's rival Costco (COST), where the average pay is 60% higher and health-care benefits are provided to more than 80% of its employees, compared to less than half at Wal-Mart. Obama said Wal-Mart workers and supporters should work together to change its policies: "We have a history in this country of ordinary people doing extraordinary things when they work together."

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