Long before Rockefeller founded Standard Oil and got rich, he scrupulously honored the obligations of Christian charity by donating a significant portion of his income every week. At once America’s greediest and most philanthropic man, Rockefeller gave of his time as generously as his money—and not merely as a donor but also as a founder of great educational and social institutions. Walton was as averse to giving money away as to spending it on himself. He held tight to every share of Wal-Mart stock he ever owned and made little use of his vast fortune beyond securing his family’s control of the company. To be fair, in his later years Walton did redirect a portion of the vast flow of dividend income from his Wal-Mart stock into philanthropy, but the sums he gave amounted to a minute fraction of the Walton family’s net worth and were narrowly concentrated in northwest Arkansas.
Rockefeller, in Chernow’s estimation, “derived a glandular pleasure from work and never found it cheerless drudgery” 11 ; yet in his mid-thirties he installed a telegraph at home so he could leave the office at lunchtime several afternoons a week. He retired from Standard Oil altogether when he was just fifty-eight years old. Walton, father to three sons and a daughter, continually tested the limits of the Protestant work ethic as Wal-Mart grew and grew. For most of his working life, he started work at 4:30 in the morning, except on Saturdays, when he was at his desk by 2:00 or 3:00 A.M. to prepare for the weekly management meeting that he insisted on holding when most of his subordinates would have rather been tending their gardens or coaching Little League. “His idea of coming home was to have dinner, and come in to sit down, and read and read and read. It was difficult,” Helen Walton acknowledged. “I tried to make it so the children wouldn’t miss their dad.” 12
Yet Walton was celebrated as “an American folk hero” while Rockefeller was reviled, in President Theodore Roosevelt’s resonant phrase, as “a great malefactor of wealth.” The disparate eras in which the two moguls lived had a lot to do with it. Rockefeller caught the brunt of the great popular backlash against the egregious corporate abuses of the Gilded Age, while Walton came to the fore at a time when big business was hailed as the munificent source of vast stock-market wealth bestowed on the middle-class masses. Also, Walton was simply much more likable than Rockefeller, who was no less charismatic than Wal-Mart’s chief but who progressively walled off his private self by “train(ing) his face to be a stony mask” and adopting “the soundless movements and modulated voice of an undertaker.” 13
Most important, Rockefeller and Walton took opposite approaches to their shared goal of market domination. An industrial virtuoso, Rockefeller spun out organizational structures and commercial arrangements of staggering complexity. Standard Oil’s creator was an ingenious administrator who did as much as anyone to pioneer the form of the modern corporation even as he concocted countless devious schemes to advance his self-interest at the expense of free and open competition. By contrast, there was nothing nefarious about Walton, who did business with all the subtlety of a fullback hitting a hole off tackle. Relishing the sort of head-on competition that Rockefeller went to great conniving lengths to avoid, Walton created a business model that was no less brilliant in its contrarian simplicity.
Utimately, it was Walton’s unshakable belief in cut-rate pricing that defined him as a merchant and Wal-Mart as a company. Most retailers price to demand. But the notion of charging whatever the traffic would bear was alien to Walton, in part because he understood that his fellow Ozarkers were chronically pinched. Clarence Leis, an early Walt-Mart store manager, was flummoxed at first by the boss’s unconventional approach: “Merchandise would come in and we would just lay it down on the floor and get out the invoice. Sam wouldn’t let us hedge on a price at all,” Leis recalled. “Say the list price was $1.98, but we had only paid 50 cents. Initially, I would say, ‘Well, it’s originally $1.98, so why don’t we sell it for $1.25?’ and he’d say, ‘No, we paid 50 cents for it. Mark it up 30% [to 65 cents], and that’s it.’” Walton routinely would forgo a markup altogether and price an item at or below cost to beat a competitor’s price. “What we were obsessed with was keeping our prices below everybody else’s,” he recalled. “Our dedication to that idea was total.” 14
Pricing to cost would have ruined most merchants (and later did destroy many a retailer that tried to compete with Wal-Mart). However, Walton was a discounter by temperament long before he officially adopted discounting as a strategy. The deprivations and hard work of his youth had left him obsessively mindful of the value not merely of a dollar but of each of its components. “When a penny is lying out there on the street, how many people would go out there and pick it up? I’ll bet I would. And I know Sam would,” Bud Walton declared at a time when he and Sam both measured their net worth in nine figures. 15 Rockefeller was famous for passing out newly minted currency to children. Walton was famous for constantly cadging cash from friends and employees. William Enfield, a county judge who was Walton’s oldest friend in Bentonville, took to carrying a roll of dimes when he traveled with Walton. “Every time we’d land somewhere, Sam wanted to call back to his office to see how things were going. He never had any money for the phone,” Enfield said. “He’s always broke.” 16
Wal-Mart could underprice its competitors and still enjoy superior profit margins only because Walton instilled a fanatical devotion to cost control in his company as thoroughly and enduringly as if it were effected through DNA transfer. Walton’s aversion to spending more than $1 per square foot for leased space caused him to put Wal-Mart No. 8 in Morrilton, Arkansas, into a defunct Coca-Cola bottling plant outfitted with used fixtures strung by baling wire from the ceiling. Walton decreed that the expenses of the buying trips he and his managers made should never exceed 1 percent of the value of goods purchased, which, in a place like New York or Chicago, meant doing without cabs and crowding three or four to a room in budget-priced hotels and working from six in the morning until midnight to keep the trip as short as possible. Walton once pitched a fit when he returned to Bentonville from a trip to find that carpeting—which he considered a damnable extravagance—had been installed in Wal-Mart’s home office.
Walton was equally relentless in his penny-pinching when it came to workers’ wages. When Charlie Baum was made manager of Walton’s Fayetteville store in 1955, he’d been appalled to learn that the members of his almost entirely female labor force were making just 50 cents an hour. Baum took it upon himself to give everyone a raise to 75 cents—the federal minimum wage at the time—and soon got a telephone call from Walton, who told him that the maximum raise allowable was a nickel an hour. Baum, a favorite of Walton’s, ignored the boss and stayed with 75 cents an hour “because those girls were earning it,” as he put it. 17 (In 1956, Uncle Sam hiked the minimum wage to $1, putting Wal-Mart again below par.)
For more than a decade, Walton took questionable advantage of an exemption in federal law that allowed small businesses to pay less-than-minimum wages. In the late 1950s, the U.S. Department of Labor finally ruled that Walton’s enterprise was too big to qualify for exemption and ordered him to take his employees’ salaries up to the federal minimum. Walton fought the order in court for as long as he could, arguing that because each of his stores was organized as a separate entity on paper, his business was small enough to deserve exemption. He lost, and the federal minimum wage became the new maximum wage at Wal-Mart well into the 1980s.
Surely, no mogul of equal stature has ever romanced his workers as ardently as did Sam Walton. He spent the larger half of every workweek out among them, improvising merrily as he flew from town to town, usually accompanied only by his favorite bird dog, Ol’ Roy. Field visits by CEOs tend to be stilted, nervous-making affairs tolerated at best by workers afraid of doing or saying the wrong thing. But Walton’s visits were joyous, even raucous occasions. A reporter who accompanied Walton on a trip marveled that when he announced his presence over the public address system workers began to “shriek as if Elvis Presley had risen from the dead.” 18
Walton’s brilliance as an employee motivator was much envied by his CEO peers, most of whom would never have dreamed of leading a corporate cheer or, for that matter, donning a grass skirt and doing a hula down Wall Street, as Walton did in 1984 to settle a wager. The fun and games were critical to Wal-Mart’s success, for it was Walton’s incandescent common touch that reconciled the contradiction at the heart of the company’s approach to the labor-intensive enterprise of retailing. That is, Wal-Mart’s business model worked well only if its hourly workers were both poorly paid and highly inspired—a combination often found among inner-city public school teachers or disaster-relief volunteers but exceedingly rare in the world of big business.
Walton’s success in building a company in his own can-do, rah-rah image began with the selectivity in hiring facilitated by the stunted labor market of the Ozarks. The postwar decline of row-crop agriculture and a simultaneous curtailment of the regional forest products industry created a glut of unskilled labor. In the 1950s and 1960s, poultry processors, men’s shirt makers, and other non-union, low-wage manufacturers built new factories that sopped up some of the surplus, mainly by hiring women who left the farm to bring in sorely needed income for their families.
Sam and Helen, who often helped with the screening of job candidates in the early years, wanted employees who conformed to their image of Wal-Mart as the epitome of “small-town friendly”—that is, cheerful, presentable, industrious, and devout, in every sense. “We make no bones about the fact that we believe in God, that we think everybody should,” declared Jack Shewmaker, an Ozarker who joined Wal-Mart in 1970 and later became its president. 19 Walton artfully spun the Christian fundamentalism prevalent in the Ozarks—known to some as “the buckle on the Bible Belt”—into a corporate culture infused with the virtues of devotion and self-sacrifice. “Wal-Mart publications are full of stories of hard-pressed associates, once down on their luck, who find redemption, economic and spiritual, through dedication to the company,” noted an historian who has studied the company. “Selfless service to the customer, the community, and Wal-Mart will soon reap its own reward.” 20
A high school diploma was optional at Wal-Mart, but a college degree was an obstacle to employment in the company’s formative years. The handful of university graduates who did land jobs “had a heck of a time fitting in at first and could probably tell some real horror stories,” Walton acknowledged. 21 Walton, a college man himself, tried to pass off the company’s aversion to the well-educated as a “tremendous prejudice” of his store managers. The deeper reality was that he indulged the traditional anti-intellectualism of the Ozarks, where the one-room schoolhouse predominated into the 1950s and the school year traditionally was six months long at most because children were needed to help with the spring planting and the fall harvest. Poor, uneducated, pious country folk who “came across the Red River barefooted and hunting a job,” as one early Wal-Mart applicant described himself, were more likely than college grads to accept poverty-level wages and still find inspiration in Walton’s constant exhortations to put on a happy face while moving the merchandise.
The Wal-Mart store replicated the division of labor found on the Ozarks farm: “dozens of waged women in smocks, overseen by a salaried store manager in a tie.” 22 Often, the manager had been trained by some of the very female employees he now bossed. Rare was the woman who rose above department manager, an hourly position that served as a springboard for many a less experienced male co-worker. Early editions of Wal-Mart World, the company newsletter for employees, featured photographs of boys a few years out of high school presenting service pins to women who could be their mothers or even their grandmothers. Judging by the smiles all around, “the ladies” seemed to be content working for Walton even so.
Wal-Mart’s early labor force also mirrored the Ozarks in its racial homogeneity, which is to say that it was almost entirely white. The first decade and a half of Walton’s retailing career coincided with the last, heaving gasp of de facto segregation in Arkansas. In Little Rock, the state capital, the “White” and “Colored” signs weren’t removed from drinking fountains until the early 1950s.
Even so, many historians contend that integration aroused less hostility in Arkansas than in Deep South states like Alabama or Mississippi. As one put it, “Nearly all white Arkansans were committed to white supremacy by habit or conviction, but few were extremists.” 23
There is no reason to think that Sam Walton was any more or less progressive in his racial attitudes than were his peers. He does not appear to have been politically active on either side of the racial divide, and had nothing to say on the integration issue in his autobiography even in passing. Walton’s silence was understandable. He was a businessman, not a reformer, and the racial agitation of the civil rights era made it increasingly difficult for Arkansas merchants to simultaneously please both a white and a black clientele. In the Ozarks, it was easy: There were no black customers. But as Walton expanded into the racially heterogeneous towns of southern Arkansas in the 1970s, he walked a fine line between courting the segregationist dollar and honoring the strictures of the U.S. Civil Rights Act of 1964.
Walton did hire black workers, but mostly for behind-the-scenes jobs as stockers or janitors. In Magnolia, a predominantly black cotton town in southern Arkansas, there were only a half-dozen black workers allowed on the floor of Wal-Mart No. 83, according to Austin Teutsch, a white Arkansan who worked in the store for a time in the 1970s and later wrote a generally admiring biography of Walton. “Walton would hire a black man or woman and put that person on the floor as a sales trainee with duties to stock the shelves,” Teutsch recalled. “They were instructed to wait on a black customer and leave the white customer to the white clerk. If there wasn’t a white clerk present, they should wait until the white customer asked for assistance. Walton allowed the white customer to select his clerk, knowing full well many of the citizens wouldn’t ask for, much less buy, a garment from a black clerk.” 24
In sum, Walton built a business by hiring less talented and less ambitious versions of himself, and he did not want any labor union coming in and messing up a good thing. The traditional Southern aversion to labor collectivism was especially strong in Arkansas, which in 1944 became the first state to impede union organizing by enacting a right-to-work law. Hatred of unions was virtually a birthright in the Ozarks, where the natives were so protective of their independence (and so suspicious of one another) that they were loath to join forces even to build roads or cooperatively market farm products.
Organized labor took a first run at Walton in 1970, when the Retail Clerks tried to sign up workers in a newly opened store in the Ozarks burg of Mexico, Missouri. It was a halfhearted attempt at best, but Walton sounded a red alert and called in John E. Tate, one of America’s foremost union-busting lawyers. Tate easily repulsed the Retail Clerks in Mexico and also prevailed in a brief subsequent skirmish down the road in the town of Clinton. Walton was so relieved and impressed with Tate that he appointed him to Wal-Mart’s executive committee and its board of directors. However, this battle-hardened lawyer cut short the victory celebration by advising his client that Wal-Mart would remain an irresistible target for organizing drives unless he changed his attitude. “I told him, ‘You can approach this one of two ways,’” Tate recalled. “‘Hold people down, and pay me or some other lawyer to make it work. Or devote time and attention to proving to people that you care.’” 25
Helen Walton had been saying much the same thing for years, but now, suddenly, the message got through. By his own account, Walton underwent a kind of Ozark version of the conversion on the Road to Damascus that inspired him to grant workers the status of partners. “I would love to tell you that from the very beginning we always paid our employees better than anyone else paid theirs, and treated them as equals. I would love to tell you all that, but unfortunately, none of that would be true,” Walton wrote in Made in America. “In the beginning, I was so chintzy I reall
y didn’t pay my employees very well…. It wasn’t that I was intentionally heartless,” continued Walton, now in full breast-beating mode. “I was so obsessed with turning in a profit margin of 6 percent or higher that I ignored some of the basic needs of our people, and I feel bad about it.” 26
In truth, Walton never ceased being margin-obsessed or chintzy, in the sense of continuing to pay the lowest possible hourly wages to store workers. However, in the early 1970s he did cut the rank and file in on some of the financial incentives formerly reserved for managers, including a retirement plan funded by profit sharing, bonus programs tied to a store’s financial results, and the right to buy shares in the company at a 15 percent discount to their market price. The company invested virtually all of the profit-sharing money that it held in trust for workers in Wal-Mart stock, a self-serving approach that greatly benefited employees just the same. The meteoric rise of Wal-Mart shares throughout the 1970s and 1980s created hefty six- and even seven-figure retirement accounts for hourly employees who persisted in their low-wage servitude. 27 A down-home quote from a fanatically loyal millionaire cashier or home-office secretary became a staple of the many admiring news stories about Wal-Mart.
The Bully of Bentonville Page 6