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BOSTON — Scandal is haunting Wal-Mart even as the world’s largest retailer spends millions in an effort to improve its reputation.
The company’s disclosure late Friday that former vice chairman, Thomas Coughlin, had been asked to resign from the company board after an internal investigation indicated the possible misappropriation of $100,000 to $500,000 in corporate funds, came as Wal-Mart fights battles on several fronts and has embarked on a major public relations campaign.
The announcement was a blow to Wal-Mart’s attempts to rehabilitate its image after scandals involving company contractors who hired illegal immigrants to clean stores and child labor law violations in several states. It comes as opponents of the company fight its employment policies and expansion plans. In addition, Wal-Mart workers have filed the biggest-ever gender discrimination case.
“They’ve got a problem in that company with people doing illegal, or at least very questionable, things,’’ said George Whalin, president of San Marcos, Calif.-based Retail Management Consultants. “When the news gets repetitive like this you have to ask: Is it systemic? Is this part of the culture? If it is, the company has got real problems.”
But Richard Hastings, retail consultant with Charlotte, N.C.-based RBH Co., said Wal-Mart’s decisive action on Coughlin was a “positive development” signaling a “zero tolerance policy on anything that would blemish its reputation.
“It’s a sprawling corporation and now they are getting to a lot of things they couldn’t clean up before,” he said. “At the end, I think Wal-Mart will be a more coherently run organization.”
Wal-Mart, which is based in Bentonville, Ark., said in a statement filed Friday with the Securities and Exchange Commission that it had referred the case the U.S. attorney’s office for the Western District of Arkansas and was cooperating with investigators.
The company did not return calls seeking further comment, and federal prosecutors would not comment. Coughlin could not be reached, but in a brief resignation letter to S. Robson Walton, chairman of the board, he said he was leaving with “warm feelings for the company” and that he “appreciated the opportunity to serve.”
This story first appeared in the March 28, 2005 issue of WWD. Subscribe Today.
In a separate development, Wal-Mart said in its weekly sales update on Saturday that Easter-related sales were softer than last year. Nonetheless, the company said it expects sales growth in March to meet or exceed its forecast of 4.1 percent. Wal-Mart also said its launch of spring-season sales was delayed due to unseasonable weather.
Wal-Mart did not indicate in the filing with securities regulators whether Coughlin, who in December retired as vice chairman for unspecified reasons, had made false reports on company expenditures or had failed to report those who did. Three other employees, including one company officer, were also fired.
Wal-Mart president and chief executive officer H. Lee Scott sent a letter to all employees reaffirming “our standards of integrity apply to everyone, no exceptions,” according to the Benton County Record, which obtained the letter. The Benton County Record is owned by the Walton family, Wal-Mart’s largest shareholder.
Wal-Mart’s probe focused on losses of between $100,000 and $500,000 stemming from “alleged unauthorized use of corporate-owned gift cards and personal reimbursements that appear to have been obtained from the company through the reporting of false information on third-party invoices and company expense reports,” the company said in the SEC filing.
Coughlin retired two years before his employment contract was to expire. Documents filed with the SEC in January detailed a somewhat atypical agreement for Wal-Mart under which Coughlin will be paid his full salary for two years following his retirement. At the time, industry experts questioned whether Coughlin’s early departure was related to the company’s sluggish holiday sales, or the internal firings.
Coughlin and two of the fired executives, James Haworth and Terry Pharr, testified in a hearing involving the company’s gender-discrimination class action lawsuit.
The scandal is also awkward for the Walton family, which has has had an intimate relationship with Coughlin. Their family foundation, along with the Wal-Mart and Sam’s Club Foundations, announced in February they would donate $4 million to name the Bentonville library after Coughlin and wife Cynthia.
Coughlin established the Walton Institute at the University of Arkansas, at the family’s behest using Sam and Helen Walton’s funds.
The latest turmoil occurred after the company in December dismissed seven people, including the two high-ranking executives who reported directly to Coughlin, citing unspecified “integrity issues.”
It is a stunning turn of events for Coughlin, once considered a ceo candidate. His 26-year Wal-Mart career started in loss prevention and ended up with him overseeing all U.S. store operations and Walmart.com.