Walmart CEO to HBS grads: 'Life and business are about balance but if you’re going to lean, lean towards the long term'
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Walmart (WMT) CEO Doug McMillon offered Harvard Business School’s graduating class an anthem on stakeholder capitalism in his commencement address on Thursday as more people feel the current system is broken.
“I think Winston Churchill had it right when he said something like democracy is the worst form of government except for all the others that have been tried. I feel the same way about capitalism,” McMillon said during his distinguished speaker address at HBS’s Class Day, the student-led ceremony.
The 54-year-old CEO of the nation’s largest private employer and world’s largest retailer pointed out that “It’s a coin toss between the number of people who believe capitalism is working and those who don’t.”
“I’m told your class feels the same way. My understanding is you were asked whether capitalism was broken or not and the results were 50/50. The way I see it, capitalism is imperfect because humans are imperfect,” McMillon said.
At the beginning of 2020, McMillon took over as chair of the Business Roundtable shortly after the non-profit association of nearly 200 U.S. CEOs adopted a new Statement on the Purpose of a Corporation moving away from shareholder primacy and declaring “companies should serve not only their shareholders, but also deliver value to their customers, invest in employees, deal fairly with suppliers and support the communities in which they operate.”
McMillon, an Arkansas native who started his career at Walmart as a 17-year-old high schooler loading trucks at a warehouse in the summer for $6.50 an hour, told the business school graduates “too many people are being left behind in today’s economy.”
“Where you are born, or the color of your skin, should not have such a dramatic impact on your opportunities. But they do. So, how do we improve these systems, democracy and capitalism, to create more equity, more economic freedom and more trust? These systems are overlapping. They are connected. And, they both need work,” McMillon added.
When it comes to capitalism, McMillon thinks “more and more people are starting to understand the importance of balance and of system-design thinking.”
“Making a profit is not only a necessity, it’s the oxygen that enables investment. But stressing short term profit maximization creates negative consequences over the longer term,” he added.
McMillon cautioned that businesses “get in trouble when you start thinking too much about this quarter or even this year.”
"Life and business are about balance but if you’re going to lean, lean towards the long term," he said.
According to McMillon, “Investing for the longer term can be a very difficult decision for companies to make.” The CEO noted that in the last fiscal year, Walmart’s pre-tax operating margin was 4.1%, making the retailer “pretty sensitive to short term investments.”
McMillon also highlighted that when the company announced it was boosting wages for its hourly associates, the share price fell.
“In 2015, we announced we were investing $2.7 billion in associate wages. We made that announcement during our annual investor conference inside the New York Stock Exchange. We made the announcement around 9:45 a.m. By close of trading that afternoon, we’d lost over $21 billion in market cap. In February of this year, we announced more wage investments along with an increase in capital investment for automation. The share price went down by 6.5% that day,” McMillon told the graduates.
'Investing in our people'
Under McMillon’s leadership, the retailer has raised its wages and expanded its benefits for its employees. Yahoo Finance reported in February that Walmart raised wages for 425,000 of store associates in the digital and stocking workgroups to a range of $13 to $19 per hour, depending on location and market. In September, Walmart raised wages for 165,000 of its hourly associates in its Supercenters. With the latest hike, Walmart now has about 730,000 U.S. store associates, approximately half of its workforce, earning $15 or more per hour.
Walmart currently pays an hourly minimum wage of $11 per hour, with the exception of where the minimum starting wage is higher. As Yahoo Finance reported earlier this year, the average wage for its U.S. hourly workforce is at least $15.25 per hour, according to the retailer.
McMillon told the graduating class that the company is “convinced that investing in our people is smart business just as we believe in our investments in communities and the planet.”
“Our share price over the last five years has doubled. We think that’s proof that a multi-stakeholder approach with a longer-term bias builds more valuable companies,” he added.
To be sure, Walmart’s multi-stakeholder approach “has been a process of maturation.”
“As a younger company, we were relentlessly focused on customers and associates. We felt if we served them well, shareholders would benefit. But we weren’t seeing our entire system and its connection to communities and the planet in the same way we do today,” McMillon said.
McMillon acknowledged that Walmart “faced a lot of criticism in the 90s and early 2000s on a variety of issues” and the company “responded by feeling offended and defending ourselves with facts and fast responses.”
“That wasn’t working and it certainly didn’t feel satisfying,” he said, adding, “Our CEO, Lee Scott, asked us to, instead, meet face to face with some of our most harsh critics. He asked us to let our guards down, listen and learn … to look for ways we could improve. He asked us to focus on making the company a better company and suggested we could come back to telling our story later. We met with and listened to people like Paul Hawken, Amory Lovins, Sister Barbara Aires and Reverend Al Sharpton. We read books about sustainability and took field trips. Our mindset changed.”
He went on to recall how the company’s work in New Orleans in 2005 after Hurricane Katrina was a “decisive moment” for Walmart.
“The pride we felt in the days that followed opened a door to permanent change and we seized it. We made very public commitments related to social and environmental sustainability and we’ve been working on those ever since,” he added.
McMillon went on to tout some of Walmart’s recent commitments, including its plans to be a zero-emission company across its global operations by 2040 and its $100 million investment in a Center for Racial Equity.
“I’m not saying we’re perfect. Of course, we aren’t. But we’re motivated and encouraged that we can put the size of Walmart to work to make a difference. Our hope is that we can play a role in bringing people together. We aspire to be part of the fabric that strengthens communities and the countries where we operate.”
Julia La Roche is a correspondent for Yahoo Finance. Follow her on Twitter.
