Wal-Mart Faces Class Action Sex Discrimination Suit

A federal judge granted class-action status to a lawsuit that charges Wal-Mart with discrimination against women. The six lead plaintiffs are now joined by 1.6 million women who are eligible to join up. Wal-Mart was quick to point out that the decision has nothing to do with the merits of the case. They might also point out that settling won't hurt their earnings too much.

Whether the company has engaged in discrimination against women is a matter for the upcoming trial to demonstrate. At first glance, the fact that 70% of the firm's hourly workers are women while fewer than 15% are store managers. While that doesn't look good, Wal-Mart has said that this reflects the lower number of applications for managerial positions from women. Maybe.

Investors might focus on a few other facts. Home Depot faced a similar case that it settled in 1997, when it shelled out $104 million to 25,000 women, about $4,000 a piece. A similar settlement would run the Wal-Mart around $6.5 billion, and many think the $4,000 figure is rather high. As Wal-Mart's expenses work out, $1 billion pre-tax for a settlement (or damages) knocks about 15 cents per share off of earnings, according to analyst Emme Kozloff of Sanford Bernstein. Bearing in mind that the company's earnings per share was 50 cents for the first quarter of this fiscal year, and that the company has cash reserves that could help it weather an even bigger storm than this, the impact would be noticeable but hardly worrisome.

To address the perception of discrimination, the company announced at its annual general meeting that it was embarking on a program to further diversity and establish a promotion policy that has greater worker input. To these are added a further incentive, bonus cuts for the guys at the top if diversity goals aren't met. As CEO Lee Scott said, "My bonus next year could decline by as much as 15 percent if I don't live up to my diversity goals." One doubts he'd have to move into a trailer park if the bonus was cut, but still, it is an acknowledgement that there's a problem in appearance if nothing more.

Wal-Mart's real problem is much harder to address. The company's annual revenues are the high side of a quarter of a trillion dollars. Meaningful growth from such a high base is more than difficult. New stores and acquisitions will help, and if they hire more women to manage these, they will kill two birds with one stone.


© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.


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