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Case 3-5 Walmart Inventory Shrinkage (a GVV case)
The facts of this case are from the Walmart shrinkage fraud discussed in an article in Nation on
June 11, 2014. “Literary license” has been exercised for the purpose of emphasizing important
issues related to organizational ethics at Walmart. Any resemblance to actual people and events
is coincidental.
Shane O’Hara always tried to do the right thing. He was in touch with his values and always
tried to act in accordance with them, even when the going got tough. But, nothing prepared him
for the ordeal he would face as a Walmart veteran and the new store manager in Atomic City,
Idaho.
Shane did what he could to tighten systems and controls. He managed to convince Cook to hire
an “asset protection manager” for the store. The asset protection program handles shrink, safety,
and security at each of its stores. The program worked. Not only did shrinkage decline but other
forms of loss, including changing price tags on items of clothing, were significantly reduced.
However, it didn’t seem to be enough to satisfy Cook and top management. During the last days
of August 2013, Shane’s annual inventory audit showed a massive reduction in the store’s
shrinkage rate that surprised even him: down to less than $80,000 from roughly $800,000 the
previous year. He had no explanation for it, but was sure the numbers had been doctored in some
way.
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suspended with pay until it was completed. Shane was in shock. He knew the allegations weren’t
true. He sensed he might become the fall guy for the fraud.
Shane managed to discretely talk about his situation with another store manager in the Atomic
City area. That manager said she had been the target of a similar investigation the year before. In
her case, she had discovered how the fraud was carried out and the numbers were doctored, but
she told no one – until now.
Questions
Assume you are in Shane O’ Hara’s position. Answer the following questions.
1. Who are the stakeholders in this case and what are the ethical issues?
The stakeholders in the case are Shane O’Hara, Cook, other store managers and
employees, Walmart, shareholders, investors, creditors, community, the public, auditors,
regulators, and the government agencies.
2. What would you do next and why? Consider the following in crafting your response.
o How should the organizational culture at Walmart influence your actions?
o What do you need to say, to whom, and in what sequence?
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o What are the reasons and rationalizations you are likely to hear from those
who would try to detract you from your goal?
o How can you counteract those pressures? What is your most powerful and
persuasive response to these arguments? To whom should you make them?
When and in what context?
Organizational factors can impede or encourage moral behavior. The organizational
factors include the socialization processes, environmental influences, and hierarchy or
locus of control. Shane was in the Idaho operations headed by regional manager Cook.
Shane took his concerns about what was happening to Cook and was suspended with pay
over improper accounting at the Atomic City store. Shane was told that the improper
accounting had been corrected but now there would be an investigation. Shane had not
previously known about the accounting or that it had been corrected.
Since so many managers have retired in the region recently and one manager was fired,
the culture of the region seems influenced by doing what the regional manager wanted
Shane’s most powerful argument would be that high shrinkage, improper accounting, and
a cover-up fraud harms the loyal Walmart customer base and employees through
increased prices that all would have to pay. He should emphasize that short-term
decision-making, no less in a fraudulent manner, harms the long-term results of the
company as more and more schemes will have to be identified to keep up the charade that
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the numbers are as good as portrayed. It becomes a house of cards that will collapse
under its own weight in the future.