Barbara Gray, CFA – November 20, 2012 – The first shots have been fired in the Corporate Social Revolution… Employees of Walmart are planning their first ever nation-wide strike for Black Friday, the biggest holiday shopping day of the year. But what’s interesting to note is that Walmart stores are not unionized – the strike is being organized by its own employees online using social media platforms such as Facebook, Twitter, and Tumblr.
As I wrote in my research report “Social Capital: A New Strategic Play for Investors” a year ago, “given social media’s proven power as a revolutionary force, we do not believe it is too much a stretch to envision how concerned citizens and organizations could use it as a platform to self-organize and join forces on a common cause to gain support from others and lobby for regulatory and legal reform and change.” This is exactly what Walmart employees are now undertaking as they have self-organized on social media, joining forces with non-profit activist groups such as Engage Network and Corporate Action Network, to lobby for more predictable work schedules, less expensive health care plans, and a higher minimum hourly wage. Social media allows this kind of grassroots labor action movement to build momentum at a pace and intensity never witnessed before and greatly increases the clout and bargaining power of all participants.
From an investor perspective, the revolutionary power of social media raises the risk profile and reduces the growth profile for companies that treat their workers poorly. Companies that have built up distrust and negative social capital over the years with their employees could see this translate into a real liability if their employees decide to follow the lead of Walmart’s employees and self-organize on social media platforms to protest and lobby for change. What’s interesting is how this introduces even greater risk for non-unionized companies.
As an analyst, to assess a company’s risk profile, I typically comb through its 10-K (i.e. Annual Report) and go through a checklist of different risk factors, one of these being labor risk. It’s a pretty simplistic process as if a company was unionized, depending on the state of their labor relations, I would assign a risk factor for this – but if they weren’t unionized, I just skipped onto the next factor. But social media changes all of this… And I would argue that in the new Social Era, the non-unionized companies with weak employee relations are probably at even greater risk than the unionized ones because unionized companies are able to exercise at least some degree of control over their employees through official labor relations with their union representatives. It will take a while to see how this all plays out on the growth side of the equation, but as Wal-Mart Stores, Inc. (WMT-NYSE) discloses in its 2011 10-K “Our ability to continue to expand our operations in the United States and abroad depends on our ability to attract and retain a large and growing number of qualified associates… If we are unable to locate, to attract or to retain qualified personnel, if our costs of labor or related costs increase significantly or if new or revised labor laws, rules or regulations are adopted, our financial performance could be adversely affected.”
The bottom line is that from a discounted cash flow valuation perspective, the simultaneous increase in a company’s discount rate and decrease in its expected growth rate will lead to a negative multiplier effect and contraction in the company’s value.
Wake up investors – the Corporate Social Revolution is here.