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Norway Sells Wallmart Case Solution
The Norwegian government and Norwegian Pension fund authorities took a unique and unexpected decision of selling Wal-Mart's stock. They did this because, according to them, Wal-Mart is doing human rights violations. The Norwegian Pension fund has set up an ethical committee to investigate the allegation thoroughly. It is in this committee's report, "Wal-Mart is involved in child labor, violation of extended working hour law, discrimination against the woman, hampering the formation of unions, etc
Following questions are answered in this case study solution
What are the potential ramifications of the Norwegian Fund’s sale of Wal-Mart stock? Please consider the perspectives of all Wal-Mart stakeholders.
Was the sale of Wal-Mart stock consistent with the ethical and economic mandates of the Norwegian Fund? What other courses of action could have been pursued by the Ethics Council or the Minister of Finance?
How should Ray Bracy respond to the Norwegian Fund’s sale of Wal-Mart stock? Please develop a detailed plan involving internal and external actions by Wal-Mart.
What economic and regulatory issues are raised by the growth of sovereign wealth funds? Is the Norwegian Fund a good model for other sovereign wealth funds?
Summary of the Case
Case Analysis for Norway Sells Wallmart
1. What are the potential ramifications of the Norwegian Fund’s sale of Wal-Mart stock? Please consider the perspectives of all Wal-Mart stakeholders.
Besides facing this exclusion, I believe that Wal-Mart will not face any serious fall out of the action took by the Norwegian Pension Fund. The stock prices of Wal-Mart can go down a little bit but will stabilize eventually in two- three months period. However, the period of declining stock prices is very painful for the stockholders as they would be losing their investment, but an organization like Wal-Mart which is the chain of the world's largest retail stores, with generating one of the highest earnings and claiming the position of largest stocks in the U.S.A., is too big to fail financially. Moreover, the stock prices are determined by the market forces of supply and demand of the stocks and its ratings, which depends on the company's performance in the market. Therefore, considering the company's current financial condition and its performance, it is highly likely that selling of Wal-Mart's stocks will not harm its position in the financial market.
Though Wal-Mart is facing reputational crisis, but this seems to have less or no effect on its shareholders. Stock prices, for most of the time, have been increasing thus benefiting its stockholders. However, stockholders have been raising their concerns over the reputational crisis and demanding the release of reports including the organizations' plans and actions to improve the human lives and the environment, and their compliance with the UN charter of human rights and the international labor laws.
Wal-Mart, through its employment policy and cost efficiency, is generating revenues, which keep the organization's stockholders in good financial standing.
2. Was the sale of Wal-Mart stock consistent with the ethical and economic mandates of the Norwegian Fund? What other courses of action could have been pursued by the Ethics Council or the Minister of Finance?
The ethical and mandate of the Norwegian Fund was very clear about exclusion of the company from the fund on ethical grounds including both human rights and environmental protection. Therefore, after the thorough investigation of the ethical committee's report on Wal-Mart's involvement in human rights violation, make it a justifiable action of selling of the Wal-Mart's stocks. However, the issue of compliance with the economic mandate of the fund and that of selling of the stocks is debatable.
Norwegian Fund was established to overcome the financial uncertainty existed in the economy. Norwegian government, with the creation of fund, holds stocks of different international organizations. This selling of Wal-Mart's stock can cause some problems for the Norwegian Fund to fulfill their obligation of generating enough financial reserves that an overcome the financial uncertainty. The companies may start hesitating to sell their stocks to the fund due to fund's strong policy on ethical issues. However, on the other hand, this can also increase the reputation of the companies having their in the fund, therefore, increasing demand of their stocks, consequently leading to the increase in the price of the stock.
The Ethical council or the Ministry of Finance could have issued a warning to Wal-Mart about their allegedly involvement in human rights abuse, and put them on the probation period of six months to twelve months to give a chance to improve their business practices. However, the council did not give the Wal-Mart a chance to rectify the wrong practices of their company instead the company was given only some limited time to reply the allegations before the selling of its stock.
Moreover, the ethical council can initiate a legal proceeding against the organization, in some international court of justice or in their own courts against the company's involvement in human rights violations. It is due to reason that Wal-Mart did not issue any formal reply to the matter and all the allegations are one-sided story. So, it will be a good decision to give this matter a free trial before dumping their stocks.
3. How should Ray Bracy respond to the Norwegian Fund’s sale of Wal-Mart stock? Please develop a detailed plan involving internal and external actions by Wal-Mart.
As mentioned in the case study, it was a surprise for him. He can take a series of actions starting with conducting an internal inquiry to find out why Wal-Mart's concerned officials did not respond to the formal letter of Norwegian Fund's allegations?
Other actions can be a detailed analysis of the situation from a financial perspective. This analysis should include the possible impact of selling on the company's financial ratings and on the stock prices.
A social and market analysis should also be carried out to see the impact of the Ethical Council report on the revenue generation of the company and on the minds of the people. This is very important to analysis because negative influence on people's mind can bring down the sales of the company, thus hurting the company in the most powerful manner.
Moreover, there should be an internal inquiry on the truthfulness of the report. If there are certain allegations mentioned in the ethical council report are true, then as a company's senior executive, Ray Bracy should try to formulate a series of executable plans with the help of his staff to rectify them as quickly as possible. Such an action can help the company to avoid the selling of their stock from the fund as mentioned in the case study about a US-based Oil Company involved in some ethical issues, save its exclusion from the fund by reporting that they are not more involved in violation of 'UN charter and Convention on the LAW of the Sea.' (Pozen, 2009).
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