In a "bizarre" attempt to justify Lee Scott's extraordinarily high compensation, which totaled $29.7 million, on Friday Wal-Mart filed an "odd statement" with the Securities and Exchange Commission. Financial analysts immediately commented on the extremely unusual nature of such a statement.

Wal-Mart can release all the statements it likes, but nothing will justify nearly $30 million to the CEO while tens of thousands of hard-working Associates across the country struggle to get by on poverty wages and suffer under increasingly brutal anti-worker and anti-family policies.

Excerpts below from The Morning News story on the filing, or read the entire article at their website - http://www.nwaonline.net/articles/2007/04/28/business/042907wmsecfile.txt

Wal-Mart filed what some analysts called an odd statement with the U.S. Securities and Exchange Commission late Thursday that seems to try and justify the $29 million President and CEO Lee Scott earned last year.

The Bentonville-based retailer filed its annual proxy statement April 19 outlining Scott's and other top executives' compensation. On Thursday, the company followed up with a two-page document that began with an explanatory note saying Wal-Mart had provided statements in response to a media inquiry regarding the company's executive compensation.

The document goes on to outline Wal-Mart's financial performance last year and how sales had grown under Scott's leadership. The company then includes a statement that seems an attempt to justify Scott's compensation.

"More than 85 percent of our CEO's compensation, as set by an independent board committee, is tied to the company's financial performance. Lee Scott's compensation is benchmarked with the CEOs of other publicly traded U.S. retailers and large companies. When compared to other companies, it is among the lowest as a percentage of annual revenue and net income," the statement says.

Wal-Mart spokesman John Simley said the company filed the unusual document "in anticipation of any questions we might get about executive compensation."

"Under SEC rules, when a director is standing for election or there are shareholders proposals relating to compensation, we have to file any responses to news media with the SEC," he said. "If we were to say something, it may constitute solicitation of shareholders. In order to prepare for any questions from the news media, we have to file our answers."...

Jeff Macke, founder and president of Macke Asset Management, said in March that Scott's stock award of $22 million seemed extreme in light of Wal-Mart's recent financial performance.

"I've no idea what their logic was. I'm a capitalist, but I'm not sure how you can justify $22 million," he said at the time.

On Friday, Macke seemed equally perplexed at Wal-Mart's follow-up filing with the SEC.

"It's bizarre," he said. "Better to remain silent. Justification seems the obvious reason behind it, but there's nothing about his compensation being tied to shareholders. There should be some relationship between pay and return to shareholders.

"The financial arguments make sense to an extent, but the idea that employees are proud of him is nice but has nothing to do with his compensation at all."

Fund manager Patricia Edwards of Wentworth, Hauser and Violich in Seattle, also said she had never seen an SEC document like the one Wal-Mart filed.

"They seem to want to be able to make sure the public has the information they have as reasons for the compensation. It's fine, but not everyone is going to agree with it," she said.

Our latest press release:

Washington, DC - Last night, in one of the strongest reflections of how Wal-Mart has become an increasingly important national political issue, the debate about whether or not Wal-Mart is good for America was raised during the first Democratic presidential debate on MSNBC. The debate, which included questions on a variety of pressing topics, including Iraq, Terrorism, Health Care, Gun Control, and Abortion, brought Wal-Mart to the center stage when NBC Nightly News anchor Brian Williams asked Senator Hillary Clinton the question - “Is Wal-Mart a good thing or bad thing for the United States of America?”

In the debate, Senator Hillary Rodham Clinton, in a poignant response, answered that Wal-Mart is a”mixed blessing.” Senator Clinton went on to explain that as Wal-Mart “grew much bigger, though, they have raised serious questions about the responsibility of corporations and how they need to be a leader when it comes to providing health care and having safe working conditions and not discriminating on the basis of sex or race or any other category.”

The entire transcript of Senator Clinton’s response on the Wal-Mart question is attached below.

Interestingly, tonight’s question is similar to one asked in a national Zogby poll commissioned by WakeUpWalMart.com in November 2005. In the poll, 56 percent of American adults agreed with the statement - "Wal-Mart was bad for America. It may provide low prices, but these prices come with a high moral and economic cost." In contrast, only 39 percent of American adults agreed with the opposing statement - "I believe Wal-Mart is good for America. It provides low prices and saves consumers money every day."

Following the presidential debate, post-analysis discussion on Wal-Mart continued with MSNBC Host Chris Matthews and commentator Tucker Carlson discussing Senator Clinton’s response and how Wal-Mart has emerged as an important political issue for the national debate.

The following is a statement by Paul Blank, Campaign Director for WakeUpWalMart.com.

“As we have long argued, the campaign to change Wal-Mart is not a debate about one company, it’s a debate about what kind of America we want to live in. Last night, during the MSNBC presidential debate, we saw the power our movement has with over 370,000 supporters to make Wal-Mart not only an important social issue, but an important political issue.

As we witnessed during our incredible nationwide bus tour where countless Democratic leaders, like Senator John Edwards, Gov. Bill Richardson, Senator Joe Biden and others spoke out to last night’s debate where Senator Clinton called Wal-Mart a ‘mixed blessing,’ the debate about whether Wal-Mart is good or bad for America is front and center.

In our belief, though, as we look forward, the emergence of Wal-Mart as a defining political issue has only just begun. In the coming weeks and months, WakeUpWalMart.com will unleash one of the most exciting phases of our grassroots campaign to change Wal-Mart into a more responsible employer and company. So in the spirit of last night’s debate, we are more excited than ever about taking this campaign and the debate about Wal-Mart from one corner of America to another.”

Read the transcript after the jump.

The New York Times article on the debate noted the issue of Wal-Mart in the very first sentence:

ORANGEBURG, S.C., April 26 — Senator Hillary Rodham Clinton was professorial and emphatic as she spoke Thursday night about health care, Iraq and whether Wal-Mart was good for America (a “mixed blessing,” she decided) .

Debate Transcript Attached Below:

MSNBC Democratic Presidential Debate
Orangeburg, SC
April 26, 2007

BRIAN WILLIAMS: Senator Clinton, overall, is Wal-Mart a good thing or a bad thing for the United States of America?

SENATOR CLINTON: Well, it's a mixed blessing.

WILLIAMS: How so?

SENATOR CLINTON: Well because when Wal-Mart started, it brought goods into rural areas, like rural Arkansas where I was happy to live for 18 years. And it gave people a chance to stretch their dollar further. But as they grew much bigger, though, they have raised serious questions about the responsibility of corporations and how they need to be a leader when it comes to providing health care and having safe working conditions and not discriminating on the basis of sex or race or any other category. Brian, this is all part, though, of how this Administration and corporate America today don't see middle class and working Americans. They are invisible. They don't understand that if you're a family that can't get health care, you're really hurting. But to the corporate elite and to the Administration and the White House, you're invisible. If you can't afford college, you're invisible. So I think we need to get both public sector and private sector leadership to start stepping up and being responsible and taking care of people.

WILLIAMS: Senator, thank you.

As WakeUpWalMart.com's Communications Director Chris Kofinis notes at the end of the article

"Given the last two years of brutal restructuring, pay caps, and eliminated positions, it looks like you have to walk on egg shells if you work at Wal-Mart or Sam's Club.''

From the AP via the South Florida Sun-Sentinel:

BENTONVILLE, Ark. -- Wal-Mart Stores Inc. is reducing the number of lower-level managers at its Sam's Club stores, the world's largest retailer said Thursday.

"We have created three new higher-level and higher-paying assistant manager positions and eliminated five lower-level management positions per location,'' Wal-Mart said in a statement. ``This new format will provide improved service for our members.''

The statement said company officials expect that about 250 of its lower-level managers at Sam's Clubs will opt to leave the company, out of about 100,000 workers in Wal-Mart's Sam's Club division.

Read our press release on this issue here.

"This is not a cost-cutting effort,'' said Sharon Orlopp, senior vice president for personnel of the Sam's Club division. "We expect a slight increase in payroll upon completion of this change.''

The changes, announced to employees March 6, should be completed in the next few weeks, Orlopp said.

The company operates more than 575 Sam's Clubs -- named for the company founder, the late Sam Walton -- which offer members discounts on bulk purchases.

Wal-Mart documents provided by WakeUpWalMart.com -- a labor-backed group that is frequently critical of the company -- show that current occupants of the lower-level manager's jobs being eliminated will have until Wednesday to either:

* Obtain another administrator's job in the company.
* Accept a demotion to become an hourly employee, losing some pay and benefits.
* Accept a severance package providing two weeks' pay plus another week's pay for every year of continuous service, up to a maximum of 40 weeks' pay.

Chris Kofinis of the union-backed group WakeUpWalMart.com said the move is another indication of the insecurities faced by the company's employees.

"Given the last two years of brutal restructuring, pay caps, and eliminated positions, it looks like you have to walk on egg shells if you work at Wal-Mart or Sam's Club,'' Kofinis said.

From The Wall Street Journal:

Wal-Mart Stores Inc., under pressure to boost productivity at its Sam's Club wholesale unit, is cutting a small number of store-management jobs at the operation as part of a rare nationwide job cut.

The world's largest retailer by revenue plans to consolidate about 3,000 salaried-manager positions at some 580 U.S. Sam's Club stores, according to people briefed on the situation. It isn't clear how many people will lose their jobs. The unit has more than 100,000 employees world-wide.

A Sam's Club spokeswoman confirmed the restructuring, calling it a move to improve customer service in the stores. "This is not about cost reduction; it's about providing better service to our members," she said. The spokeswoman said there are no other restructuring actions under way.

About 3% of affected managers so far have opted to accept the severance package, she said. The employees were notified in mid-March and have until May 2 to accept a management job elsewhere in the company, stay on as an hourly employee or accept the severance.

Alan Peto, a former Sam's Club employee familiar with the changes, said the company is returning to a store-management structure it used in the early 1990s. "They pumped up management all over" during a fast-growth phase, he said. The change will eliminate the now-separate managers overseeing the stores' receiving, bakery, meat, photo and front-end departments, he and others said, consolidating five positions down to three at stores.

While profitable, Sam's Club has lagged behind its main rival, Costco Wholesale Corp., based in Issaquah, Wash. Sam's reported an operating profit of $1.5 billion on $41.6 billion in revenue in its latest fiscal year. But sales at stores open at least a year rose just 2.5%, compared with a 7% increase at Costco.

As part of a study into ways of boosting its stock price, the Bentonville, Ark., retailer last year considered a plan to spin off and establish Sam's as an independent company with headquarters in Dallas. However, the spinoff was rejected, said people familiar with the matter.

Managers who accept the severance plan must relinquish any claims against the company, according to the Sam's Club Assistant Manager Restructure Agreement provided to employees. Wal-Mart faces some 67 lawsuits alleging wage violations in 36 states, according to its latest annual report. The largest is a sex-discrimination suit that covers more than 1.5 million past and present female workers.

Wal-Mart has some 1.4 million U.S. workers. Last year, it reorganized its U.S. Wal-Mart Stores field operations, leading to a small number of management departures. In 2005, it cut some 1,000 jobs at its Asda unit in the United Kingdom.

James O'Toole and Edward E. Lawler III, professors at the University of Southern California's Marshall School of Business, have a fascinating commentary on Forbes.com, "Low Costs Versus High Wages?," where they discuss their findings that offering minimal wages and benefits is not an effective way to cut costs. To the contrary, they find that "low wages paradoxically generate a variety of negative employee behaviors that add to the overall cost of doing business."

While a much broader discussion than just Wal-Mart, as the leader in low costs and low wages, both Wal-Mart and Sam's Club figure prominently. Excerpts below, and read the entire piece at Forbes.com.

...Wal-Mart Stores' CEO argues that he has "no choice" but to pay low wages to meet his customers' demand for low prices.

Although offering minimal wages and benefits is the most common way companies try to lower their costs, our recent study of American management practices reveals that such bottom feeding may not be the most effective strategy. In fact, low wages paradoxically generate a variety of negative employee behaviors that add to the overall cost of doing business.

Although managers rarely calculate these costs, they often turn out to be substantial. For example, employees at low-wage companies have significantly higher turnover rates than those at well-paying companies: Wal-Mart has nearly a 50% turnover rate, and at many fast food, retail and service companies, the rates are even higher. Researchers have computed the total costs of such turnover as the equivalent of one month's salary for unskilled workers and more than a year's salary for skilled ones.

In almost all industries, research shows that the most profitable companies are those with the lowest overall operating costs, and not those that pay the least...

In almost all industries, productive, higher-paid workers can more than cover the costs of their salaries and benefits, if they are managed appropriately. For example, Costco Wholesale pays its workers $17 an hour on average, while its competitor, Wal-Mart's Sam's Club, pays only $10 an hour on average; 85% of Costco employees enjoy company-provided health insurance, compared with less than half of the workers at Sam's Club. Significantly, these high wages and benefits do not come out of the pockets of Costco's shareholders. In fact, Costco has outperformed Wal-Mart on the stock market over the last five years. The real reason for the difference in compensation and benefits is that Costco employees have much lower turnover, better interaction with customers and are more productive than Wal-Mart's workers.

Because Sam's Club employees require layers of close supervision, they are much less productive than Costco's largely self-managing workers. The results speak for themselves: Costco generates slightly more sales than Sam's with 38% fewer employees.

As WakeUpWalMart.com's Communications Director Chris Kofinis notes at the end of the article:

"The idea that Wal-Mart is creating its own personal CIA should make every American -- Wal-Mart customer or not -- nervous about whether Wal-Mart is invading their privacy or could do so in the future."

From the AP via BusinessWeek:

Wal-Mart Stores Inc. has been recruiting former military and government intelligence officers for a branch of its global security office aimed at identifying threats to the world's largest retailer, including from "suspect individuals and groups".

Wal-Mart's interest in intelligence operatives comes at a time when the retailer is defending itself against allegations by a fired security employee that it ran surveillance operations against targets including critics, dissident shareholders, employees and suppliers. Wal-Mart has denied any wrongdoing.

Wal-Mart posted ads in March on its own web site and sites for security professionals, including the bulletin of the Association of Former Intelligence Officers, for "global threat analysts" with a background in government or military intelligence work.

The jobs were listed with the Analytical Research Center, part of Wal-Mart's Global Security division, which is headed by former senior CIA and FBI senior officer Kenneth Senser. The analytical unit was created over the past year and half, according to published comments by its head, Army Special Operations veteran David Harrison.

The job description includes collecting information from "professional contacts" and public data to anticipate and assess threats stemming from "world events, regional/national security climates, and suspect individuals and groups."

"Familiarity with a broad spectrum of information resources and data-mining techniques" is listed among the skills sought, along with a foreign language, preferably Chinese or Spanish.

A Wal-Mart spokesman declined to comment on the Analytical Research Center for this story or to make any security executives available for interviews.

Many corporations hire law enforcement officers for their security departments.

But Steven Aftergood, who runs the government secrecy project for the Washington-based Federation of American Scientists, said Wal-Mart's efforts appear to go beyond what most companies are doing, raising questions about corporate intelligence work outside of the oversight process in place for government spying.

"It's a troubling new departure in corporate security. We're not just talking about security, we're talking about intelligence operations," Aftergood said.

Harrison told a meeting of security professionals last year that Wal-Mart was learning to defend itself by using the vast information it routinely collects about its employees, shoppers and suppliers.

The only public comment to date on the work of the Analystical Research Center, the speech was reported on by the trade magazine Government Security News. Wal-Mart did not dispute the report when contacted by The Associated Press this week.

Harrison told the meeting that Wal-Mart tracks customers including those who use its pharmacies, buy propane tanks and anyone making "bulk purchases" of prepaid cell phones, which some law enforcement officials have tied in the past to terrorist or criminal activities.

Harrison did not elaborate on how that information could be better used, except to say the data could be shared with law enforcement.

Wal-Mart's union-backed critics said culling customer data for intelligence was disturbing.

"The idea that Wal-Mart is creating its own personal CIA should make every American -- Wal-Mart customer or not -- nervous about whether Wal-Mart is invading their privacy or could do so in the future," said Chris Kofinis, spokesman for WakeUpWalMart.com.

UPDATE: Now view "The Wal-Mart Squeeze" "In Pictures" at Forbes.com.

Two very interesting articles about Wal-Mart's effects on other companies came out today.

The first, How Wal-Mart's TV Prices Crushed Rivals from BusinessWeek.com, describes how Wal-Mart's decision during the holiday season to slash flat-panel TV prices, "proved disastrous for electronic stores."

Here's a brief excerpt, and read the entire article here:

Now, it is becoming apparent that Wal-Mart's calculated decision to break the $1,000 barrier for flat-panel TVs triggered a disastrous financial meltdown among some consumer-electronics retailers over the past four months.

The fallout is evident: After closing 70 stores in February, Circuit City Stores (CC) on Mar. 28 laid off 3,400 employees and put its 800 Canadian stores on the block. Tweeter Home Entertainment Group (TWTR), the high-end home entertainment store, is shuttering 49 of its 153 stores and dismissed 650 workers. Dallas-based CompUSA is closing 126 of its 229 stores, and regional retailer Rex Stores (RSC) is boarding up dozens of outlets, as well as selling 94 of its 211 stores...

The carnage has one phrase written all over it: the "Wal-Mart effect." For many electronics competitors, the experience with flat panels has been a replay of what happened in other businesses over the past two decades as Wal-Mart's business stature grew dramatically. The Bentonville (Ark.) juggernaut's entry into the grocery business in the late 1980s and its ability to offer deep discounts led to the bankrupting of dozens of regional supermarkets over the next 15 years, including Florida-based Winn-Dixie Stores, Eagle Foods from Illinois, and Penn Traffic in Pennsylvania.

The other article, The Wal-Mart Squeeze from Forbes.com, explores the vast power that Wal-Mart has to squeeze suppliers, thus adversely affecting their profits.

From Forbes.com:

A bottom feeding investor might be intrigued by a consumer electronics company called Handheld Entertainment, a San Francisco-based firm that's trading at about a third of its 52-week high of $7.78 a share. While the company lost $12 million last year, it competes in a business where one big hit can turn things around.

But there's another complication. Handheld Entertainment got 94% of its $3.8 million in sales through Wal-Mart, a dependency that it puts it at the mercy of the retail behemoth's decisions on shelf space and promotional efforts. And investors tend to frown on companies with too many eggs in one shopping basket--less diversification means more risk.

"Wal-Mart can be your best customer and your most difficult one at once," says Walter Todd, a money manager at Greenwood Capital Management. "There's kind of a constant push and pull."

Business leaders, politicians and academics have debated the "Wal-Mart effect" on the U.S. economy for several years now. Mostly, they've been locked into the usual topics of low prices versus low wages, environmental concerns and discrimination toward workers. It's been enough to spur the Wal-Mart PR machine to work overtime trying to soften the company's image.

But other big pistons in the economic machine--institutional stock traders--are now basing more decisions on a different type of Wal-Mart effect. That is, measuring risk in consumer staple companies like Procter & Gamble and PepsiCo, in part, on how dependent they are on Wal-Mart to generate sales. Just as minimal diversification makes any investment portfolio more risky, a maker of laundry detergent, cosmetics or soft drinks could be flirting with danger when a high percentage of sales are pushed through a single retailer.

"Investors like to have better visibility into a company's sales and into supply chains," says Kevin O'Brien, chief executive of Revere Data, a financial information provider that tracks the percentage of sales that hundreds of companies generate through Wal-Mart. Revere specializes in analyzing corporate influence through a company's business relationships.

Just ask Newell Rubbermaid, the maker of cleaning products and other consumer staples that hit a slump in the late 1990s, about Wal-Mart's market power. With the company's goods not moving at a pace that satisfied Wal-Mart, it lost prime eye-level shelf space. Newell Rubbermaid shares dropped from $50 to $20 between 1999 and 2001 before steadying. They're now back to $30, but haven't been close to their highs of eight years ago.

To measure the "Wal-Mart effect" on profits across different industries, Forbes analyzed information compiled by Revere to compare the percentage of sales that various firms generated through Wal-Mart in fiscal 2006 to the gross margins those firms produced during the same period, as compiled by FactSet . The survey covered 333 companies in six industry sectors--apparel & accessories, consumer games & electronics, household accessories, food & beverage, personal care and leisure goods--that Revere indentified as heavy Wal-Mart sellers and their competitors.

On balance, firms that derive less than 10% of its sales through Wal-Mart averaged 39.1% in gross margin, or the percentage of profit realized before items like fixed costs and interest expense are considered. For those falling between 10% and 20%, gross margin falls to 36.2%. Above 20%, and margin dips a little bit more, to 35.4%. The trend is most pronounced in the apparel & accessories category, where average gross margin drops from 48.7% for companies generating less than 10% of its sales through Wal-Mart, to 28.7% for those selling 20% or more. Food & beverage also shows a big disparity, where the same breakdown shows average gross margins dropping from 39% to 22%.

In all, only 25 of 333 companies managed to beat its sector gross margin average while generating at least 10% of their revenue through Wal-Mart. Only seven that sold over 20% there did it. And the numbers show that company size has little to do with Wal-Mart dependency, at least once you get past the top handful. The 10 companies that sell through Wal-Mart in the highest percentages, a list that includes apparel maker Jaclyn and personal care company CCA Industries, average a relatively paltry $107 million in market cap (CCA is the only top-10 member whose gross margin beats its sector average). But past the top 10, companies that generate at least 10% of their sales through Wal-Mart carry an average market cap of $5.9 billion, more than the $4.9 billion average of those firms that sell less than 10% there.

While Wal-Mart squeezes margins of suppliers of all sizes, it's still true that smaller companies tend to feel a tighter pinch. For example, beverage company Cott, even with a market cap in excess of $1.2 billion, doesn't have the brand strength of Coca-Cola or PepsiCo, whose products are in more demand at supermarkets, convenience stores and other outlets. So Cott turns to Wal-Mart for 38% of its sales, compared to less than 10% for the two beverage titans. The result? Cott's gross margin of 12.4% last year was about a third the industry average, while Coke and Pepsi both registered over 50%.

But even blue chips aren't exempt from investors' scrutiny. A double-digit percentage of sales through Wal-Mart or any other single retailer always raises a red flag.

"I wouldn't not own a company just for that reason, but if I could choose between two companies that were basically equivalent, I'd choose the one that sells less through Wal-Mart," Todd says.

The April 30th Business Week features this in-depth cover story on Wal-Mart:

John E. Fleming, Wal-Mart's newly appointed chief merchandising officer, is staring hard at a display of $14 women's T-shirts in a Supercenter a few miles from the retailer's Bentonville (Ark.) headquarters. The bright-hued stretch T's carry Wal-Mart's own George label and are of a quality and stylishness not commonly associated with America's über-discounter. What vexes Fleming is that numerous sizes are out of stock in about half of the 12 colors, including frozen kiwi and black soot.

Fleming may be America's most powerful merchant, but a timely solution is beyond him even so. Wal-Mart failed to order enough of these China-made T-shirts last year, and so they and other George-brand basics will remain in short supply in most of its 3,443 U.S. stores until 2007's second half, depriving the retailer of tens of millions of dollars a week it sorely needs. "The issue with apparel is long lead times," says the quietly intense Fleming, who spent 20 years at Target Corp. before joining Wal-Mart Stores Inc. "We will get it fixed."

For nearly five decades, Wal-Mart's signature "everyday low prices" and their enabler—low costs—defined not only its business model but also the distinctive personality of this proud, insular company that emerged from the Ozarks backwoods to dominate retailing. Over the past year and a half, though, Wal-Mart's growth formula has stopped working. In 2006 its U.S. division eked out a 1.9% gain in same-store sales—its worst performance ever—and this year has begun no better. By this key measure, such competitors as Target, Costco, Kroger, Safeway, Walgreen's, CVS, and Best Buy now are all growing two to five times faster than Wal-Mart.

Wal-Mart's botched entry into cheap-chic apparel is emblematic of the quandary it faces. Is its alarming loss of momentum the temporary result of disruptions caused by transitory errors like the T-shirt screwup and by overdue improvements such as the store remodeling program launched last year? Or is Wal-Mart doing lasting damage to its low-budget franchise by trying to compete with much hipper, nimbler rivals for the middle-income dollar? Should the retailer redouble its efforts to out-Target Target, or would it be better off going back to basics?

If Wal-Mart seems short of answers at the moment, it might well be because there aren't any good ones. Increasingly, it appears that America's largest corporation has steered itself into a slow-growth cul de sac from which there is no escape. "There are a lot of issues here, but what they add up to is the end of the age of Wal-Mart," contends Richard Hastings, a senior analyst for the retail rating agency Bernard Sands. "The glory days are over."

Simple mathematics suggest that a 45-year-old company in an industry growing no faster than the economy as a whole will struggle to sustain the speedy growth rates of its youth. In Wal-Mart's case, this difficulty is exacerbated by its great size and extreme dominance of large swaths of the U.S. retail market. Wal-Mart already controls 20% of dry grocery, 29% of nonfood grocery, 30% of health and beauty aids, and 45% of general merchandise sales, according to ACNielsen.

However, the expansion impulse is as deeply embedded in Wal-Mart's DNA as its allegiance to cut-rate pricing. Wal-Mart was able to boost total U.S. revenues by 7.2% last year by opening new stores at the prodigious rate of nearly one a day. According to Wal-Mart CEO H. Lee Scott Jr., the company plans to sustain this pace for at least the next five years. In fact, he is on record saying that room remains in the U.S. for Wal-Mart to add 4,000 Supercenters—the largest of its store formats by far—to the 2,000 it now operates.

Does Scott, 58, recognize any limits whatsoever to Wal-Mart's growth potential in the U.S., which accounted for 78% of its $345 billion in sales last year? "Actually, and I know it's going to sound naive to you, I don't," he replies. "The real issue is, are [we] going to be good enough to take advantage of the opportunities that exist?"

TOO CLOSE FOR COMFORT

Wall Street does not share Scott's bullishness, to put it mildly. Wal-Mart shares are trading well below their 2004 high and have dropped 30% in total since Scott was named CEO in 2000, even as the Morgan Stanley retail index has risen 180%. "The stock has been dead money for a long time," says Charles Grom, a JPMorgan Chase & Co. analyst.

Even money managers who own Wal-Mart's shares tend to see the retailer as a beaten-down value play, not a growth company. "I'd be surprised if true growth-oriented investors were involved at this point," says Walter T. McCormick, manager of the $1.2 billion Evergreen Fundamental Large Cap Fund, which began buying the stock a year ago. "The issue the Street has is market saturation: We may be in the seventh inning of a nine-inning game."

One can argue that the deceleration of Wal-Mart's organic growth is a function of the aging of its outlets, given that same-store sales rates slow as stores mature. Outlets five years or older accounted for 17% of all U.S. Supercenters in 2000 and 44% in 2006, and will top 60% in 2010, according to HSBC analyst Mark Husson. "There's an inevitability of bad middle age," he says.

Meanwhile, the underlying economics of expansion have turned against Wal-Mart, even as it relies increasingly on store-building to compensate for sagging same-store sales. On balance, the new Supercenters are just not pulling in enough sales to offset fully the sharply escalating costs of building them. Part of the problem is that many new stores are located so close to existing ones that Wal-Mart ends up competing with itself. All in all, the retailer's pretax return on fixed assets, which includes things such as computers and trucks as well as stores, has plunged 40% since 2000.

Even many analysts with a buy on Wal-Mart want it to follow the lead of McDonald's Corp. (MCD ) and cut way back on new-store building to concentrate instead on extracting more value from existing stores, which vary wildly in their performance. Wal-Mart disclosed a year and a half ago that same-store sales were rising 10 times, or 1,000%, faster at the 800 best-managed outlets than at the 800 worst-run ones. Equally shocking was its admission that 25% of its stores failed to meet minimum expectations of cleanliness, product availability, checkout times, and so on.

Scott is acutely aware of the Street's discontent. "We have to find a way to give our shareholders back the returns that they need through some mechanism," he acknowledges. In March, Wal-Mart boosted its dividend 31%. Apparently, the board also is considering spinning off Sam's Club, the warehouse club division that is a perennial also-ran to Costco.

Wal-Mart announced late last year that it would trim its customary 8% annual addition to U.S. square footage to 7% in 2007. At the moment, though, slamming on the brakes is out of the question. Says Scott: "If you stop the growth at Wal-Mart, you'd be silly to think that [alone] means you're going to have better stores."

Wal-Mart's "home office" has taken a series of steps to improve the performance of its far-flung store network. Last year it implemented a whole new supervisory structure that required many of its 27 regional administrators to move out of Bentonville and live in the districts they manage. In April, Scott removed the executive in charge of U.S. store operations and put her in charge of corporate personnel instead.

The number of stores falling below the threshold of minimum customer expectations has declined but remains "more than would be acceptable," says Scott, who is surprisingly philosophical about the persistence of mediocrity. Asked why it has been so difficult to fix bad stores, HE replies: "That's a very good question. It's a question I ask all the time."

The polite, self-deprecating Scott is no Robert L. Nardelli, whose ouster as Home Depot Inc.'s chief had as much to do with his abrasive personality as the chain's business problems. That said, Wal-Mart's stock has performed worse under Scott than Home Depot's did under Nardelli. "The Street is going to look to the back half of 2007 for evidence of improvement," says an adviser to a large, longtime Wal-Mart shareholder. "If that doesn't happen, you're going to see a tremendous amount of pressure."

Scott & Co. already are struggling to cope with mounting sociopolitical backlash to Wal-Mart's size and aggressive business practices. Over the past decade, dozens of lawsuits were brought by employees claiming to be overworked and underpaid, including the mother of all sex discrimination class actions. Organized labor set up two Washington-based organizations to oppose the antiunion employer at every turn. And hundreds of municipalities across the country erected legal obstacles of one kind or another.

Wal-Mart's initial reaction to the gathering storm of opposition was to ignore it and maintain the defiant insularity that is a legacy of its Ozarks origins. "The best thing we ever did was hide back there in the hills," Sam Walton, the company's legendary founder, declared shortly before his death in 1992.

In the past few years, Scott has reluctantly brought Wal-Mart out from behind its Bentonville barricades. Virtually from scratch, this famously conservative company has built a large public and government relations apparatus headed by Leslie A. Dach, a veteran Washington political operative of pronounced liberal bent. Few CEOs have embraced environmental sustainability as avidly as has Scott, who also broke with the Republican orthodoxy of his predecessors by advocating a hike in the federal minimum wage.

It's not just rhetoric: Wal-Mart has indeed made substantive reforms in some areas. It has struck up effective working relationships with many of the very environmental groups it once disdained. No less dramatically, the company has added three women (one is Hispanic) and two African American directors to its board and also tied all executive bonuses to diversity goals.

It turns out, though, that there is a dark, paranoid underside to Wal-Mart's visible campaign of outreach. What began as an attempt by Wal-Mart's Threat Research and Assessment Group to detect theft and pro-union sympathies among store workers grew into surveillance of certain outside critics, consultants, stockholders, and even Wal-Mart's board. Bruce Gabbard, a security technician fired for allegedly unauthorized wiretapping of a New York Times reporter, has described himself as "the guy listening to the board of directors when Lee Scott is excused from the room."

Wal-Mart's spreading Spygate scandal is perhaps the most damaging in a long sequence of PR disasters, including last year's conviction of former No. 2 executive Thomas M. Coughlin on fraud and tax evasion charges stemming from embezzlement of company funds. Coughlin, a Walton protégé who had been Scott's leading rival for the CEO post, is serving a sentence of 27 months of house arrest.

There is no way of measuring how much business Wal-Mart is losing to competitors with more benign reputations. According to a recent survey conducted by Wal-Mart itself, though, 14% of Americans living within range of one of its stores—which takes in 90% of the population—are so skeptical of the company as to qualify as "conscientious objectors."

But the Arkansas giant's fundamental business problem is that selling for less no longer confers the overwhelming business advantage it once did. Low prices still define the chain's appeal to its best customers, the 45 million mostly low-income Americans who shop its stores frequently and broadly. But the collective purchasing power of these "loyalists," as Wal-Mart calls them, has shriveled in recent years as hourly wages have stagnated and the cost of housing and energy have soared.

More affluent shoppers also walk Wal-Mart's aisles in great numbers, but they tend to buy sparingly, loading up on toothpaste, detergent, and other "consumables" priced barely above cost while shunning higher-margin items such as clothes and furniture. To the selective middle-income shopper, quality, style, service, and even store aesthetics increasingly matter as much as price alone. "Here's the big thought Wal-Mart missed: Price is not enough anymore," says Todd S. Slater, an analyst at Lazard Capital Markets.

BACKWOODS KNOWHOW

At first, Wal-Mart management blamed its loss of momentum mostly on rising gasoline prices—a theory undercut when same-store sales kept falling even as the cost of gas receded during the latter half of 2006. Today, Wal-Mart executives are more willing to acknowledge the X factor of intensified competition. Says Fleming: "We're now up against world-class competitors that are each taking a slice of our business."

Wal-Mart not only was slow to recognize this threat but also responded haphazardly once it did. The nub of the problem was that the discounter had relied for so long on selling for less that it did not know any other way to sell. Wal-Mart did not begin to build a marketing department worthy of the name until Fleming was named to the new position of chief marketing officer in spring, 2005, an appointment Scott hailed as "an extraordinary move for us."

Founded in 1962, Wal-Mart rose to dominance on the strength of its mastery of retailing's "back-end" mechanics. Forced by the isolation of the Ozarks to do for itself what most retailers relied on others to do for them, Wal-Mart built a cutting-edge distribution system capable of moving goods from factory loading dock to store cash register faster and cheaper by far than any competitor. It added to its cost advantage by refusing to acquiesce to routine increases in wholesale prices, continually pressing suppliers to charge less.

Walton, who was both a gifted merchant and a born tightwad, also pinched pennies in every other facet of business, from wages and perks (there were none) to fixtures and furnishings. Aesthetics counted for so little that when the retailer finally put down carpet in its stores it took care to choose a color that matched the sludgy gray-brown produced by mixing dirt, motor oil, and the other contaminants most commonly tracked across its floors. To Wal-Mart, the beauty of its hideous carpet was that it rarely needed cleaning.

Low costs begat low prices. Instead of relying on promotional gimmickry, Wal-Mart sold at a perpetual discount calculated to make up for in volume what it lost in margin. Walton's philosophy was price it low, pile it high, and watch it fly. His belief in everyday low prices made him a populist hero even as he built America's largest fortune. (His descendants still own 40% of Wal-Mart's shares, a stake worth $80 billion.) Regulators forced "Mr. Sam" to modify his slogan of "Always the lowest price" to the hedged "Always low prices!" But hundreds of retailers went broke trying to compete with Wal-Mart on price just the same.

In many ways, Wal-Mart has remained reflexively tight-fisted under Scott, a 28-year company veteran who trained at Walton's knee and rose to the top through trucking and logistics. Last year, Wal-Mart began remodeling the apparel, home, and electronics sections in 1,800 stores, replacing miles of that stain-colored carpeting with vinyl that looks like wood. To Fleming, the new "simulated wood" floor is all about aesthetic improvement. His boss takes the classical Wal-Mart view. "The truth is that vinyl costs less," Scott says. "And the maintenance on the vinyl costs less than the maintenance on the carpet."

Yet Wal-Mart is neither as low-cost nor as low-price a retailer as it was in Walton's day, or even when Scott moved up to CEO. Most dramatically, overhead costs jumped 14.8% in 2006 alone and now amount to 18.6% of sales, compared with 16.4% in Scott's first year—a momentous rise in a business that counts profit in pennies on the dollar.

The imperatives of reputational damage control have prompted Bentonville to add hundreds of staff jobs in public relations, corporate affairs, and other areas that the company happily ignored when it was shielded by the force field of Walton's folksy charisma. And as the nation's largest electricity consumer and owner of its second-largest private truck fleet, Wal-Mart was hit doubly hard by the explosion of energy costs.

Wal-Mart also has purposefully, if not entirely voluntarily, inflated its cost base in expanding far beyond its original rural Southern stronghold. It is far more expensive to buy land and to build, staff, and operate stores in the large cities that are the final frontier of Wal-Mart's expansion than in the farm towns where it began. Then, too, the company is encountering mounting resistance as it pushes deeper into the Northeast, Upper Midwest, and West Coast, requiring it to retain legions of lawyers and lobbyists to fight its way into town.

NARROWING THE GAP

Under Scott, Wal-Mart even blunted its seminal edge in distribution by letting billions of dollars in excess inventories accumulate at mismanaged stores. A dubious milestone was reached in 2005 as inventories rose even faster than sales. "You'd see these big storage containers behind stores, but what was more amazing was that [local] managers were going outside Wal-Mart's distribution network to subcontract their own warehouse space," says Bill Dreher, a U.S. retailing analyst for Deutsche Bank.

Over the past decade, top competitors in most every retailing specialty have succeeded in narrowing their cost gap with Wal-Mart by restructuring their operations. They eliminated jobs, remodeled stores, and replaced warehouses, investing heavily in new technology to tie it all together. Unionized supermarkets even managed to chip away at Wal-Mart's nonunion-labor cost advantage, signaling their resolve by taking a long strike in Southern California in 2003-04. The end result: Rival chains gradually were able to bring their prices down closer to Wal-Mart's and again make good money.

Consider the return to form of Kroger Co., the largest and oldest U.S. supermarket chain. Cincinnati-based Kroger competes against more Wal-Mart Supercenters—1,000 at last count—than any other grocer. Which is why until recently the only real interest Wall Street took in the old-line giant was measuring it for a coffin. Today, though, a rejuvenated Kroger is gaining share faster in the 32 markets where it competes with Wal-Mart than in the 12 where it does not.

A recent Bank of America survey of three such markets—Atlanta, Houston, and Nashville—found that Kroger's prices were 7.5% higher on average than Wal-Mart's, compared with 20% to 25% five years ago. This margin is thin enough to allow Kroger to again bring to bear such "core competencies" as service, quality, and convenience, says BofA's Scott A. Mushkin, who recently switched his Kroger rating to buy from sell. "We're saying the game has changed, and it looks like it has changed substantially in Kroger's favor," he says.

While Wal-Mart vies with a plethora of born-again rivals for the trade of middle-income Americans, it also must contend on the low end of the income spectrum with convenience and dollar-store chains and with such "hard discounters" as Germany's Aldi Group. These no-frills rivals are challenging Wal-Mart's hold over budget-minded shoppers by underpricing it on many staples.

To right Wal-Mart's listing U.S. flagship division, Scott installed Eduardo Castro-Wright as its president and CEO in fall, 2005. The Ecuador-born, U.S.-educated Castro-Wright, now 51, worked for RJR Nabisco and Honeywell International Inc. before joining Wal-Mart in 2001. In Castro-Wright's three years as CEO of Wal-Mart Mexico, revenues soared 50%, powered by sparkling same-store sales growth of 10% a year.

To date, Castro-Wright has fallen so far short of replicating the miracle of Mexico that in January he had to publicly deny rumors that he was about to be transferred back to international. Instead, Scott shifted the vice-chairman over Castro-Wright to new duties. That the U.S. chief now reports directly to Scott both solidifies Castro-Wright's status and ups the pressure on him to show results.

Castro-Wright can point to progress on the cost side of the ledger. By tightening controls over the stores, headquarters has halved the growth rate of inventories to 5.6% from 11.5% two years ago. Wal-Mart also has squeezed more productivity out of its 1.3 million store employees for eight consecutive quarters. This was done by capping wages for most hourly positions, converting full-time jobs to part-time ones, and installing a sophisticated scheduling system to adjust staffing levels to fluctuations in customer traffic.

Wal-Mart has found other new ways to economize, notably by cutting out middlemen to do more contract manufacturing overseas. The company's much publicized green initiatives have tempered criticism from some left-leaning opponents but are perhaps best understood as a politically fashionable manifestation of its traditional cost-control imperative.

By any conventional measure, Wal-Mart remains a solidly profitable company. Rising overhead costs have cut into net income, which in 2006 rose a middling 6.7%, a far cry from the double-digit increases of the 1990s. Return on equity continues to top 20%, however, and U.S. operating margins actually have widened a bit under Castro-Wright, as costs have risen a bit slower than Wal-Mart's average selling price.

Evidently, though, it is going to take a lot more than Castro-Wright's workmanlike adjustments to revive Wal-Mart's moribund stock. In the end, Scott's aversion to a McDonald's-style strategic about-face leaves Wal-Mart no alternative but to try to grow its way back into Wall Street's good graces. But if opening a new Wal-Mart or Sam's Club almost every day can't move the dial, what will?

Foreign markets present an intriguing mix of potential and peril for Wal-Mart, which first ventured abroad in 1992. Although the company now owns stores in 13 countries, the lion's share of those revenues comes from Mexico, Canada, and Britain. In 2006 international revenues rose 30%, to $77 billion. At the same time, though, Wal-Mart's long-standing struggles to adapt its quintessentially American low-cost, low-price business model to foreign cultures was underscored by the $863 million loss it took in exiting Germany.

Wal-Mart is the rare U.S. company that is more politically constrained at home than abroad in angling for outsize growth opportunities. In March it withdrew its application for a Utah bank charter just before a congressional committee was set to convene hearings. The retreat marks an apparent end to its decade-long campaign to diversify into consumer banking.

Although Wal-Mart regularly makes sizable acquisitions abroad, it is in no position to respond in kind to such domestic dagger thrusts as CVS's $26.5 billion acquisition of pharmacy benefits manager Caremark Rx. "That deal is a real threat, but Wal-Mart would have huge antitrust problems if it made an acquisition of any size," says a top mergers-and-acquisitions banker. "They are kind of stuck."

In the end, Wal-Mart seems unlikely to regain its stride unless it can solve what might be the diciest conundrum in retailing today. That is, can it seduce tens of millions of middle-income shoppers into stepping up their purchases in a major way without alienating its low-income legions in the process?

Largely because of the pressing need to differentiate itself from Wal-Mart, Target began grappling with this very puzzle more than a decade ago and gradually solved it with the cheap-chic panache that transformed it into "Tar-zhay." Says the president of a leading apparel maker: "Target has an awareness of what's happening in fashion equal to a luxury player, maybe greater. They have set the bar very high."

Scott acknowledged as much in making former Target exec Fleming chief marketing officer, reporting to Castro-Wright. Fleming, who had been CEO of Wal-Mart.com, went outside to fill every key slot in building a 40-person marketing group from scratch. He supported Wal-Mart's move into higher-priced, more fashionable apparel and home furnishings with the splashiest marketing the retailer had ever done, buying ad spreads in Vogue and sponsoring an open-air fashion show in Times Square.

Wal-Mart's top management all the way up to and including Scott presumed that Wal-Mart could run like Tar-zhay before it had learned to walk. "What Wal-Mart tried to do smacks of a kind of arrogant attitude toward fashion—that you can just order it, put it down, and people will buy it," says Eric Beder, a specialty retailing analyst at Brean Murray, Carret & Co.

CRASH COURSE

Wal-Mart did everything at once and precipitously, introducing ads even as it was flooding stores with new merchandise and before it could complete its store remodeling program. Bentonville was learning marketing on the fly and did not even attempt to adopt the sort of formal, centralized merchandise planning at which Target and many big department-store chains excel. Instead, Wal-Mart relied on dozens of individual buyers to make critical decisions as it pushed hard into unfamiliar product areas.

How else to explain why a retailer whose typical female customer is thought to be a size 14 loaded up on skinny-leg jeans? Or why Wal-Mart's cheap-chic Metro7 line got off to a flying start in 350 stores only to crash and burn as it was rolled out to 1,150 more? Or why Wal-Mart not only severely misread demand for George-brand basics but also is unable to replenish its stocks for months on end while "fast-fashion" chains such as H&M easily turn over entire collections every six weeks?

Scott loved Wal-Mart's bold new direction until he hated it, his enthusiasm diminishing in sync with same-store sales throughout much of 2006. "We are going to sell for less," Scott says now, emphasizing a return to Wal-Mart's first principles. "I believe that long after we are gone, the person who sells for less will do more business than the person who doesn't."

Yet Scott also signaled his continuing commitment to the pursuit of the middle-income shopper by promoting Fleming to yet another new post, chief merchandising officer, as part of a January shakeup of the senior ranks. Although Wal-Mart no doubt has sponsored its last glitzy runway show, Fleming insists that the company is sticking with its underlying strategy of "customer relevance"—that is, of moving beyond a monolithic focus on price to try to boost sales by targeting particular customers in new ways. "We're not going to back off," he vows. "We've learned certain lessons. Some things we'll build on, some things we won't."

While the look of its stores is primarily a function of how much Wal-Mart chooses to spend on them, the retailer is unlikely ever to come up with an ambience conducive to separating the affluent from their money without changing its whole approach to labor. The chain's dismal scores on customer satisfaction surveys imply that it is understaffing stores to the point where many of them struggle merely to meet the demands of its self-service format.

It is entirely possible even so that Wal-Mart in time will figure out how to sell vast quantities of dress-for-success blazers, 400-thread-count sheets, laptop computers, and even prepackaged sushi. But as Wal-Mart closes in on $400 billion in annual revenues, it is going to have to overachieve just to get same-store sales rising again at 3% to 5% a year.

The odds are that Scott, or his successor, will have to choose between continuing to disappoint Wall Street or milking the U.S. operation for profits better reinvested overseas. Only by hitting the business development equivalent of the lottery in countries like China, India, or Brazil can the world's largest retailer hope to restore the robust growth that once seemed like a birthright.

As WakeUpWalMart.com's Communications Director Chris Kofinis notes later in the article, the report is "a joke" and

"Wal-Mart's own statistics prove what an embarrassing failure its diversity initiatives have been and paint a disturbing picture of how incredibly difficult it still is for women and minority Wal-Mart workers to get ahead," WakeUpWalMart spokesman Chris Kofinis said.

From the Associated Press via the Houston Chronicle:

Management ranks at Wal-Mart Stores Inc. saw modest increases last year in women and minorities, even though they are more abundant in the retailer's work force than in the population at large, according to figures the company released Friday.

This is just the second year that Wal-Mart, which faces the largest discrimination class-action lawsuit in U.S. history, has publicized its report to the Equal Employment Opportunity Commission and therefore the first time any changes can be seen.

Compared to the report on 2005, the 2006 numbers showed small increases in the overall presence of minorities and women among Wal-Mart's 1.35 million U.S. employees.

Women made up 60.9 percent of Wal-Mart's employees last year, compared to 60.5 percent the year before. Minorities were 33.1 percent versus 31.8 percent, including blacks at 17.5 percent, up from 16.8 percent.

Hispanics accounted for 11.4 percent, compared to 11.2 percent in 2005. The rate for Asians was 3.1 percent versus 2.7 percent in 2005. Native Americans were barely changed at 1.2 percent after 1.1 percent the year before.

Wal-Mart noted there were increases for minorities in all job categories, from clerks and technicians to managers and professionals.

"Wal-Mart continues to be an employer of choice and a leading employer of minorities in the U.S.," spokeswoman Sarah Clark said. "We are proud of our accomplishments and believe this is a result of our long-standing diversity initiatives and our commitment to diversity. We will continue to work toward becoming an even better corporation in all aspects of our business."

But Wal-Mart's union-backed critics called the report "a joke." They cited the report's revelation that women made up 39.7 percent of Wal-Mart's managers and officials last year, compared to 38.8 percent in 2005. Minorities held 23.2 percent of those positions, compared to 21.3 percent the year before.

"Wal-Mart's own statistics prove what an embarrassing failure its diversity initiatives have been and paint a disturbing picture of how incredibly difficult it still is for women and minority Wal-Mart workers to get ahead," WakeUpWalMart spokesman Chris Kofinis said.

A religious investor group whose lobbying helped prompt Wal-Mart to start publishing the data said the report showed the company still has room for improvement.

"A corporation of this size should reflect the nation as it exists. It should show the same face," said Sister Barbara Aires of the Interfaith Center on Corporate Responsibility, a coalition of religious investors that advocates for social and environmental causes.

Wal-Mart faces a class-action lawsuit in federal court in San Francisco on behalf of an estimated 1.5 million current and former female employees, alleging women were passed over in favor of men for pay raises and promotions.

From the Associated Press:

CATOOSA, Okla. - Retail giant Wal-Mart, America's largest importer, could be indirectly aiding terrorism by lobbying against fully scanning containers of goods that enter the country's ports, critics suggested Thursday.

Gathering at the Tulsa Port of Catoosa, where companies send and receive more than 2.2 million tons of cargo a year, labor union members said the Bentonville, Ark.-based company was putting profits before U.S. security because it opposes strengthening port safety.

The news conference is part of a national campaign by WakeUpWalMart.com, a union-funded group critical of the retailer, urging it to drop opposition to a bill that would tighten port security. The campaign has picked up support in recent weeks from at least nine senators, including Democratic presidential hopefuls Hillary Clinton and Barack Obama. Ads critical of Wal-Mart began airing late last month on television and the Internet.

"It's not just about making a dollar, it's about protecting the lives of Americans," said Billy Brown, with the United Food and Commercial Workers International Union.

A Wal-Mart spokesman called the accusations irresponsible and politically motivated.

At issue is a provision in a homeland security bill requiring foreign ports to scan all U.S.-bound cargo containers for nuclear or radiological contraband within five years.

Since the Sept. 11 terror attacks, lawmakers and several constituency groups have lobbied the federal government to step up inspection of port containers.

WakeUpWalMart said that, since the U.S. only inspects about 5 percent of port containers coming into the country, it would be possible for terrorists to slip a nuclear weapon inside one in transit and detonate it in an American city.

"It does seem to me they're more concerned about profits than they are American lives," Brown said.

Port security broke up the news conference about 10 minutes in because a guard said the group did not have the proper permit. The port is one of the largest and farthest inland in the country.

Wal-Mart and The Retail Industry Leaders Association have said the homeland security proposal is not technologically feasible and would snarl the flow of imports for U.S. consumers.

In a statement, Wal-Mart spokesman Robert L. Traynham said the "union-funded ad is in poor taste and an irresponsible attempt to avoid the facts, play upon people's fears and disparage our company and its 1.8 million associates worldwide."

"Wal-Mart is proud of our efforts to ensure a more secure supply chain and we will continue to play a central role in defining real solutions to enhance cargo security," Traynham said.

Tuesday's City Council elections in Chicago delivered a strong rebuke to Mayor Richard Daley, who has vetoed big-box ordinances in the past, and Wal-Mart's aspirations to expand in Chicago. Voters forced out four incumbent aldermen, including several "outspoken big-box proponents." As the mayor himself acknowledged, "the people spoke."

From the Chicago Sun-Times:

For 18 years, Mayor Daley has had his way with the City Council and used the Hispanic Democratic Organization and other pro-Daley armies of political workers to keep aldermen under his thumb and defeat those who refuse to toe the line.

The city hiring scandal that culminated in the conviction of the mayor's former patronage chief weakened those armies or put them out of business altogether.

Labor appears to have filled the power vacuum in aldermanic run-off elections by defeating four incumbent aldermen backed by the mayor.

On Wednesday, a somewhat humbled Daley said he could "work with anyone" and denied that the defeat of his allies was totally labor's doing.

"The people spoke. A lot of other issues come to play. If you think one person gets all the glory, you're greatly mistaken. A lot of combinations…a lot of issues" contributed to the defeats, the mayor said.

"I've been through that over the years. I've been through it as state senator, as state's attorney. I've won elections. I lost an election in 1983. You move on. I can work with any aldermen [on] schools, economic development, jobs, taxes. You know that. I've worked with people. I work with anyone."

Daley bristled when told that labor leaders who withheld their support from his re-election bid claim they will have more friends in the new City Council.

"Right here has been the biggest friend of labor. Ask any ironworker down there.…You see more cranes here than in 20 cities in America. This city has business coming in. Most cities, they flee out. They keep going out. We have people moving back in. We have the largest construction program in history [with] schools and parks. It's all coming from us. We have a great record. I'm very proud…There's no other city that has a labor record like Chicago," he said.

Whether or not unions push a Big Box redux, labor's newfound muscle will be tested every time Wal-Mart applies for a zoning change to build another Chicago store.

Wal-Mart has one Chicago store in Austin and is scouting other parcels, primarily on the South Side, to forge ahead with its urban expansion agenda.

But, Daley warned that the defeat of outspoken big-box proponents like incumbent Aldermen Madeline Haithcock (2nd), Dorothy Tillman (3rd) and Shirley Coleman (16th) could send the wrong message to the world's largest retailer.

"It's all about business. Can business come here and build here. That's the whole issue…They're gonna build in the suburbs. That's what they do. They build in the suburbs and they're very happy to receive their sales tax, real estate taxes and jobs…It doesn't matter if it's Wal-Mart of any big box. They'll go there," the mayor said.

Pressed on whether he would veto a revived big box ordinance, Daley said, "I didn't say that. I just said business has to make their decisions. What's wrong with Wal-Mart on the West Side of Chicago? What's wrong with a building on the South Side? That's what this is about. This is all about business."

Labor's legislative agenda is expected to include everything from health care, affordable housing set-asides and public transportation to ethics reform, speedy contract talks and moratoriums on school closings and privatization.

But, Daley has a few cards up his sleeve as well. He's intrigued by a proposal to hold unions to the same limits on campaign contributions imposed on private contractors. And he didn't say no when asked whether he would consider privatizing garbage collection.

"Everything is always on the table," he said.

Ever wonder why you pay so much in taxes?

A big part of the reason is because multi-billion dollar corporations like Wal-Mart hire high-priced accountants and attorneys to dodge paying the taxes they owe.

In fact, today, Tax Day, we are releasing new research by Citizens for Tax Justice which shows that Wal-Mart avoided paying $2.3 billion in state income taxes, cutting its payment to state governments almost in half between 1999 and 2005.

It is outrageous that Wal-Mart, the #1 company on the Fortune 500 and a company with $11.3 billion in profits is not only creating tax schemes to dodge its taxes, but also shifting billions of dollars of its health care costs onto taxpayers. The truth is that our tax dollars should help fund better schools, more police on the streets, and better health care, not subsidize Wal-Mart's irresponsible behavior.

Please help close the Wal-Mart tax loophole by sending an email to your state legislator today.

Today, all across America, thousands of you, our grassroots supporters, are handing out the "Stop the Wal-Mart Tax" flyers at your local post offices. As taxpayers learn that we are paying higher taxes so companies like Wal-Mart don't have to, people are asking what they can do to stop the Wal-Mart tax.

One of the first things you can do is email your state legislator and ask him or her to close the Wal-Mart tax loophole which has allowed Wal-Mart to avoid paying $2.3 billion in state income taxes over the last 7 years.

Please email your state legislator today.

With over 369,798 supporters, we have the power to hold big, powerful corporations like Wal-Mart accountable for their irresponsibility which costs taxpayers billions of dollars.

So, on Tax Day, and everyday, we will continue to build our movement to change Wal-Mart and change America for the better!

On behalf of the nearly 370,000 supporters of WakeUpWalMart.com, our thoughts and prayers go out to all the Virginia Tech families affected by this senseless tragedy.

Paul Blank, Campaign Director

From Yahoo News:

Wal-Mart, the world's largest retailer, has reclaimed its position as the largest corporation in the U.S. among the Fortune 500, pushing Exxon Mobil down to number two.

With more than $351 billion dollars in revenue, the magazine ranks Wal-Mart slightly ahead of the energy giant. Wal-Mart is on top for the fifth time in six years.

Oil companies have three of the top five spots.

Fortune says Google is among the biggest movers. The online search leader has moved up more than 100 spots to 241.

From the New York Times:

Paranoia strikes deep. Into your life it will creep. It starts when you're always afraid. -- Stephen Stills

Life used to be nice at Wal-Mart. Competitors could not match its prices. Suppliers begged for the privilege of selling to it. Local governments used tax-exempt financing to lure stores. A soaring share price made low-level employees rich, and the Walton family became one of the wealthiest in the world.

In the 1990s, under David Glass, the successor to the founder Sam Walton, Wal-Mart stock rose more than 1,100 percent, a compound growth rate of almost 30 percent a year. When Mr. Glass stepped down in January 2000, he was hailed as one of the greatest corporate bosses ever.

Since then, plenty has gone right under his successor, H. Lee Scott Jr. Last year, Wal-Mart earned more than $11 billion, twice what it made in Mr. Glass's last year at the helm. It is the largest retailer in the world.

But its stock has lagged.

And now we are learning that paranoia has set in at Wal-Mart. The otherwise cost-conscious company spent millions to spy on employees and critics.

First we learned that a Wal-Mart employee taped phone calls between Michael Barbaro, a New York Times reporter, and Wal-Mart officials. This came after The Times reported on a Wal-Mart memo that suggested such clever tactics as forcing all shop clerks to spend some time hauling shopping carts in from the parking lot -- the better to weed out unhealthy workers who might submit health insurance claims.

Wal-Mart fired the employee it said was responsible for taping the calls, a man named Bruce Gabbard, and said his actions were unauthorized. Then Mr. Gabbard started talking to The Wall Street Journal, saying the department he worked for had spied on critics. Wal-Mart quickly issued apologies to the critics and got a judge to order Mr. Gabbard to stop talking.

Mr. Gabbard said he told a Wal-Mart lawyer that ''I'm the guy listening to the board of directors when Lee Scott is excused from the room.''

Does that mean that Mr. Scott authorized spying on his own board when it was discussing his performance? If so, it would be a shocking breach of corporate etiquette and governance.

For a few days after that quote appeared, Wal-Mart declined to comment. But eventually a company spokeswoman, Mona Williams, did issue a denial: ''We never would have authorized'' bugging board meetings, she said, and Mr. Scott never listened to any such tapes.

''As far as we know,'' she said, Mr. Gabbard ''never shared the information with anyone else.''

On the day Mr. Scott was named president and chief executive, the company's share price was over $65. Now it is under $48. Mr. Scott has reported profits of $13.9 million from cashing in options, but those were issued before he became the boss.

Of the 3.6 million options granted to Mr. Scott since he received the top job, just 415,627 options would be worth anything if exercised now, and they are not in the money by very much. The rest are under water.

During his tenure, the Morgan Stanley retail index, which covers most large American store chains, is up about 180 percent. Wal-Mart is down more than 25 percent.

Even more painful, Wal-Mart is getting blasted from all sides. Unions, angry at the company's successful efforts to keep them out, have been forced to make concessions to keep Wal-Mart competitors in business. They complain about Wal-Mart workers on Medicaid, the government health program for low-income people, and encourage cities to keep Wal-Mart out. A class-action suit by women claiming employment discrimination is pending.

Trying to mend fences on the left, Wal-Mart has angered some on the right. One group that got a Wal-Mart apology this month is upset over Mr. Scott's comments favorable to government-financed health care and the company's efforts to force suppliers to reduce carbon emissions. It says Wal-Mart has quotas to assure the hiring of women and minorities and gives money to gay rights groups.

Wal-Mart is successful, but Mr. Scott's inability to convert that success to a rising share price may have colored his judgment. It appears that the company grew paranoid about its critics, and created a security operation that went too far. At best, management controls were sorely inadequate.

It is time for the Wal-Mart board to bring in an outside investigator, one without previous ties to the company. That investigator should learn, and tell the public, what went on in the spying operation, and just who knew the details.

A generation ago, when President Richard M. Nixon lost his job because of a spying operation that went too far, it was Senator Howard H. Baker Jr. who repeatedly asked a question that must be asked at Wal-Mart: ''What did the president know, and when did he know it?''

From Bloomberg:

April 12 (Bloomberg) -- In September 2005, three officials of Wal-Mart Stores Inc. and a handful of prominent shareholders gathered in Manhattan for an unpublicized meeting.

The investors renewed their call for the world's biggest retailer to name a ``special committee of independent directors'' to investigate the company's workplace policies amid a rising tide of employee lawsuits.

Wal-Mart deflected the request. Such a panel might ``get the issues wrong,'' said director Roland Hernandez, according to a colleague's deposition later introduced in court.

Now, some of those same investors -- pension funds in New York, Illinois and Connecticut plus London-based F&C Asset Management Plc -- are demanding a shareholder vote to force Wal- Mart to review its policies. The reasons quiet diplomacy ended can be found in a string of letters exchanged before and after the 2005 meeting. The details, emerging for the first time, show how the shareholders pressured Wal-Mart -- and were rebuffed.

F&C fund manager Karina Litvack remains frustrated. ``We view the labor issues as a manifestation of the overall weakness of their internal controls,'' she says. ``We see these governance failures as aggravating the slowdown'' in Wal-Mart's growth.

F&C had 155 billion euros ($204 billion) under management as of Dec. 31, including $28 million worth of Wal-Mart shares

The investors publicly requested the shareholder proposal last December in a letter from New York City Comptroller William C. Thompson Jr., who had hosted the 2005 meeting in Manhattan.

Rare Prodding

Wal-Mart spokesman John Simley says the company won't comment on how it will address the shareholder proposal. It may be voted on at the next annual meeting in June, he says.

It isn't uncommon for institutional shareholders to contact senior executives or directors of the companies they invest in, occasionally prodding them to make changes they believe will benefit shareholders and make them better corporate citizens. The Sullivan Principles, which called on multinational companies to stop investing in South Africa's apartheid regime, prompted such actions in the 1970s.

It's unusual, though, for a group of pension fund managers representing far-flung interests to band together to prod a single company, says Patricia Edwards, a Seattle-based money manager at Wentworth, Hauser & Violich, which has $9 billion in assets, including Wal-Mart shares.

``I'm not thinking of anybody else who's been hit the way they have,'' says Edwards, referring to Wal-Mart.

U.S. unions and the politicians who support them may seek to increase that pressure during the 2008 presidential campaign. Wal-Mart, with 1.36 million U.S. workers, is the nation's largest private employer. Thompson is a potential Democratic candidate for New York mayor.

Employee Lawsuits

The friction between the company and the pension funds arose in early 2005 amid mounting lawsuits against Bentonville, Arkansas-based Wal-Mart. Company employees have filed more than 250 suits related to labor law and anti-discrimination law in federal courts since January 2005. These include allegations of bias over race, gender, age and disability as well as wage-and- hour claims.

Since December 2005, juries in Pennsylvania and California have awarded Wal-Mart workers a total of $251 million in pay and damages. The company's shares have fallen 11 percent since Dec. 31, 2004, compared with a 12 percent gain in the 30-member Standard & Poor's 500 Retailing Index, which doesn't include Wal-Mart.

The company currently faces more than 70 wage-and-hour lawsuits, including class actions, alleging it failed to pay employees for all hours worked or didn't compensate them properly for overtime. Some lawsuits also accuse the retailer of prohibiting workers from taking breaks or altering timecards in order to trim store payroll costs.

Pre-Trial Discovery

Wal-Mart, which has denied any discrimination or violation of wage-and-hour laws, is fighting all the class-action wage cases. It has settled some employee lawsuits. Wal-Mart is appealing the Pennsylvania and California verdicts. The company paid $125,000 in February to an Idaho worker who claimed racial harassment in a suit brought by the U.S. Equal Employment Opportunity Commission.

The shareholder letters, along with the deposition describing the New York meeting, were provided to lawyers in the pre-trial discovery process for claims that Wal-Mart cheated Pennsylvania workers out of pay for overtime and for time spent on breaks. The documents are contained in court records obtained by Bloomberg News.

Initially, the shareholder group asked Wal-Mart to investigate its conduct in a May 25, 2005, letter Thompson wrote to Hernandez, chairman of Wal-Mart's audit committee. The worker lawsuits, accompanying negative publicity and sluggish stock performance prompted the move, according to the correspondence, which was made public at the time.

`Deeply Concerned'

Hernandez, 49, is the former chairman of Telemundo Group Inc., the Spanish-language network now part of NBC.

``As shareholders, we are deeply concerned about potential contingent liabilities and negative effects on the company's stock price and reputation,'' the Thompson letter said.

The letter was signed by Thompson; Litvack, director and head of governance and socially responsible investment at F&C Asset Management; Edward Smith, chairman of the Illinois State Board of Investment; and Jason Fletcher, Americas Equities Manager at Universities Superannuation Scheme Ltd., a British pension fund.

The group held about 11.5 million shares of Wal-Mart stock worth $545.8 million at the time, according to the letter. Wal- Mart's market value stands at $194.9 billion.

Internal Controls

They asked Wal-Mart's board to create an independent committee to review whether the company's internal controls were adequate to ensure compliance with laws and its own policies prohibiting discrimination against employees.

Less than three weeks later, on June 13, California Controller Steve Westly independently wrote a similar public letter to Hernandez.

Westly, who left office in January, was a trustee at the time of the California State Public Employee Retirement System (Calpers), the largest pension fund in the country, and the California State Teachers Retirement System (Calsters), the third largest. When Westly wrote his letter, Calpers owned more than 21 million Wal-Mart shares and Calsters held 20.6 million shares of Wal-Mart's U.S. and Mexican units.

John Chiang, the current controller, hasn't taken any action yet on Wal-Mart because he just took office in January, said his spokeswoman, Hallye Jordan. ``He has great concern about some of the wage and labor issues,'' she says.

Ongoing Review

In July 2005, a private dialogue was opened. Wal-Mart's Hernandez wrote to Thompson, saying that while he appreciated the shareholders' concerns, ``we do not believe it is either necessary or appropriate to form a special committee to review the company's legal, regulatory, and internal controls.'' The company reviews its compliance policies on an ongoing basis, he added.

``We were not satisfied with that response,'' says Kenneth Sylvester, New York City's director of pension corporate affairs. A Thompson subordinate, he oversees the city's five pension funds with assets of $100 billion.

A meeting was arranged.

On Sept. 14, Hernandez was accompanied at the gathering by Charles Holley, then senior vice president for finance and now the company's treasurer, and Christopher Williams, a Wal-Mart director on the audit committee, according to a 2006 deposition Holley gave as part of the wage-and-hour lawsuit in Pennsylvania. Williams is chairman of a New York investment bank, Williams Capital Group LP.

7.8 Million Shares

They met in the city offices of Comptroller Thompson, who oversees five municipal funds with 7.8 million Wal-Mart shares worth $370 million. Thompson was joined by representatives of state pension plans in Illinois, California, Connecticut and New Jersey, along with fund managers based in the United Kingdom and Sweden, some of whom participated by telephone, according to Holley's deposition.

The parties traded cordialities and very little else, says Sylvester, who also attended.

The investors repeated their call for Wal-Mart to create an independent committee. Wal-Mart rejected the idea because the audit committee already provided an independent voice, Holley said in his deposition.

``It would be redundant to have another committee,'' he testified. Company audit committees typically review financial statements and management's oversight of internal controls.

Hernandez had other reasons to be cautious, according to Holley's testimony. If independent observers reviewed Wal-Mart, there was a ``high risk'' they could ``get the issues wrong,'' Holley said, quoting Hernandez. Holley testified from his notes of the discussion.

`Not Addressed'

Wal-Mart executives indicated they were willing to discuss the issues further, according to Litvack, who had a Boston-based colleague attend the meeting.

Litvack says she was hopeful. ``The company responded mostly very positively,'' she recalls.

Her optimism didn't last. Looking back, she says, ``The dialogue never really got going.''

Sylvester gives a similar assessment. ``At the end of the day, we walked away from that meeting feeling OK, we had a nice conversation, but our concerns were not addressed,'' he says. ``It was sort of a feel-good, kind of take-my-word-for-it meeting.''

Simley, the Wal-Mart spokesman, says the board views an independent committee as unnecessary.

``It would provide no benefit to the company or its shareholders,'' he says. ``The board felt that its independent audit committee is well qualified to handle those duties.''

`Constructive Meeting'

He declined to make Hernandez, Holley or Williams available for comment or to discuss details of the New York gathering except to say: ``I think we saw it as a constructive meeting.''

Two months after the meeting, on Nov. 30, Thompson wrote to directors Hernandez and Williams, according to court filings in the Pennsylvania case. The co-signers expanded to include Westly and Meredith Miller, Connecticut's assistant treasurer for policy.

Wal-Mart's legal problems ``strongly suggest a management culture of indifference,'' Thompson wrote. He referred to an internal memo to the board from Susan Chambers, Wal-Mart's executive vice president of benefits, that suggested the company might cut health-insurance costs by hiring healthier workers. Contents of the memo had been provided to The New York Times, which published an article on it that October.

``This culture originates at the highest levels of management,'' Thompson continued.

Requesting Details

An attachment to the letter requested a detailed account of company policies on whistle blowers and managers who violate company ethics standards. The attachment also asked for information about ``the company's internal controls for ensuring that individual and regional store performance targets and aggressive growth targets are not driving non-compliance throughout the system'' and ``how the company's technological capabilities are utilized to prevent the exploitation of workers, such as denial of overtime pay.''

Hernandez responded on Feb. 8, 2006. He offered a second meeting and assured the investors that Wal-Mart's board and senior management ``are all committed to developing best practices in the areas of internal controls, legal compliance, corporate responsibility, and ethics.'' The company is disclosing more to shareholders, Hernandez said, adding that ``over the next 14 months, we have committed to make a comprehensive sustainability report available to shareholders.''

No `Meaningful' Response

Simley says the report will be issued around the time of Wal-Mart's annual meeting in June. The company said last year it would likely outline company policies and actions in such areas as benefits, wages, diversity and the environment.

Thompson's investor group wrote again to Hernandez in May 2006. While accepting the offer to meet again, the investor group wrote: ``To date, we do not feel we have received a meaningful response. Rather, you have offered general statements regarding Wal-Mart's progress over the past three years.'' Such assurances, the letter said, ``are insufficient.''

As publicity mounted over labor issues at Wal-Mart, some investors sold their shares. In June 2006, Norway's $242 billion global pension fund, one of the world's largest, announced it had sold its Wal-Mart shares, saying the legal troubles showed ``serious and systemic violations of human rights and labor rights.'' The fund's holdings in Wal-Mart and Wal-Mart de Mexico were worth $2.5 billion kroner ($398 million) in December 2005.

Three months after Norway's action, a Sweden-based pension fund, Gothenborg-based Andra AP-fonden, sold all of its shares, valued at 300 million kronor, or $41 million.

Retaining Shares

New York City isn't dumping its Wal-Mart shares, Sylvester says.

``As long-term shareholders, and given the large size of our investments, divestment is generally not a practical option,'' he says. ``For this reason, we will continue to pursue reforms at Wal-Mart.''

A second meeting between the dissident investors and Wal- Mart never materialized, Sylvester says. Wal-Mart's Simley declined to comment.

Thompson decided to go public again. Last December, he announced a shareholder resolution that asks Wal-Mart's board to produce a report by September ``on the negative social and reputational impacts'' of the company's non-compliance with international labor standards and its internal controls.

Thompson says Wal-Mart should work with shareholders to develop policies to protect its workers.

`Global Reputation'

``Given the numerous allegations, reports and lawsuits involving violations of workers' rights, Wal-Mart has established a global reputation that could negatively impact its sustainability and long-term value,'' Thompson said in an e-mail to Bloomberg explaining his position.

Wal-Mart's vast size makes growth more difficult than smaller rivals and has produced more modest investor expectations, says David Abella, an analyst at New York-based Rochdale Investment Management, which has $2.2 billion in assets, including Wal-Mart shares.

The retailer has tried carrying more discretionary goods that might appeal to higher-income shoppers who visit the store for basic items. Yet the lawsuits and negative publicity ``may impede making inroads into the upper-middle-end consumer, who views Wal-Mart negatively,'' Abella says.

Litvak, of F&C Asset Management, isn't satisfied with Wal- Mart's position. ``The issues remain exactly as they were a year ago,'' she says.

Westly, 50, who was an unsuccessful Democratic candidate for governor last year, now runs the Westly Group, a venture capital firm in Menlo Park, California.

``Wal-Mart's reputation continues to struggle,'' he says. ``Today, the market is demanding responsible companies and products. Wal-Mart has every reason to change its ways.''

From the Wall Street Journal:

The New York City Comptroller asked the U.S. Attorney General's office and the Securities and Exchange Commission to investigate Wal-Mart Stores Inc. for what it called "ill-considered and possibly illegal surveillance operations" directed at shareholders who submitted proxy petitions.

In letters to both agencies, Comptroller William C. Thompson Jr., citing a recent article in The Wall Street Journal, said he was "particularly troubled by reports that Wal-Mart engaged in chilling and truly outrageous surveillance activities."

The April 4 article detailed the company's extensive surveillance of employees, critics and shareholders. As one example, the article detailed how internal security groups were asked to investigate shareholders who had submitted proposals that could potentially disrupt the company's annual meeting and that the company was trying to block.

The comptroller's office submitted a proposal that requested the Wal-Mart board to abide by a corporate code of conduct for companies doing business in Northern Ireland. New York City's Pension Funds hold approximately eight million Wal-Mart shares, currently valued at nearly $400 million.

The April 4 article noted that in a January internal memo viewed by the Journal, a Wal-Mart official asked its internal security groups to "do some preliminary background work on the potential threat assessment for the Annual Shareholders Meeting," listing the 14 submitted proposals. The official cautioned that the company's efforts to thwart some of the petitions "can create a potential for a negative reaction from the shareholder group that submitted the proposal."

Shortly after the article ran, Wal-Mart contacted some of the shareholders to apologize, particularly for referring to them as potential threats. Mr. Thompson said the phone call didn't appease his office.

"The response they gave my office was that it was justifiable and that they had no problem with it," Mr. Thompson said. "We want to know to what level this background investigation went. If they just Googled us, fine. But we can't get answers."

Wal-Mart wouldn't comment, but it provided a letter written by its top legal officer that was faxed this past Thursday to all shareholder proponents, in which the company said the request to do a threat assessment was never carried out.

The letter went on to explain that "in the ordinary course of business and for legitimate business reasons, Wal-Mart will conduct background research on persons or organizations, including proponents of shareholder proposals ... Any information gathered about proponents of shareholder proposals would come from internet searches and from other publicly available sources of background information."

The Comptroller's office says it received the fax but still wasn't satisfied.

Other shareholders got on the Wal-Mart threat list with a variety of petitions. Action Fund Management LLC, which operates the Free Enterprise Action Fund, submitted a proposal that would require the company to report on what it has done to promote "the social benefits of business and the virtues of capitalism." Last week, after the Journal article ran, the group sent a letter to Wal-Mart seeking "any and all information" that Wal-Mart may have collected on the fund and its managers.

Steven J. Milloy, the Potomac, Md., fund's managing partner, asked that the retailer's chief executive and general counsel "personally certify" that the company had done no "inappropriate surveillance of shareholders" who submitted petitions for the upcoming annual meeting.

From the Associated Press via the Houston Chronicle:

BENTONVILLE, Ark. — Wal-Mart won a gag order to stop a fired security operative from talking to reporters and a judge ordered him to provide Wal-Mart attorneys with "the names of all persons to whom he has transmitted, since January 15, 2007, any Wal-Mart information."

The court papers made public Monday follow a string of revelations about the retailer's large surveillance operations and its business plans.

Wal-Mart Stores Inc. filed a lawsuit and request for a temporary restraining order directly with a Circuit Court judge after court hours Friday.

In the lawsuit, Wal-Mart alleges that former security operative Bruce Gabbard violated trade secrets law by revealing to reporters "confidential information about Wal-Mart security systems and operations" and "highly confidential information about Wal-Mart's strategic planning". It seeks unspecified damages.

The judge's temporary order bars Gabbard from disclosing any further Wal-Mart trade secrets or confidential information.

The suit and restraining order were filed two days after Wal-Mart apologized to activist shareholders for Gabbard's revelation that they were considered potential threats and ahead of a story in Monday's editions of the Wall Street Journal on Gabbard's claim that Wal-Mart had a super-secret "Project Red" aimed at bolstering its stagnant share price.

Wal-Mart declined to comment on the "Project Red" report except to say in a statement, "Our senior management, our board and their advisors regularly conduct thorough, strategic reviews of all aspects of our business. That's just good governance. We look at a full range of alternatives, many of which are considered and rejected, and we will not comment specifically on any of them."

The Interfaith Center on Corporate Responsibility, a coalition of faith-based investors that has worked with Wal-Mart since 1990 on a variety of social issues, demanded Monday that Chief Executive Lee Scott apologize formally for a memo that lists the group as a potential threat.

ICCR members hold more than 2 million shares in the retailer.

"More importantly, we ask CEO Lee Scott to shift shareowner resources away from these public relations activities and instead focus on the core issues ICCR and other concerned investors have been bringing to Wal-Mart for almost two decades: the human dignity inherent in each supply chain worker, in-store employee, and customer of Wal-Mart," the group said in a statement.

Wal-Mart's union-backed critics said the latest revelations about Wal-Mart's security operations and the share price project deserved congressional scrutiny.

"Given the scope of the Wal-Mart spy scandal, the time has come for congressional hearings to find out how deep this rabbit hole goes," said Chris Kofinis, spokesman for WakeUpWalMart.com.

The restraining order suggests that Gabbard, 44, might still have Wal-Mart equipment or documents. It orders him to surrender any documents or data and a long list of "all home and work computers, personal digital assistants, hard drives, thumb drives, and all other electronic or digital media and hardcopy information."

It also orders Gabbard, at Wal-Mart's request, to provide lawyers with the names of contacts to whom he has provided information about the company.

Gabbard, a 19-year Wal-Mart veteran, was fired along with his supervisor last month for allegedly recording phones calls between a reporter and company officials and for intercepting pager messages between other persons. Wal-Mart said Gabbard violated its policies.

Gabbard was part of a 20-strong security team called the Threat Research and Analysis Group.

Wal-Mart made the case public last month and denied Gabbard's claims that his actions were the result of pressure from Kenneth Senser, a former senior CIA and FBI official who has headed Wal-Mart's office of global security since 2003.

Gabbard did not work for Senser's department, although the company and others familiar with the case said Senser has the authority to work with staff from other divisions in carrying out investigations. Gabbard has said he felt pressured by Senser to find information leaks, while Wal-Mart has denied that those conversations alleged by Gabbard took place.

Gabbard and his former supervisor, Jason Hamilton, who was also fired, have declined repeated requests for interviews with The Associated Press.

But in a text message to The Associated Press last week, Gabbard confirmed the allegations that he was part of a broader surveillance operation against company workers, critics, vendors and consultants that he alleged were approved by the company.

From the Wall Street Journal:

Wal-Mart Stores Inc. is embroiled in a messy fight with a security engineer whom it fired last month -- but who it now fears left with information about a secret plan to boost the giant retailer's lagging stock price.

The program, called "Project Red," included a consideration of, among other ideas, a possible spinoff of Wal-Mart's Sam's Club warehouse-store unit.

So secret was Project Red that its reports were encrypted, and consultants who worked on it last fall toiled in a locked office that was swept for electronic bugs. But this weekend, it turned out that computer hard drives Wal-Mart believes contain Project Red information were in the car of the wife of Bruce Gabbard, a security engineer Wal-Mart had once entrusted with guarding its secrets. The company fired him early last month for taping calls between a Wal-Mart executive and a New York Times reporter.

On Saturday, Mr. Gabbard's attorneys were eventually able to reach the security engineer's wife and the hard drives were delivered to the Benton County, Ark., prosecutor's office. As of yesterday, Bentonville-based Wal-Mart had not yet retrieved them.

On Friday, Wal-Mart sued Mr. Gabbard, accusing him of leaking trade secrets in articles published in The Wall Street Journal. The suit in Benton County circuit court said Mr. Gabbard possessed "highly confidential information about Wal-Mart's strategic planning," an apparent reference to Project Red. A judge granted a temporary restraining order barring Mr. Gabbard from disclosing confidential information.

Wal-Mart wouldn't comment on any specifics of Project Red. In a statement, it said: "Our senior management, our board and their advisors regularly conduct thorough, strategic reviews of all aspects of our business. That's just good governance. We look at a full range of alternatives, many of which are considered and rejected, and we will not comment specifically on any of them."

Wal-Mart, long widely admired as a smooth-running retail machine, lately has been on the defensive over its labor policies, health benefits and stock price. Its shares are off 20% over the past five years, versus a 75% gain for rival Target Corp. Though Wal-Mart remains robustly profitable -- earning $11.28 billion last year -- some investors are clamoring for it to take radical steps to become even more so.

Some episodes at the company have had the flavor of a corporate soap opera. A former vice chairman pleaded guilty last year to fraud and tax evasion related to using company funds for custom-made alligator boots and a dog kennel, among other things. He had said he was reimbursing himself for payments he made to help keep unions out of Wal-Mart. In December, Wal-Mart fired a senior marketing executive, saying she had had a personal relationship with a subordinate and accepted gifts such as pricy vodka from a vendor. When she sued, Wal-Mart filed in court what it said were suggestive emails.

Mr. Gabbard, a 44-year-old Marine Corps veteran and former reserve deputy sheriff, spent 19 years at Wal-Mart, the last few in the Threat Research and Assessment Group. The team hunted computer hackers outside the company and regularly searched emails and monitored phones looking for misbehavior or leaks. It worked in a highly secure area nicknamed the Bat Cave.

Mr. Gabbard says he was tasked with the electronic monitoring of directors' meetings, in a hunt for anyone who might be spying on them. This gave him unusual access to information. He says that two years ago, while manning a countersurveillance desk during a board meeting in Puerto Rico, he listened as directors debated a multibillion-dollar settlement offer in a big lawsuit alleging sex bias in pay and promotions. The board voted to reject it for several reasons, including the bad publicity it would generate, Mr. Gabbard said in an interview in late March. Wal-Mart declined to comment.

Mr. Gabbard was part of the security team for Project Red. Wal-Mart hired two teams of McKinsey & Co. consultants, so neither could have a full grasp of the project. Cameras inside a room recorded their activities, according to Mr. Gabbard. The security team was responsible for encrypting data and reports and for creating passwords to keep the work under electronic lock and key. The project, involving heads of domestic and overseas units, finance, legal, procurement and a firm that manages money for the founding Walton family, finished late last year, an internal document shows. McKinsey declined to comment, citing client confidentiality.

In January, an outside attorney for Wal-Mart questioned Mr. Gabbard and some colleagues about unauthorized taping of phone calls between a Times reporter and Mona Williams, Wal-Mart vice president of corporate communications. Mr. Gabbard says he was asked what gave him the right to eavesdrop on a vice president's conversation. He says he replied: "I'm the guy listening to the board of directors when Lee Scott is excused from the room," referring to the Wal-Mart chief executive. He says the lawyer dropped the topic.

But Wal-Mart put Mr. Gabbard on paid leave as an outside forensics team investigated his group's activities