Chicago Tribune

CHICAGO – Wal-Mart Stores Inc., which has been on a mission to rehabilitate its public image, suffered a setback Friday when it confirmed it is the subject of a federal grand jury investigation.

The probe involves accusations that the former vice chairman at the world’s biggest retailer misspent up to $500,000 – some of it allegedly for widely criticized anti-union activity.

“We’re aware that there’s an investigation,” Wal-Mart spokesman Marty Heires confirmed Friday. “We’re cooperating.” He wouldn’t say whether any Wal-Mart workers or documents had been subpoenaed.

Wal-Mart stock on Friday fell 2 percent, or 97 cents, to $46.81, nearly its lowest close in two years.

On March 25, former Vice Chairman Tom Coughlin retired from Wal-Mart’s board amid an internal investigation over personal reimbursements, payment of third-party invoices and the use of company gift cards.

Wal-Mart referred the matter to a U.S. attorney’s office in Arkansas. The resulting investigation by federal prosecutors is the latest blemish to show up on the $285 billion discount chain.

Wal-Mart faces slower sales growth and a stock price that has been under pressure. Besides being taken to task for being anti-union, Wal-Mart has been criticized for everything from putting small mom-and-pop shops out of business to providing meager health benefits to employees to receiving government subsidies for infrastructure improvements around its stores.

In January, the company bought full-page color advertisements in more than 100 U.S. newspapers to address criticisms about its wages and benefits and to cast itself as a career option for the upwardly mobile. Yet the criticism is taking its toll.

Starting in early 2005, investment firm Prudential Equity Group has surveyed consumers who have shopped at Wal-Mart during the past year, and found that 8 percent of respondents expressed negative sentiments regarding Wal-Mart’s reputation as a corporate citizen, including its treatment of workers.

“While we expected some negative feedback regarding corporate policy, this figure was a little higher than we anticipated,” analyst Wayne Hood said in an April 12 report.

At least one retail analyst was unworried by the grand jury investigation.

“I’m not concerned about it. Operationally, the company is doing pretty well. Sales have been trending a little better over the past three months compared to the prior six months,” said Richard Hastings, head of Spendingspending.com, a consulting firm. “I’m not concerned about the spillover of negative publicity. The many negative PR events that we’re used to seeing won’t be a factor in 18 months.”

Wal-Mart assured investors last month that the Coughlin matter will have “no adverse financial impact” on the company.

The company also has denied that any of the alleged improper spending was related to anti-union activities.

Still, the United Food and Commercial Workers Union, which has been waging a long, costly battle against Wal-Mart, said in a statement Friday that it’s pleased that the “legal process” against the company is “going forward.” It also urged the company to release all related documents.

“Clearly, the American people deserve to know how deep Wal-Mart’s anti-union rabbit hole goes,” the union said.

Prompted by news accounts earlier this month detailing Coughlin’s alleged payoffs to union members to tattle on pro-union Wal-Mart workers, UFCW officials said they want to see Wal-Mart’s documents to further their own investigation.

The UFCW has led organized labor’s effort to sign up members at the global giant, but so far, it has not organized even one of the company’s U.S. stores.

Wal-Mart has made moves that some believe were aimed at countering union activities. Soon after 11 butchers in Texas voted to join the UFCW five years ago, for example, Wal-Mart said it was shifting to prepackaged meat and no longer needed meat cutters.

Similarly, the company said earlier this year that it would close a store in Quebec, Canada, after workers there voted in favor of the UFCW. The company explained that the store was unprofitable.

But the union has maintained organizing efforts at a handful of Wal-Mart stores in Canada, where unions claim that labor laws give them more of a chance at signing up members than in the United States.

In the United States, the union recently put its store by store organizing drive “on hold,” and shifted to a massive publicity campaign, said Paul Blank, a UFCW official in Washington, D.C.

“You can’t get enough leverage, and they are too ruthless to be organized store by store,” he explained.

Last month, Wal-Mart invited about 100 reporters to its headquarters in Bentonville, Ark. for a two-day conference to hear about everything from its financial performance to its hiring practices.

“I find it interesting that the UFCW didn’t really care much about pay and working conditions at Wal-Mart until we began opening grocery stores in the 1980s – directly threatening their turf,” said Wal-Mart Chief Executive Lee Scott.