In 1996, Sylvester Johnson left his post as a commanding officer in the US Army and began a career managing logistics at Walmart's corporate headquarters in Bentonville, Arkansas. Once there, he received a series of rapid promotions, eventually overseeing the HR management of over 26,000 employees in five states. He became friendly with Walmart executive Mike Duke, who became CEO in 2009. In 2002, Johnson received the Sam M. Walton Hero Award, a prestigious company distinction. In 2003, he moved to North Carolina where he oversaw eleven Walmart Supercenters. The company fired him in 2009 for allegedly giving orders to manipulate inventory counts, a claim Johnson denies.A Chicago Walmart on Black Friday. (Reuters/John Gress)
Instead, Johnson believes he was ultimately terminated because he is black. He also alleges--in an interview with The Nation and in a federal discrimination lawsuit--that the company engaged in widespread inventory manipulation.
"We're talking about hiding tens or hundreds of millions of dollars in losses here--inflating the profits of a store, a district, a region, a division and ultimately the entire company," Johnson told The Nation. In theory, such a practice could have artificially inflated the company's profit margins and stock price, amounting to a form of federal securities fraud.
Johnson claims that during his tenure as a Walmart district manager he was pressured by the company's high command to hide losses due to "shrinkage"--defined as lost or stolen inventory--in order for stores to appear more profitable than they really were. Throughout the course of over six hours of interviews with The Nation, Johnson maintained that top management set shrinkage targets for Walmart Supercenter stores under his supervision that were "not ethically attainable" and then used methods of "fear and intimidation" against him in an attempt to compel him to meet those targets. Shrinkage represents a loss to any firm's bottom line. It is a major factor in retail profitability, costing US retailers an estimated $34 billion in losses annually, according to the National Retail Federation.
Johnson's case, which goes to trial on April 22 in a North Carolina federal district court, seeks to prove that he was treated differently than his white counterparts. He argues that while white district managers were manipulating inventory counts to make their stores appear more profitable, he refused to engage in such a practice and was fired on false charges of doing so.
In recent years Walmart has faced a series of high-profile discrimination suits, including the largest class action discrimination case in American history, Wal-Mart v. Dukes, which was thrown out by the Supreme Court in 2011. In 2009, the company paid $17.5 million to settle a suit alleging the company had discriminated against African-American job applicants.
Walmart rejects Johnson's allegations. "We conducted a thorough investigation and have detailed information outlining his misconduct, and, based on the facts, he was terminated for violating company policy," company spokesperson Randy Hargrove told The Nation. "Walmart does not condone or tolerate discrimination of any type and that played no role in his dismissal."
"Additionally, we have strict policies around inventory accounting, and the allegations Mr. Johnson have raised are completely false and unsubstantiated," Hargrove added. "In addition to Mr. Johnson, more than a dozen associates in his market were disciplined for failing to report the direction he gave them."
In June of 2008, a company executive named David Carmon took over as Walmart's Regional Vice President for North and South Carolina. Johnson claims that, at the time, some stores in his district were losing about a million dollars in shrinkage annually. Carmon instructed him to cut his stores' shrinkage rates in half--a target that Johnson felt was impossible to hit without resorting to unethical and illegal accounting practices. According to Johnson, Carmon warned of repercussions if Johnson's shrinkage rate did not fall. "He threatened everybody that if you didn't get your shrink down, you were going to be terminated," said Johnson in a court deposition. Speaking to The Nation, Johnson said that Carmon used "tactics of fear and intimidation, and everyone looked the other way."
Johnson says that recorded shrinkage rates reduced to incredible levels in regions that Carmon oversaw. Carmon left the company in 2010, according to his LinkedIn page, which touts his achievements in reducing Walmart's shrinkage rates in the Carolinas: "I successfully led some of the company's largest operating units through remarkable growth and expansion, delivering strong and sustainable financial results. Most notably, the North and South Carolina region responsible for $15.5B in sales has seen a $60M+ reduction in shrinkage loss..."
Johnson says that he didn't "play ball" with Carmon's orders. In October of 2008, Walmart began investigating claims that Johnson was giving unethical directives. The company terminated Johnson's employment in January of 2009 on the grounds that he instructed his subordinates to manipulate inventory accounting--the very practice that Johnson claims he refused to engage in. The following year, he filed suit.
According to Johnson, the practice of manipulating inventory counts extended beyond just the regions Carmon supervised. Johnson says he reviewed the shrinkage rates of over 400 Walmart stores around the country and was astonished at what he saw: impossibly low inventory loss rates to the point that stores would commonly display a negative rate of shrinkage, known as on "overage." An overage occurs when records show quantities of inventory on hand greater than what was shipped to the store--a sign of either accounting or shipping errors, or deliberate fraud.
Source: The Nation | Spencer Woodman
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