Matthew Schoenfeld

"As a shareholder and director of our company, I’m always proud of Wal-Mart.” These are the words of Hillary Clinton at the company’s 1990 stockholder meeting. You might not recognize this version of Clinton because the more recent version has attempted to match Democratic challenger Sen. Bernie Sanders in his disdain for ‘big business.’ But Clinton’s record at Wal-Mart should make voters question both the authenticity of her populism as well as the genuineness of her proposed policy solutions.

First, some background. Clinton was a director at Wal-Mart from 1986-1992, a time of rapid growth for the company. From 1986-1991, Wal-Mart created 230,000 jobs, more than any other firm in the country. The company grew quickly because it was wildly profitable and it was wildly profitable because it obsessively managed expenses. Cost management was vital to Walmart because, like most retailers, its profit margin — the amount of profit a business makes on each dollar in sales— is notoriously thin. For every dollar in sales Walmart makes, the company pockets just about three cents in profit.

Of course, then, as now, Walmart’s biggest cost was labor. And to keep labor costs in check, Wal-Mart took pains to make sure its workers didn't unionize. During Clinton’s tenure, the company’s strategy for dealing with organized labor was directed by fellow board member, John Tate. Mr. Tate famously summed up his philosophy at a 2004 managers meeting: "Labor unions are nothing but blood-sucking parasites living off the productive labor of people who work for a living.”

According to former board members, Clinton did not denounce the ‘anti-union’ efforts Tate spearheaded, nor rail for increased employee wages. Donald G. Soderquist, the board’s then vice chairman, has said that not only was Clinton “not a dissenter,” but that “she was a part of those decisions.” Wal-Mart’s stock rose by more than 500% during her tenure and Clinton’s shares were worth nearly $100,000 by 1992.

Clinton’s Wal-Mart tenure not only not only raises the issue of hypocrisy, but it makes one question whether she even believes in her own policy prescriptions. Specifically, Clinton claims that a substantial increase to the minimum wage — her platform calls for a 65% hike — would have little to no impact on job creation. But surely, given her time as a director at the nation’s largest retailer, Clinton is aware that even small cost increases make a big difference to low-margin businesses. For proof, one need look no further than Wal-mart’s recent struggles.

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In February 2015, after three decades of political pressure, Wal-Mart announced an across the board hike to its own minimum wage. Just eight months later, in October, Wal-Mart announced that it would slow U.S. store openings by nearly 60% in the coming year, citing falling profits amid a $1.5 billion increase in labor costs. Then, last month, on January 15th, Wal-Mart announced that it would close 154 stores in the U.S. while eliminating 10,000 U.S. jobs. A majority of the store closures were smaller-format "Express" stores. A good guess as to why: At 12,000 square feet and 30 associates per store, the labor costs at the smaller-format stores are a lot higher on a square foot basis than at the company’s 178,000 square foot supercenters.

Now, none of this is to say that raising the minimum wage is a categorically ‘bad’ idea. It would raise pay for millions of workers, but would come with the tradeoff of layoffs and store closures for others. The problem is Clinton’s decision to consciously ignore this tradeoff despite knowing better.

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Clinton likely papered over such nuance in the interest of political expedience, aggressively attacking big business in an attempt to blunt Sen. Sanders’ momentum. But times have changed. Voters don’t want triangulation, they want authenticity — even if it comes from a septuagenarian socialist who looks like he wandered off the set of Grumpy Old Men.

Steve Jobs, the late Apple Inc. co-founder, once said “A lot of times, people don’t know what they want until you show it to them.” Hillary Clinton might take heed. Instead of serving as an echo chamber for her party’s base, she would do better to present a vision for the future that challenges and inspires them.

Matthew Schoenfeld is an assistant portfolio manager at Driehaus Capital Management LLC.

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