A Multi-Million Scandal of Dick Smith - Case Study Example

CASE STUDY Name: Course: Instructor: Date: Dick Smith: From Rags to Riches Analysis of the situation The main issue in this case study revolves around the rise of Dick Smith from small and privately owned business enterprise to a multi-million scandal. Dick and Smith were started as a small company and later on grew into an international chain of stores. Later on, when business was booming and the chain stores had won the trust of the clients, the owner sold of the company to Woolworthies. However, just before the sale of the company, the firm engaged in unethical conduct in which its loyal customers were duped to buy gift cards which were later dishonored by the company. The sale of the company from Woolworths to Anchorage subsequently led to another scandal where long serving employees were laid off and subsequently lost their accrued benefits. When it seemed that Deloitte auditing staff, under the leadership of George Starkey, would discover what was ailing the company, the lead accountant was immediately fired and the entire staff replaced. Key issues There are key three key issues in this case study The unethical behavior of Dick Smith The case of Ella and Jim justifies the unethical business behavior by a firm with a good reputation and customer rating like Dick and Smith. From the word go, Ella had entered the particular Dick and Smith Store to purchase a computer and nothing else. However, Jim knew very well that the inventories for batteries and computer mouses were full. Similarly, it also seems like Jim was aware that the company could not honor the gift cards after the Christmas session. Hence, once Jim realized that Ella could purchase neither the laptop batteries nor the computer mouse, he successfully duped her to buy a gift card. The revelation that the stores were full of mouses and batteries therefore justifies that Jim was very much aware of the intended sale of the company as well as the plan to dishonor the gift cards too. In other words, Dick and Smith were after making quick money from the abnormal inventories before finally selling off the company. Manipulation of accounts to deny employees their benefits The case of Louis Fitzgerald and Woolworths tends to confirm that the company’s management intentionally manipulated their system to deny the long serving employees their accrued benefits. Before moving to the newly purchased Dick Smith, Louis was assured that all his payment was intact and nothing could be lost. However, thing started taking a different tune after Woolworthies sold Dick and Smith to Anchorage and Louis, alongside other employees were told that someone had messed up their payments. In the same manner, the decision by Anchorage to float Dick Smith was an intended move for the company to recover its capital investment before pulling out of the company. Hence, the fact that Louis lost all his investment after buying shares in the company was a move designed by Anchorage to scrupulously milk cash out of innocent people who bought shares in the company. Deloitte colluded with Woolworths to avoid audits that could reveal the real value of the company The firing of George Starkey alongside his audit team tends to imply that the top management at Deloitte worked in tandem with the management at Woolworth to jeopardize any efforts that could reveal the real worth of the company to the public. George had worked on Dick Smith audits for three years in a row and was well versed with the performance trend of the company. For instance, he continuously questioned the growing debt of the company amidst increasing sales. At the time when he was fired, George was in the final stages of winding up the audit report of the firm, the report that could have disclosed the mind games around Dick smith and the numerous changes in ownership. Hypothesis The initial hypothesis is that Dick and Staff wanted to balance its accounts by convincing loyal buyers to buy out the excess inventory before selling off the company The second hypothesis in this case is that Woolworths capitalized on the various changes in ownership of Dick smith to retain and hence deny its workers their accrued benefits The last hypothesis is that George Starkey was fired because his audit report threatened to reveal the exact worth of Dick smit amidst the company’s collapse. Proof and consequent actions The first hypothesis is true especially if analyzed from the actions of Jim when he met Ella. While Jim initially tried to convince Ella to purchase either laptop batteries or a mouse for the laptop, it is later revealed that batteries were in excess and Dick Smith was faced by a “Mouse Plaque” The second hypothesis is also true since the reason given to justify Louis’ dismissal was that the payment had been messed up during the changes in ownership. And finally, the third hypothesis is also true as Dick Smith, the initial owner of the company says that there was no possibility of a company rising from a net worth of $90 million to $500 million in 12 months. Hypothesis testing against alternatives The evidence given to support the hypothesis above are all established from the case study and hence justified. The available evidence in the case study strongly hints at intentional manipulation of the public by the various companies that bought and sold Dick Smith. INTERGRATED REPORT AT AEGON Analysis of the Situation In this case study, the major issue revolves around the impact of integrated reporting on the competitive edge of Aegon. According to Marc Van Weede, Aegon’s Global Head of Sustainability, the company had just received its first ever integrated report which seemed quite different from its regulatory filing system. In order to align the organizations to the tenets of integrated reporting, there was need to restructure the business model in such that Aegon became more customer-centered than money-oriented. Hence, in this report, the various challenges that faced the company in its bid to embrace integrated reporting have been extensively discussed. Key issues The key issues in this case relate to the challenges of integrated reporting system as compared to the traditional reporting. New business model and new business structure Integrated reporting demanded for a more compact organization structure as compared to the initially extensively decentralized approach at Aegon. Hence, in order to embrace integrated reporting, Aegon had to adjust its structure and have all major policies made at the headquarters in Netherlands rather than in the various countries where the company has affiliate businesses. Group sustainability Since the company had readjusted its structure and business model, it subsequently required an overseeing team that would help the company through the transition and hence the establishment and formation pf the group sustainability team. The major function of the team was to help Aegon, readjust its operational models to focus more on the customers and stakeholders. The decision to join the IIRC Pilot Program Since the concept of Integrated Reporting was new to Aegon, joining IIRC Pilot program was the best way the company could have learnt on the various aspects of the reporting strategy. Although regarded as a quick decision, the move offered the company a way to improve engagement, a better approach to risk mitigation and an insight into the regulatory compliance and report format. Hence, Aegon extensively benefited from joining IIRC Pilot program Challenges of integrated reporting The decision to join IIRC was hurried and as result, the company faced major challenges implementing the same. For instance, there were challenges to do with demonstrating concrete links between the financial and non-financial data, lack of definitive reporting guidance, issues to do with data collection, and the need to assure the various stakeholders on non-financial information. Hypothesis Aegon’s move to embrace integrated reporting necessitated the need to for changes of organization structure and business model and hence helped the company to establish and sustain engagements with the customers and stakeholders. The second hypotheses would be that despite the quick decision to join IIRC, Aegon largely benefited by obtaining guidelines on the best way to implement integrated reporting at its premises alongside the help of the newly formed sustainability department at Aegon. Finally, the last hypothesis would be that the integrated reporting system was far much better than the traditional filling system. Proof and consequent actions According to the sustainability manager, Aegon’s Corporate Social Responsibility (CSR) efforts had grown significantly low. The company had never issued a global employee engagement survey, had no global responsible investment policy and was just beginning to consider a systematic means of measuring indicators like customer loyalty. However, the adoption of integrated reporting and the subsequent implementation led to implementation of all the items listed above and further established a connection between the company and its customers. Similarly, while some stakeholders argue that Aegon’s top management rushed the decision to join IIRC, Aegon’s $250 billion asset management business had grown significantly since its formation in 209 under integrated reporting. Hence, there was need to supplement the efforts of the sustainability team and IIRC offered the best alternative. Finally, the integrated reporting offered a better chance for the management to oversee the activities of the company’s businesses in different countries. The approach offered a more centralized approach to management unlike the traditional filing system. Hypothesis testing against alternatives The only available alternative in this case is that Aegon would have not implemented the integrated reporting system and hence stuck with its initial traditional filing system. In the above scenario, the distance between the company and its customers would have continued widening to the extent that the company risked losing touch with its clients. In fact, continued implementation of the traditional filing system was likely to lower the overall returns on revenue since the company would not have identified the exact needs of its customers. Hence, implementing the integrated reporting system was the better option since it brought the company closer to both the employees and customers. Merran Hill Analysis of the situation The situation in the case study revolves around the financial performance of Merran Hill in the financial year ended June 2016. Apparently, the firm has been making significant profits until June 2016 when the company recorded its first ever loss. Hence, in this case study, the board of management of Merran Hill takes time to analyze some of the causes of the poor performance and subsequently makes suggestion to improve the performance of the company in 2017 financial year Key issues Poor quality of raw materials According to Jane Oh, the company’s production manager, the main cause of the material variance which led to overspending from the budgeted $1.5 m to the $ 2.1m spent was material variance. Merran Hill was forced to source cocoa of a higher quality in January after in a reputable newspaper portrayed Merran Hill in a negative light for using inferior cocoa. Further on, analytic results conducted indicated that cocoa quality used at Merran was not industrial but not A-grade either. Outsourcing Jane Oh also pointed out that it is not just materials that have been problematic but production costs had also increased dramatically due to higher wages and specialized machines and in the same regard, she encouraged the Board to consider outsourcing the production of Berry Delight. Outsourcing the production of Berry Delight would also result into a greater reduction in costs than for the other two products, because it is more labor intensive. Production costs Jane Oh Jane also pointed out that increased costs might be a factor in the dip in performance. For instance, any increase in the cost of production often leads to a corresponding decrease in the profitability of the venture. Hence, according to the production manager at Merran Hill, the company was spending numerous resources in the production process to the extent that the overall profits realized from the sale of the products had significantly dropped. In this regard, Jane advised the board of directors to consider outsourcing as a means of cutting down on the costs of production. Corporate Governance issues During the board meeting, Jane Oh, the production manager, raised a concern that she has had for a while in relation to one of the machines used in the production of ChocMint and ChocAlmond. She further explained that the regular machine is used for both chocolates and is extremely expensive. Similarly, the capacity constraint of the regular machine is becoming more urgent, and as a result, the production manager proposed analysis of the two remaining products with tow views in mind: Merran Hill to either purchase a new regular machine, or discontinue either ChocMint or Choc Almond. Nevertheless, Rupert Singh, while discussing the two proposals with James, insisted that Merran Hill did not currently have the necessary cash flows to acquire a new machine and he instead suggested not looking into leasing opportunities. Although James didn’t say anything at that time, he was sure that he could talk Rupert into considering leasing because of the advantages of off-balance sheet financing. Hypotheses There are three major hypotheses in this case study. The initial hypothesis is that the dip in the financial performance of Merran Hill came as a result of poor quality raw materials. According to the information published in the article that circulated in the dailies, Merran Hill had been using poor quality cocoa in its production processes. There are thus high chances that the article tainted the reputation of Merran Hill and hence poor overall sales made. The second hypothesis is that the poor financial performance of the company was as a result of increased cost of production. Practically, any increase in the cost of production reduces the overall profits. The third and final hypothesis is that the poor performance of the company occurred as a combined effect of increased cost of production and the use of inefficient machines. If machines cannot offer the required efficiency, then the overall rate of production goes low and the machines cannot be relied on for bulky production. Proof and consequent actions The major proof of the above stated hypothesis relates to the financial performance of Merran Hill in the financial year 2016/2017. The dip in the financial performance of the come serves as a confirmation of the effect of the initially stated hypotheses. For instance, the reduction in profits came as a combined effect of poor raw material, increased cost of production and inefficient machines. Hypothesis testing against alternatives There are two major alternatives in this case study. The first alternative relates to whether the company should outsource the production of Choc Mint or continue with the current production process. Apparently, outsourcing the production of the product will significantly reduce the cost of production and hence add to the overall profitability of the company. The second alternative relates to whether the company should buy a new machine or lease one. According to the owner of the company, the current cash flow cannot allow the company to purchase a new machine. Hence, going by the observation of the company owner, leasing becomes the most viable and practical option. Read More