Assignment 1 Group # 2 MAN 6726

The Wallace Group

Rolando Barrios Barbara Gomez Derrick Knauss Maria Mendez Yenny Sanchez 1.What is (are) the most important problems(s) facing the Wallace Group? The Wallace Group case presents a snapshot of a company that is experiencing dif ficulty of adhering the mission of the company and that of a company which is le d by a Chairman and President who is not effective in communicating the vision h e has for the company. The case provides a glimpse of type of corporate governa nce that exists and from selected portions of the transcribed interviews with va rious members of the management team; we are presented with a picture of a CEO t hat leads the corporation as if it was still a sole proprietorship. It is not that Hal Wallace is not a nice guy. Being a nice guy does not constitute a visi on for strategic management. Mr. Harold Wallace serves as both the Chairman and President of the Wallace Grou p with 45% ownership stake in the company. It is not clear if Mr. Jerome Luskic s is on the board or not. The case does not provide information regarding the s ize of the board of directors or how directors are nominated to the board, but s ince Mr. Wallace is the Chairman, we know the Board of Directors consists of at least one inside director. We do know that Mr. Wallace attracted a small group of investors and formed a closed corporation. We are concerned about his decisi on making and whether decisions are made with shareholders interests in mind or i s acting for selfish reasons since Mr. Wallace is the founder of the company and now owns 45% of the common stock. A red flag was the public stock offering, wi th most of the funds going to pay off debts incurred by the three companies. In this scenario, we see Mr. Wallace controlling the board. This is of concern be cause in accordance with the agency theory, manager-controlled firms (with weak b oards) are more likely to go into debt to diversify into unrelated markets. If w e were on the Board, we would have not voted to purchase the Plastics and Chemic al groups and would have recommended expanding the market of the Electronics gro up and outsourcing for the Electronics needs for plastics and chemical supplies. According to the case, Mr. Wallace settles disputes and differences among the gr oups himself. This demonstrates the lack of an adopted corporate policy and pro cedure manual for the organization model in place. From the interviews between Ms. Rampar and the managers, we see that managers do not see the vision from the ir CEO. It is possible that the Board has given management clear direction and that Mr. Wallace ignores the direction provided by the Board. It is also possib le that Mr. Wallace controls the Board and is acting selfishly. Either way he i s acting, the results are the same: low company performance and profits, power s truggles and conflicts among managers. The organization structure that Mr. Wallace put in place was three indep endent groups with a corporate structure. If the intent of the corporate office was to support all three groups then the organization chart presented in the ca se would not have achieved positive results. For example, Mr. Wallace created t he position of VP Industrial Relations. However, within the Electronics group t here is a Director Industrial Relations reporting to the VP Electronics Group. I f the intent was to create a Shared Services office to support all three groups, then the organization chart presented in the case would not afford the ability to effectively support all three groups. As per the interviews, we learned that even with a corporate VP of Industrial Relations, Mr. Wallace controlled hiring and salary structure.

To summarize, we believe that the most important problem facing the Wall ace Group is a selfish CEO who is taking advantage of a weak board of directors. What recommendation(s) would you (as a consultant) make to Mr. Wallace, and in w hat order of priorities? As a consultant to the Mr. Wallace, we would strongly recommend that the company review: Corporate by-laws with the purpose to restructure how board members are nominate d, to create a staggered board and to appoint a lead director. Restructure the organization chart to create corporate division that truly suppo rts the administrative needs of all three groups through a shared services model . Review and revise, where appropriate, the position descriptions, tasks and stand ards, and minimum qualifications of all positions within all groups. Create pos itions as needed by each division. Restructure salary ranges for each position title. Consider selling the Chemical Group and outsourcing the services and supplies su pported by this group. Consider selling the Plastics Group and outsourcing the services and supplies su pported by this group Establish an annual strategic plan meeting with top management and key personnel and present the plan options to the Board of Directors for their review and pol icy direction. Invest in Information Technologies to create an enterprise resource planning sof tware to handle corporate wide data collection needs. How do you handle the transfer pricing problems involved in the backward integra tion? The acquisition of the plastic company has locked the Electronics Group in to using its plastic products at a higher cost. According to the transcript with Burt Williams, the Electronics Group is encourag ed to purchase from the Plastic and Chemical groups even it is at a higher cost. If the Electronics Group did not purchase from its sister groups, then the ques tion is: What is the market that the Plastic and Chemical groups are in that the y are solely dependent on the Electronics Group. If they do not sell to the Elect ronics group do they not make a profit? If this is the case then we would recom mend that both the plastic and chemical groups establish a market, it not then t he Wallace Group should sell these divisions and competitively procure the suppl ies needed to fulfill electronic orders. If Mr. Wallace is found to be one of the major problems, should he be addressed directly or indirectly? Mr. Wallace needs be addressed by the consultant with a written report and addre ssed directly in the consultant exit conference. In the exit conference, the con sultant needs to present all findings and recommendations. In the course of th is conference, then the reporting managers concerns can be addressed to the CEO indirectly without fear of reprisal. The consultant report needs to be given to the Board of Directors so that they can address concerns with the CEO s evaluatio n. Has the Wallace Group s diversification strategy been effective? It is our opinion that the Wallace Group s diversification strategy was not effect ive. As per the case, Mr. Wallace s concern was that the Electronics group was alm ost totally dependent on defense-related contracts. He charted on a course to a cquire an unrated plastics company whose primary market was not defense-related. However, after a year the company was still two-thirds defense-related. Acqui sitions were not profitable and provided no significant growth. If the plastic and chemical groups together equal in size to the electronic group and only brin

g in 30% (25% from Plastics and 5% from Chemicals) of net income then their prop ortional share of profits is less than effective.