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JOURNAL OF MANAGEMENT EDUCATION / February 1999
Graham et al. / CORPORATE RESTRUCTURING CROSS-FUNCTIONALLY
OTHER PEOPLE’S MONEY: A VISUAL
TECHNOLOGY FOR TEACHING
CORPORATE RESTRUCTURING CROSSFUNCTIONALLY
Lise Graham Leticia Peña University of Wisconsin–La Crosse Claudia Kocher University of Michigan–Dearborn Some of the more difficult managerial issues of the past two decades have arisen from corporate restructurings, often undertaken for financial reasons.
At the same time, the demand to teach business curricula across functions is growing, making more imperative technologies to facilitate the teaching of business concepts from multiple perspectives. The movie Other People’s Money, starring Danny de Vito and Gregory Peck, is an integrative technology that can be used to teach Organizational Behavior and Finance issues cross-functionally. Students can be presented with two uniquely distinct corporations embodying traditional versus futuristic organizational structures.
The inability of the traditional corporation to react to an external threat leaves it vulnerable to a corporate takeover. This set of events provides a context for helping students learn about important management and finance concepts related to mergers and acquisitions in a fun and memorable way, while stimulating their thinking about complex leadership and ethical issues that surround corporate restructuring.
Summary of Movie New England Wire and Cable (NEWC) is an old-fashioned American manufacturing company. The chairman of the company, Andrew Jorgenson (Gregory Peck), has presided as a paternalistic ruler for the past 26 years. Jorgenson values the stability and predictability that his firm has offered to the community in exchange for undertaking specialized jobs turning steel into cable much like his forefathers had done. He recalls with nostalgia the Truman years that gave impetus to the growth of his company, although they now blind him to the trouble brewing in one division in need of urgent reengineering and diversification.
Not far away, Garfield Investment Corporation (GIC) is scanning the environment using modern technology to identify firms ripe for takeovers. The firm is headed by Lawrence Garfield (Danny de Vito), a self-made entrepreneur from the Bronx with an unabashed appetite for other people’s money.
GIC exemplifies the quintessential Wall Street firm, with chrome and plush leather furniture, electronic doors, and wall-to-ceiling windows overlooking Manhattan. Unlike Jorgenson’s deeply rooted family values, the lone Garfield lives and breathes for acquiring companies and liquidating them, hence his nickname, “Larry the Liquidator.” He is helped by Carmen, his microcomputer that faithfully greets him every morning, along with a team of lawyers who lay the groundwork for the takeovers. Rather than embellishing on Truman, Garfield is betting on the future while learning Japanese along with his staff, because “the Japanese are taking over the world.” From a financial vantage point, NEWC is a particularly appealing target because it has no debt, no lawsuits pending, and the pension plan is fully funded. Garfield expects to make a substantial profit on the acquisition and liquidation of this company. When attempting the corporate takeover, Garfield encounters resistance from Jorgenson. Jorgenson brings in lawyer Kate Sullivan (his stepdaughter), who immediately asks Garfield for a standstill agreement where neither party will buy more shares for 2 weeks. In the meantime, Garfield makes a tender offer for the company under a different name, and Sullivan attempts to get NEWC’s board of directors to repurchase outstanding shares.
Sullivan then offers to buy Garfield’s stock at $18 per share when the market price was $14 per share (greenmail). Garfield is not interested and instead proposes swapping his shares for the wire and cable division. This division has not been very profitable, and if liquidated, the stock is potentially worth $25 per share. However, Jorgenson feels that he, the employees, and the community all have too great a stake in that division for him to allow the liquidation to take place.
Graham et al. / CORPORATE RESTRUCTURING CROSS-FUNCTIONALLY 55 Garfield and Jorgenson agree to leave the decision about the company’s future up to the shareholders and a proxy fight ensues. Garfield eventually wins the proxy fight and takes over the company. In the end, however, Sullivan does appear to save the workers’ jobs when she negotiates a deal with a Japanese company to manufacture air bags.
This movie can be used to teach corporate restructuring and related ethical issues cross-functionally in Organizational Behavior and Finance courses at the undergraduate and graduate levels. It can also be used as a module for management education in corporate settings. We begin by distributing the vocabulary lists of key terms contained in Appendixes A and B, and discussing the terminology in each area. This, we think, is crucial for comprehending the issues illustrated by the movie. If showing the movie in class, we stop two times to discuss the events on the spot, using the attached questions. Otherwise, in the interest of time, students can be assigned to watch the entire movie prior to coming to class.
To motivate in-depth study and reinforce the concepts in the movie, we distribute questions to be answered and turned in by the students as an individual paper assignment. (Please refer to the Individual Paper Assignment section.) This gives students the opportunity to reflect upon the movie as a whole. It also allows students unable or unwilling to make comments in class to express their opinions regarding these issues. In addition, a team assignment consisting of an extensive organizational diagnosis can also be given as outlined in Module 2 of Ancona, Kochan, Scully, Van Maanen, and Westney (1996).
Student response to the use of this movie in the classroom has been overwhelmingly positive. Student comments indicate that they find it helpful to see a “real life” application of the topics under study. Because the right thing to do is not obvious here (one’s viewpoint depends on one’s stakeholder group), students also develop an appreciation for the ambiguity related to the ethical issues of corporate restructuring.
• The traditional organization refers to the predominantly inward-focused hierarchical organization, which relies on boundary spanning departments and very 56 JOURNAL OF MANAGEMENT EDUCATION / February 1999 specialized job positions. This model tries to insulate the core activities of the firm from sources of change, following routines long after these have proved inadequate.
• The organization of the future is a flat organization, able to respond quickly to a changing external environment through sophisticated information systems, effective use of teamwork, and multitasking. This type of organization is well networked, serving simultaneously as competitor, customer, and collaborator or partner, in much the same way that Microsoft and IBM have banded together.
This firm focuses on outcomes versus processes and is no stranger to diversity or globalization.
• The hybrid organization is a corporation exhibiting a combination of traditional and futuristic characteristics.
MULTIPLE PERSPECTIVES ONORGANIZATIONAL PROCESSES
Unlike an economics approach that seeks one best way to optimize profitability, a behavioral approach to organizations recognizes that there are many ways in which individuals make sense of work, and multiple paths to attain a variety of organizational outcomes, such as corporate performance. This ability to analyze organizational life from various perspectives is called reframing. Reframing enables you to appreciate how information arising from more than one perspective enriches an organizational diagnosis to provide a more complete assessment of the events under scrutiny. This skill can be practiced with the movie, drawing on the work of Bolman and Deal (1991) and Ancona, Kochan, Scully, Van Maanen, and Westney (1996). Three perspectives you can readily use are the following: the strategic design, political, and cultural perspectives.
• The strategic design perspective highlights the basic principles of organizational design, aligning it with the organization’s strategy, making sure that both fit the external environment. Specifically, it looks at how activities are allocated (differentiation), how these are coordinated (integration), and how organizational design meets external environment requirements (fit). This perspective assumes that organizations are rational, have a clear strategy and design for short- and long-term viability, and are fully aware of reading the external environment appropriately.
• The political perspective provides a way of mapping and interpreting different interests or goals that guide individuals, groups, or organizational units in decision making. It provides a means of assessing the relative power of the different stakeholders as they renegotiate and resolve conflicting views. Self-interest, in this case, becomes the key assumption for understanding organizational decision making as based on the fluid commodity of power and control over scarce resources.
• The cultural perspective emphasizes the inherent limitations of managerial authority and influence, rejecting claims that only rational factors best explain human behavior. From this perspective, people respond to events based on their situation, and above all, on what these situations mean to them. The concern for meaning in organizations focuses attention on values, language, beliefs, Graham et al. / CORPORATE RESTRUCTURING CROSS-FUNCTIONALLY 57 legends, social norms, myths, rituals, and metaphors shared by people in an organization. Symbolism is the unit on which the cultural perspective rests, with the assumption that decoding it unravels the pattern of meanings that guide the thinking, feeling, and behavior of the organization; that is, its corporate culture.
• Ethics refers to “standards of conduct that indicate how one should behave based on moral duties and virtues arising from principles about right and wrong” (Josephson, 1993, p. 4).
• Social responsibility, broadly speaking, refers to the obligation of the entity to serve the stakeholders and to maximize its positive impact on society while minimizing its negative impact. By analogy, corporate social responsibility presumes that a business organization will remain financially responsible to its shareholders, owners, employees, and customers while adopting a course of action that enhances the welfare of society at large.
Appendix B Vocabulary of Financial Issues
TRANSFERS OF CORPORATE CONTROL
• Merger refers to any business combination in which one or more of the firms involved does not survive in name.
• Hostile takeover occurs when the acquisition of the target firm by another firm or group is not supported by the target firm’s management.
• Tender offer is a public offer made by a bidder firm to purchase a designated percentage of a target firm’s outstanding common stock. Approval of the target firm’s board of directors is not required. Tender offers are made directly to the target firm’s stockholders through public announcements.
• Proxy contest indicates a direct attempt by dissident shareholders to gain a controlling number of seats on a firm’s board of directors through a formal vote.
Both dissident shareholders and incumbent directors and managers wage battles much like political campaigns. Voting takes place at the annual shareholder meeting.
REACTIONS TO CORPORATE CONTROL CONFLICTS
• Standstill agreement is a voluntary agreement between a corporation and a substantial shareholder that limits the ownership of voting shares in the company to a maximum percentage over a specified period of time.
• Greenmail happens when a firm buys a block of its stock from a major shareholder at a price higher than its current market price. The greenmail price is not offered to other shareholders.
• 13-D Statement refers to the statement filed by the investor with the Security and Exchange Commission if beneficial ownership of greater than or equal to 58 JOURNAL OF MANAGEMENT EDUCATION / February 1999 5% of common stock is acquired. The purpose of the 13-D statement is to inform the public of the existence of a significant block of stock ownership.
FIRST SUGGESTED STOPIf the movie is being shown over two class periods, the end of the scene where Sullivan and Garfield are talking on the telephone is a good place to end the first day (after approximately 50 minutes). We use this as an opportunity to ask the students if the exchange between these two individuals is consistent with how they visualized business people interacting. This presents an interesting icebreaker about gender roles.
Then, we proceed with a discussion of initial corporate restructuring observations, ending with a philosophical questioning of the meaning of free enterprise and the capitalist system.
1. How would you characterize NEWC and GIC in terms of the continuum of traditional versus futuristic organizations?
NEWC is predominantly a traditional organization. It is a bureaucracy exhibiting a top-down structure, internally focused, isolated from the outside world aside from its immediate community, with a workforce primarily involved in fulfilling repetitive manufacturing tasks. GIC, on the other hand, exhibits more elements of an organization of the future. It is a highly networked organization, relying on state of the art technology (Carmen), flat (with teams of lawyers and researchers scanning the environment), flexible (ready to respond rapidly to possible successful takeover attempts), and global (whose CEO and staff are learning Japanese). For further reading, please refer to Galbraith and Lawler (1993) and Ancona et al. (1996).