and Stokes, was dissatisfied with the top management of PrimeDrive, a
manufacturer of computer disk drives. Halston and Stokes had invested
$20 million in PrimeDrive, and the return on their investment had been
below expectations for several years. In a tense meeting of the board of
directors of PrimeDrive, Stokes exercised his firm’s rights as the major
equity investor in PrimeDrive and fired PrimeDrive’s chief executive officer
(CEO). He then quickly moved to have the board of directors of PrimeDrive
appoint himself as the new CEO.
Stokes prided himself on his hard-driving management style. At the first
management meeting, he asked two of the managers to stand and fired
them on the spot, just to show everyone who was in control of the
company. At the budget review meeting that followed, he ripped up the
departmental budgets that had been submitted for his review and yelled at
the managers for their â€œwimpy, do nothing targets.â€ He then ordered
everyone to submit new budgets calling for at least a 40% increase in
sales volume and announced that he would not accept excuses for results
that fell below budget.
Keri Kalani, an accountant working for the production manager at
PrimeDrive, discovered toward the end of the year that her boss had not
been scrapping defective disk drives that had been returned by customers.
Instead, he had been shipping them in new cartons to other customers to
avoid booking losses. Quality control had deteriorated during the year as a
result of the push for increased volume, and returns of defective disk
drives were running as high as 15% of the new drives shipped. When she
confronted her boss with her discovery, he told her to mind her own
business. And then, to justify his actions, he said, â€œAll of us managers are
finding ways to hit Stokes’s targets.â€
Is Granger Stokes using budgets as a planning and control tool?
2. What are the behavioral consequences of the way budgets are being
used at PrimeDrive?
3. What, if anything, do you think Keri Kalani should do?