Harold Wallace, founder, serves as Chairman and President of the Wallace Group. He owns 45% of the outstanding stock. The company consists of three operating groups -- Electronics, Plastics, and Chemicals -- which generate sales of $70 million. Mr. Wallace continues direct operational control over the Electronics Group. Several years ago, Wallace and the Board embarked on a strategy of diversification into plastics and chemicals in order to decrease the company’s dependence on defense-related business.
Presently, the morale within The Wallace Group has deteriorated to the point where some of the employee stockholders made an attempt to force Wallace’s ...view middle of the document...
Things such as weak corporate culture, they are independent organizations. They underpay for most jobs and unfair job valuation. They have lack of management competency, recruitment deficiency and no succession of planning.
While on business performance as a group, the proponents have identified some issues regarding each group that the company has such as on Electronics, Plastics, and Chemical.
On Electronics the accounts for 70% of group’s net income and 50% of groups’ revenues is indeed an issue. The small growth despite large potential, a narrow focus on counter measure equipment for aircraft for defense sector, customized system business model and the preference to supply from sister companies despite higher prices are also some issue that can be identified on electronics.
On plastics, 25% of group’s net income and 28.6% of groups’ revenue gives an indication of an issue. The small growth, while the market is expanding and serves multiple industries while only having an make-to- order business model.
In chemicals, major problem arrives when the group’s net income is only 5% and the group revenue is 21.4%. Main customer is the plastics BU. The group is not profitable and many the groups have undergone many unresolved problems.
Strength, Weaknesses, Opportunities, Threats
* The company has vertical integration
* There is a diverse technical competence
* And there is a running projects in electronics and plastics business, with guaranteed sales
* Corporate vision, mission, and strategy are not clear
* Business units operate like separate islands
* Boundaries between the roles of corporate staff and business unit staff are not well defined
* All business units are not growing
* Group revenues depend mainly on defense
* No R&D function in any business unit
* Workforce problems
* Creating more vertical integration synergies
* Growing markets for electronics and plastics
* Diversification to other markets or business
* Reputation damage due to slow response to bid requests
* Failure to deliver on current projects
* Bad financial performance, especially in chemicals
On corporate governance issue the solution to the problem are Separation of Ownership and Managerial Control (Modern Public Corporation) and by doing this there should be a separation of risk bearing from decision making and the other solution is to response to managerial opportunism by establishing governance and control mechanisms to prevent managerial opportunism.
On internal governance machanisms the solutions to the problem is by having an ownership concentration because it tends to result on “large block shareholders” so there is a greater probability that strategic decisions will be focused on maximizing shareholder’s wealth and also on the Board of directors must represents the firm’s owners by monitoring top level...