Malden mills case study pdf

Business Letter

Management Theory and Practice

Module 2: Corporate Social Responsibility Analysis Guidelines and Rubric

Case Overview:

You are the regional manager for a family-owned national restaurant chain headquartered in Kansas City Kansas. As a regional manager, you are responsible for 5 restaurants located in two states. The 5 restaurants are located in Tulsa and Ardmore in Oklahoma and in Austin, Houston, and San Antonio in Texas. Two days ago, the restaurant in Ardmore Oklahoma suffered a devastating fire that gutted the building burning the structure to the ground. The cause of the fire is believed to be the result of a short in the building’s wiring system and not related to any employee error. The Ardmore store had yearly revenues of $3,000,000 with total payroll of $950,000 paid to 50 employees. Half of the employees are full-time and the remaining employees are part- time. 20 of the 25 full time employees have been with the company 10 years or longer and are considered valuable and loyal employees. The Ardmore store is strategically located where US Highway I-35 and State Highway 70/199 meet and draws a significant portion of its sales from the traveling public passing through Ardmore on their way north to Oklahoma City or south to Texas. As traffic has increased on I-35 over the years, the Ardmore store has seen healthy increases in sales revenues. The damage to the restaurant is covered 100% by insurance after a 2% deductible. The expected cost to rebuild and refurnish is $3,500,000. The expected reconstruction period is 6 -8 months. The insurance also covers loss of revenues for up to 6 months. As a regional manager, you earn a salary and receive a bonus equal to 5% of profits earned by your portfolio of restaurants. The Ardmore store was netting about $300,000 in after-tax profits which provided you with a bonus last year of $15,000. The company owner has asked for your advice as to whether to rebuild the Ardmore restaurant and has asked you to make a recommendation on whether employees should be compensated during the reconstruction period. While a number of employees are part-time and some of these are students, the 25 employees who are full-time employees rely on their paychecks to take care of their families. If all employees were furloughed without pay during the 6 month rebuild period, the full-time and part-time employees could apply for and receive unemployment benefits during the reconstruction period equal to approximately 56% of their pay up to a maximum of $9,400 during a benefit year. Each employee receiving unemployment benefits would be required to actively seek employment. Strictly looking at profits, the company could benefit

if all employees were furloughed or laid off because under a layoff scenario, no labor costs would be charged to the store although it would still receive revenues from the insurance proceeds. Insurance will cover the loss of revenues of $1,500,000 during the 6 months of the reconstruction period. The fixed costs for the Ardmore Store average about 25% of revenues or $375,000 meaning that the difference ($1,125,000) would be considered gross profit before taxes during the six months of reconstruction. At a 50% tax rate, net profit for the Ardmore store could potentially be $562,500 and your bonus for the six month period would be $28,125 or almost twice the amount you earned all of last year from the Ardmore store. If you make a recommendation to continue to pay all of the employees during the rebuild period, they will not be eligible for unemployment benefits and the net labor costs absorbed by the company will be approximately $375,000. In making your recommendation, you need to keep in mind that the reconstruction period could extend an additional 2 months beyond the 6 months that the insurance policy will cover loss of revenues. Assignment Directions: Prepare a 3-page (maximum length) letter offering your thoughts to the majority owner, Jeff Johnson outlining your recommendation as to whether to reconstruct the restaurant and whether to offer compensation to the employees of the Ardmore store during the reconstruction period. There is no right or wrong answer. I do want you to incorporate at least two theoretical principles that support your decision making in this case. Please cite any periodicals or readings that you use to support your recommendation. As a background, please read the following article relating to Malden Mills. The article can be found at http://toughsledding.wordpress.com/2010/03/05/putting-people-before-profits-classic-pr-case-study-but-without-the- fairytale-ending/ . A “60 Minutes” segment on Malden Mills can be found embedded in the article. The transcript of the “60 Minutes” can be found at http://www.cbsnews.com/news/the-mensch-of-malden-mills/ . You may also want to read other related stories regarding the Malden Mills case study. Address your recommendation to: Jeff Johnson, Chairman The ABCD Restaurant Group 1150 Main Street, 34th Floor Kansas City, KS 66101 This written assignment is worth 50 points. The assignment will be evaluated on your ability to make a sound recommendation to Mr. Johnson, on your use of theories or principles that support your position, on your use of an appropriate business letter format, and on the use of proper grammar and spelling. This assignment is due by 11:59 p.m. on February 3rd in Blackboard. Please submit your work as a pdf. I cannot accept your assignment after the due date and time.

http://toughsledding.wordpress.com/2010/03/05/putting-people-before-profits-classic-pr-case-study-but-without-the-fairytale-ending/
http://toughsledding.wordpress.com/2010/03/05/putting-people-before-profits-classic-pr-case-study-but-without-the-fairytale-ending/
http://www.cbsnews.com/news/the-mensch-of-malden-mills/