MSM 630: 9.1 Case Study Analysis Kelly Jenkins

Overview

• Company Overview• Senior Management Style• Accounting Practices

▫ Salary Structure • Profit Structure

▫ Baseline Profits▫ Accounts▫ Hedge fund Transfers

• Communication Structure• Concluding Thoughts

Company Overview

• Formed in 1985 via merger

• Largest gas distribution network in the U.S.

• 38,000 miles of pipeline • Serving industrial and

residential customers • Began as heavily

regulated industry, steady and certain profits. ▫ Deregulated shortly

after merger

Senior Management Style

• Complex financial strategy in effort to minimize deregulation risks.

• Unrealistic profit goals• Ignore advice of experts • Gaps in reporting of

information• Incomplete projections

/lack of data justification

Accounting Practices

Financial Practices • Derivative Financial Model (CEO Guided)

▫ Hedge Funds • Inability to provide complete data due to lack of model

effectiveness • Recommendations to rethink financial model • Staff concerned with ability to reach projected

“unrealistic” profits. ▫ Incomplete data projections and estimates▫ Inconsistencies amongst actual reported data ▫ Wall Street’s ability to grade future earnings

Accounting Practices

Salary Restructure • Inconsistencies amongst male and female accountant

salaries • Threat of lawsuit • Male accountant salary range

▫ $50.000▫ $52,000▫ $55,000

• Female accountant salary▫ $32,000

• Compensation restructure required to bring within two standard deviations of the male accountant salary mean

Accounting Practices: Salary Restructure

Male 1

Male 2

Male 3

Female

0

1000

0

2000

0

3000

0

4000

0

5000

0

6000

0

Required Increase Standard Deviation Salary MeanSalary

Profit Structure

Reported Profits in Millions

1st Quarter 2nd Quarter

3rd Quarter

4th Quarter 0

50

100

150

200

250

300

350

400

1986-19871987-1988

Profit Structure

Gas and Oil Account Data

Gas Oil0

20

40

60

80

100

120

140

160

19901988

Profit Structure

Hedge Fund Transfer Data

Transfers

PaperForecastedActual

Communication Structure

• No clear full circle communication method

• Missing checks and balances to ensure maximum efficiency

• Code of Conduct/Ethics? • CEO all powerful

Concluding Thoughts

• Abuse of power• Disengagement with

actual profit potential• Lack of regard for true

bottom line• Misaligned vision and

strategy in order to achieve maximum longevity and actual profitability within the industry

References

Cooper, D. R., & Schindler, P. S. (2011). Business Research Methods, Eleventh Edition. New York: McGrawhill-Hill,Irwin.

Questions?