BUS500 Principled Leadership & Ethics
Case Study #3 Preparation Document
Golden Rule Case
Read the Christian Business Faculty Association case study (When the Golden Rule Yields No
Gold) posted on Moodle and answer the following questions (the text boxes will expand as you
type in your responses). You should focus on leadership traits, especially as they relate to the
specific circumstances noted in the case.
1. What are the business issues at stake in the case study?
a.
2. What are the Christian and ethical issues at stake in the case?
a.
3. Where the business and Christian issues intersect? Where do they conflict?
a.
4. What would you do if you were Zach? Explain your reasoning.
a.
5. If you were an employee of the company, what would you expect Zach to do?
a.
6. What do you think that Jesus would do? What scripture supports your conclusion?
a.
BUS500 Principled Leadership & Ethics
Case Study #3 Preparation
Golden Rule
Case Study: When the Golden Rule Yields No Gold
Michael Zigarelli Messiah College mzigarelli@messiah.edu
Gary Page Page & Associates, LLC gary@gpagecpa.com
ABSTRACT: Zach Jordan (a real person but not his real name), the owner of a small business in
Connecticut, may not be able to compete any longer in the spring manufacturing industry. Overseas
competition has put him at a significant cost disadvantage, and the losses continue to mount year
after year. At the same time, he’s deeply committed to care for his handful of employees — people
who are dependent on him and who he considers “family.” Now at a crossroads, he faces an
apparent dilemma: (1) gamble $200,000 on rent to extend the jobs of his employee family or (2)
liquidate the business while it’s still worth something, sending his employees to the unemployment
line during a bad economy. There may be other, more attractive options and identifying them and
selecting from among them is largely what this case is about. Framed from a Christian worldview, the
case comes down to this: In an intensely competitive environment, how can we faithfully serve
employee needs while effectively stewarding the business?
The Case
Zach Jordan sat at his desk seeking the high road. It had been his approach from day one.
Now, though, on day 10,001, that road was obscure. Or perhaps this time there were two or three
high roads. Metaphors aside, this much was apparent: If he sold his ailing company, several people —
good people whom he had embraced as family over the years — would lose their jobs in a bad
economy. But if he didn’t sell and if business didn’t improve, he could lose hundreds of thousands
of dollars in rent.
He looked at the pictures adorning the walls, pictures of his three girls, pictures of his
employees, a photo of him doing his magic act (Zach’s favorite hobby) for mesmerized school
children. Zach had a zest for life and an authentic love for everyone around him.
Throughout his career, his priorities made that abundantly clear. Zach had often worked
from home during his 30s and 40s, sacrificing business growth so that he could help raise his girls.
He had adopted a “Golden Rule” approach to management, paternalistically caring for his
employees’ needs, maintaining integrity in every deal, insisting on quality, respect, and timely
delivery for every customer, treating all of his stakeholders as he would want to be treated.
The fruit of that management style was a fiercely loyal workforce — hardly any turnover in
twenty years of business — as well as an equally loyal customer base. One of Zach’s eleven employees
summed it up well: “Zach’s the glue that holds everything together around here. And he’s a great
boss, too. He treats us better than anyone’s ever treated us in our other jobs. I’ll give you an
example: In good times and in bad, he’s always given a big Christmas bonus. One time he even had
to borrow the money to do it!”
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BUS500 Principled Leadership & Ethics
Case Study #3 Preparation
Golden Rule
There was financial fruit as well — lots of profit, at least through the first ten years. His New
England Spring Company (NES) in Connecticut earned a great return throughout the 1980s. But
international competition and a sputtering economy began to take their toll, and in the 1990s, many
of Zach’s customers began to import their springs, primarily from manufacturers in Asia whose costs
were a fraction of Zach’s. Profit evaporated and eventually turned to losses. The past five years had
been particularly difficult, almost all of which culminated in red ink (see Exhibit 1 for NES financial
information).
As he wiped some dust from the photo of the NES family celebrating an employee’s birthday
(Zach commemorated every employee birthday with a card and a $30 check), in walked his two
invited guests for the day. Steve, his accountant and longtime friend, and Charles, a professor (now
emeritus), from Zach’s business school days. This was a bittersweet occasion. Zach embraced each
but then had to share with the professor his reason for the invitation: He needed advice about
whether to sell his beloved company.
Zach closed the door. “Thanks so much for coming, you guys. I really appreciate your
willingness to give me some candid advice.”
His expression turned somber, as did his tone. Zach looked squarely at the septuagenarian
professor and repented: “Charles, this place is bleeding, and it has been for years. I’m seriously
thinking about getting out rather than signing off on another two-year, $200,000 lease for the
building. Steve tells me I can get at least $750,000 for the customers, the inventory, the receivables,
and the equipment, but the problem is this: with my financials, nobody is going to buy the business
itself. So if I sell, it has to be by parceling it off. But then NES won’t exist anymore and my people
would lose their jobs. And in this economy, they’re not going to find jobs anytime soon, certainly not
much beyond minimum wage. I could take a chance and try to keep it afloat, but I’m on the verge of
losing my biggest account to India – twenty percent of my business! If that happens, I probably
couldn’t survive more than two months, and the selling price of the business would drop a whole lot
more. But even if I keep this account, there’s no guarantee that things are going to turn around. I just
can’t compete with Asia’s dollar-an-hour labor.”
That was a lot of information in sixty seconds, but Charles zeroed in on what he considered a
critical issue. “What’s the chance of losing that account?”
“Probably about 50/50 next year,” Zach replied. “Maybe even 60/40. India’s come out with a
stainless steel spring that weighs fifty percent more than ours — much better quality — for the same
price, and my customer is genuinely considering making the switch.”
“And can you get back the lease money if the business fails?”
“No. I’m on the hook for that regardless,” Zach sighed.
“I’ve told you this before, pal,” his accountant gently offered. “You’ve gotta get out. Either
that or cut your sevenfigure salary.”
Zach smiled at the welcome levity — and the irony. Two years ago he had cut his own pay to
$31,000, less than what some of his employees were earning.
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BUS500 Principled Leadership & Ethics
Case Study #3 Preparation
Golden Rule
“Funny you should mention that,” Zach returned with a grin. “The SEC is stopping by this
afternoon. I thought I’d give ‘em your card.”
“Remind me, my friend,” Charles interjected with a chuckle, “what your product line looks
like. And tell me how you’ve been pursuing new business lately.”
“We manufacture and sell several types of springs,” Zach began, “everything from specialty
stainless steel springs to springs for navy jets and helicopters to common springs you’d find in a
hardware store. And over the years, I’ve tried to grow the business through a combination of inhouse sales reps and advertising in the standard industry newspapers, both in print and on the web.
Quite frankly, though, it’s been years since either approach has paid off, so I’ve recently dropped
them. Bids are so tight that a sales rep’s five percent commission required me to bid at my cost to
remain competitive. I was taking jobs just to cover overhead! And the hundred grand I dropped in
advertising over the past decade has returned almost no business. So basically, I’m left with no sales
force and essentially no advertising.”
“Sounds like you could use some fresh ideas,” the professor observed thoughtfully. He was
often brilliant, Zach thought, but now he was simply stating the obvious.
“That would be nice.” Zach was eager for a few hot tips from the good doctor, but he knew
those were probably a few days off. “And there might actually be some new business out there. But
my ‘fresh idea’ file is freshly depleted. I’ve also thought about re-tooling as an option — you know,
create other products that might have a niche — but I’d need about a quarter-million for equipment,
even used equipment, and I have no customer list for whatever that new product would be.”
“Let me give the marketing piece some thought,” Charles replied with characteristic
circumspection. “But in the meantime, tell me just how bad things are financially. Do you have some
income statements handy?”
Zach buzzed his secretary. “Mandy, can you please bring me the binder of financials?”
Mandy, as always, responded promptly, smiling at the gentlemen on her way out. As she closed the
door, Zach shared with his guests that Mandy, his secretary for twenty years, was recently widowed,
having psychological problems from the loss and in critical need of the health insurance benefits he
provides. “My other office gal,” he explained, shaking his head, “has a disabled husband and is the
sole support for a family of five. And the guy who runs the plant has four kids, two of them getting
ready for college. If he lost his job at age fifty, I don’t know what he’d do.”
The professor nodded; the accountant flipped pages in the binder. “It’s not terrible,” Steve
said as he opened the books for Charles, “but it’s not sustainable either. We’ve been losing money
for years. Costs are inching up, mostly because of health care, workers’ comp, and raw material
prices. Salaries are exactly at market — anywhere from $10 to $26 an hour. But we’ve cut everything
else to the bare bones. And as far as sales goes, we’ve been flat for a long time, and we have no
expectation for new sources of revenue.”
Charles adjusted his glasses as he reviewed the statements. His grimace told Zach that there
was no quick fix forthcoming.
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BUS500 Principled Leadership & Ethics
Case Study #3 Preparation
Golden Rule
“I’m telling ya, Zach, cut and run,” Steve recommended, preempting the professor’s analysis.
“I know you care about these people, but they’re big boys and girls now. They can take care of
themselves. Believe me, they’ll be fine.”
Zach didn’t know whether to be irritated at or grateful for the counsel. Maybe Steve’s was the
only rational response, but Steve was also ignoring the fact that Zach didn’t want to sell out his
employees. Irritation trumped gratitude for the moment.
“Would you be ‘fine’ if your income were cut in half and if you lost your health insurance?”
Zach retorted softly but firmly. “Would your family be ‘fine’? I know you’re looking out for me,
Steve, but I simply can’t operate that way.”
“All right,” his accountant back-peddled with a shrug. “So spend $175,000 to give them six
months’ severance. And spend another twenty-five grand to maintain their health benefits. Will that
help you to sleep at night?”
Zach pondered the idea, but it seemed a bit excessive. “I’m getting too old for this kind of
stress,” he said leaning back in his chair and rubbing his eyes. “I’m 62 now Charles, which I know
sounds like a spring chicken to you. But the spring business is taking all the spring out of this spring
chicken.”
Deep down, Zach desperately wanted his company to bounce back. But that seemed unlikely
without some bold new strategy. And he wasn’t sure he had either the energy to pursue it or the
gumption to roll the dice on another $200,000 lease. “Cut and run” seemed like a logical course of
action, but what about his people? This “Golden Rule” spring manufacturer recoiled at the thought
of repaying their loyalty with a trip to the unemployment line.
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BUS399-01 Management Leadership
Case Study #2
New England Spring Company
Income Statements ($ in thousands)
Sales
Cost of Sales
Materials
Production wages
Overhead & other
Total Cost of Sales
Gross Margin
Operating Expenses
Rent
Admin salaries
Employee benefits
Office & supplies
Utilities & phone
Depreciation
Other & miscellaneous
Total operating expenses
Net Income (Loss)
2012
$ 1,211
2011
$ 1,282
2010
$ 1,256
2009
$ 1,294
2008
$ 1,308
403
390
51
844
367
396
375
135
906
376
375
362
65
802
454
349
395
49
793
501
353
399
84
836
472
100
66
63
32
52
46
22
381
$ (14)
100
98
59
42
57
46
18
420
$ (44)
100
145
52
38
54
46
26
461
$ (7)
100
152
49
42
51
58
47
499
$2
100
168
44
31
49
61
26
479
$ (7)
New England Spring Company
Balance Sheets ($ in thousands)
Assets
Current assets
2012
2011
2010
2009
2008
Cash
Accounts receivable
Inventories
Other
Total current assets
Fixed assets (net of depreciation)
Total Assets
$ 98
22
98
3
221
382
$ 603
$ 142
19
106
6
273
416
$ 689
$ 121
27
89
4
241
462
$ 703
$ 92
38
95
9
234
508
$ 742
$ 119
41
42
12
214
566
$ 780
Liabilities & Equity
Current liabilities
Long-term debt
Common stock
Retained earnings
Total Liabilities & Equity
$ 284
300
19
$ 603
$ 356
300
33
$ 689
$ 326
300
77
$ 703
$ 294
64
300
84
$ 742
$ 314
84
300
82
$ 780
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