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Sample Case Analysis

Dyners Corporation

The Case

Mr. Alfaro Burgos, Vice President for Sales of Dyners Corporation, wanted to take full advantage of
the steep rise in silver prices. By quickly re-pricing his silver plated lines and accordingly revaluing
his inventories, he felt confident of a very large windfall profit.

Dyners Corporation is a family firm manufacturing stainless steel and silver plated tableware. Total
employees number less than two hundred. Its products are generally perceived as having high
quality and priced competitively. Sales account mainly to wholesale kitchen equipment sold to
supply houses whose purchasing agents are knowledgeable buyers. Over the years since it started
its operations in 1947, Dyners Corporation has expanded its outlets and market.

An initial count of the silverware inventory showed a significant shortage. However, on a recount,
several boxes of silver plated tableware were discovered in cases marked “stainless steel”

Nevertheless, there was still a shortage of products containing about five kilograms of silver at the
cost of P 3,500.00 per kilogram. The company paid the metal in November 1969, which would have
been worth P 17,500.00 now. In the past, the corporation would have written this off with minimum
question, assuming a mistake in record keeping, packing or shipping.

In mid- April 1980, with silver at nearly P14,000.00 per kilo, the metal value of inventory shortage
amounted to P 70,000.00, and the additional boxes that have been found in the wrong cases
brought the potential loss to over P 150,000.00.

The Mispacked Silverware

The convenient “discovery” of the mispacked silverware in boxes in a corner of the warehouse
aroused the suspicion of Alfaro Burgos. He called in an industrial security firm, which planted an
operative in the warehouse as a forklift driver.

Within three weeks, the agent discovered that the warehouse supervisor had been shipping boxes
of silver plated tableware to a wholesaler who was billed for stainless steel.

The agent said that the pilferage was fairly common knowledge in the warehouse, but the
supervisor was a menacing bully and his workers had been afraid to step forward because they
feared they might lose their jobs or be physically assaulted. However, the supervisor was widely
disliked, and the agent was certain he could get people to testify against him if the firm would agree
to have him criminally prosecuted.
The Warehouse Supervisor

Karlo Deles, the warehouse supervisor was confronted with these findings in the presence of Alfaro
Burgos, the personnel manager, and a lawyer. He admitted that he had been “mispacking” some
cases for one customer as a “favor to a friend.” The friend, he later conceded, sent him and his
family on a free holiday abroad each year. Karlo Deles argued that he had worked loyally for the
firm for twenty-three years but that in recent years his pay raises had not kept up with inflation. He
was trapped in his job by a generous company paid pension scheme, and in fact that at age of 57
he could not hope to get a comfortable job with another firm. The inventory leakage was the only
way he could maintain his standard of living, he said.

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Various Approaches Considered

Now that Alfaro Burgos knew the situation, he pondered his course of action. How should the firm
react to the discovery of employee theft? The agent from the security firm advised Alfaro Burgos to
sack Karlo Deles “with cause” and prosecute him as an example to other employees. He noted that
they were aware of what had been taking place, now knew that the firm had discovered Karlo Deles’
crime. If they let him off, then it would be an open invitation to follow suit.

The agent said he hoped Karlo Deles would get a jail sentence so that he would not take reprisals
against his co-workers. This somewhat confirmed Alfaro Burgos’ suspicion that the agent had
developed a personal dislike for Karlo deles when he “worked” under his supervision.

The lawyer engaged by the firm cautioned that a prosecution could bring unwanted publicity. There
was even the possibility that would fail, enabling Karlo Deles to demand reinstatement with back
pay. He suggested trying to get Karlo deles to resign and take a very much reduced company
pension, in exchange for an agreement not to prosecute or try to recover money for the stolen
goods.

The personnel manager recommended an even softer approach. He said that the incident had
prompted him to look into pay rates for longer serving employees, and he found that significant
erosion had indeed taken place in their real wages. He also agrees that Karlo Deles’ pilferage had
been on a small scale, until inflated by the recent rise in silver prices. He suggested giving Karlo
Deles a strong reprimand, but another chance. The amount of past pilferage should be discovered,
and the customer asked to make it up. If he did not, Karlo Deles should pay the sum back out of the
future wages, which should be increased significantly inline with inflation. Karlo Deles should be
closely watched, but he should not lose his job and chance of a full pension for this single mistake.

Which course should the management follow?

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The Case Analysis

I. PROBLEM

Theft or act of dishonesty of the warehouse supervisor

II. OBJECTIVES

Must:

1. To deal most appropriately and confidently with the supervisor’s act of dishonesty.

Wants:

2. To reinforce the morale of the warehouse employees and workers.

3. To recover the firm’s losses by at least 80%

III. AREAS OF CONSIDERATION

1. The warehouse supervisor had been misdeclaring Dyners products, resulting in the firm’s
loss.

2. The supervisor Karlo Deles was 57 years old and worked for the firm for 23 years. In the
recent years, his pay had not been able to maintain his standard of living.

3. The firm had low pay rates and lacked adequate incentives for the senior employees.

4. The warehouse people disliked their supervisor, but were afraid to step forward, lest they
lose their jobs or be harmed.

5. Karlo Deles admitted his dishonesty.

IV. ALTERNATIVE COURSE OF ACTION

1. Dismiss Karlo Deles, not prosecute him. Ask his customer for payment of the difference
between the values invoiced and shipped.

Advantage/Justification

This will signal to customers and employees alike that dishonesty is not a norm in the
business of the Dyners Corporation.

Disadvantage

Dyners Corporation will encounter difficulty in trying to recover the differences in payment
form the customer.

2. Get Karlo Deles to resign without prosecution. In exchange with an agreement not to
prosecute. Mr. Deles must be given a reduced pension to recover cost of stolen goods.

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Justification

Karlo Deles was 57 years old and had worked for the company for 23 years. For
humanitarian reasons, he should be given a chance to receive even a portion of his
pension.

Disadvantage

Taking this way, management may not feel that the crime will be fairly dealt with.

3. Dismiss Karlo Deles “with cause” and prosecute him

Justification

As Mr. Deles was not popular, a poll of warehouse workers would probably result in a vote
in favor of this action. The workforce would think that the culprit had been fairly dealt with.

Disadvantage

However, a second poll, taken when the man would be in prison and his family would be
suffering hardship, would equally probably result in condemnation of the action as being too
harsh.

There is also a risk of prosecution failing and the court may order reinstatement.

2. Retain Mr. Deles. Give him a strong reprimand and let him pay for the sum back out of future
wages. Mr. Deles should be closely watched.

Justification

Karlo Deles’ pilferage had been on a small scale, until inflated by recent rise in silver prices.

Disadvantage

Failure to take fair disciplinary action when this is required is guaranteed to lower morale. If
Deles would be let off, the action may be open to an invitation for others to follow suit.

V. RECOMMENDATION

It is recommended that alternative no. 1 be pursued i.e., for management should dismiss Karlo
Deles, not prosecute him. Mr. Alfaro Burgos should also ask his customer for payment of the
difference between the values involved and shipped.

VI. PLAN OF ACTION

1. Take necessary steps toward the dismissal of Karlo Deles; and demand payment from the
misguided customer.

2. Appoint a replacement for Karlo Deles.

3. Improve control in the dispatching section and improve internal security system.

4. Upgrade salaries of employees and provide adequate incentives for senior employees

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VII. POTENTIAL PROBLEMS

Karlo Deles might fight his case out, especially if the customer pays the difference between the
values invoiced and shipped.

VIII. CONTINGENT PLAN OF ACTION

Management should deny reinstatement of Deles for the following reasons:

1. To set an example

2. To prevent a similar occurrence in the future; and

3. To prevent company losses due to undiscovered theft.

A key responsibility of management is to build and maintain good morale among the employees
and workers. Discovery of dishonesty performed by long-serving employee has inevitably
created difficulties. But the solution must be considered as it might affect the rest of the work-
force, customers and potential customers, the firm’s profit and loss account and the manager’s
own conscience.

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