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Financial accounting to assess stewardship: the case requires students to evaluate Thompson’s stewardship of McDonald’s, in part based on the company’s financial accounting information. Financial reporting performs an important societal role by helping control agency problems that arise from the separation of ownership and management. Since external stakeholders cannot “observe directly the extent and quality of managerial effort on their behalf […] the manager may be tempted to shirk […] blaming any deterioration of firm performance on factors beyond his/her control” (Scott, 2014, p. 23). However, although financial reporting helps hold managers accountable to shareholders, accounting information is not fully informative about managerial effort. For example, while net income provides useful information regarding the CEO’s stewardship, it is also “noisy,” due to recognition lags and other factors (Scott, 2014, p. 364). Efforts undertaken by Thompson in a particular period, such as marketing expenditures, might reduce current earnings, yet boost future profitability. Additionally, Thompson’s predecessor’s past efforts might have positive or negative effects on current earnings. Evaluating stewardship effectively involves considerable judgment, in addition to knowledge of financial accounting. The implication of poor firm performance is that the CEO is ineffective at formulating and implementing strategies and policies to enhance firm value (Dikolli et al., 2014). Specifically, it appears that missing earnings benchmarks matter more for relatively inexperienced CEOs. Don Thompson’s tenure of 33 months at McDonalds is 42 percent lower than median CEO tenure documented in academic research, where the median tenure of chief executives documented in large sample empirical studies is about 57 months (Dikolli et al., 2014). The evidence suggests that the longer a CEO serves, the less likely he is to be dismissed for performance-related reasons. This appears to be the result of the resolution of uncertainty about CEO’s ability and leads to subsequent declines in the level of monitoring by the Board of Directors. Performance evaluation and bias: a significant body of research explores the extent to which female managers are assessed differently than their male counterparts (Powell and Butterfield, 2002). For example, female CEOs face more threats from activist investors than male CEOs. Therefore, even after women achieve the highest managerial rank, they experience more professional challenges than their male counterparts (Gupta et al., 2018). However, the question of whether black CEOs are assessed differently is more challenging to answer empirically as a result of a smaller sample size (only one percent of S&P 500 companies are run by black CEOs). Our case attempts to develop the inference that if female CEOs are subject to bias, analogous forces are likely at work when black CEOs are assessed. Recent evidence further suggests that business students sometimes demonstrate bias in making assessments (Mengel et al., 2018). The authors discuss these findings – as well as strategies for including them in the case discussion – in the “Teaching Strategy” section herein below.

The case was written from the public record surrounding the appointment of Don Thompson and McDonald’s company filings. The record includes articles from The New York Times and The Wall Street Journal, as well as local and industry publications.

The case examines the role of financial accounting in evaluating CEO performance in the context of the appointment of McDonald’s first African-American chief executive and his subsequent two-and-a-half years on the job. The case deepens students’ understanding of the link between financial reporting and stewardship, while highlighting the subjectivity inherent in assessing managerial performance, particularly over relatively short time periods. As students analyze the case, they must consider the extent to which a firm’s results are attributable to luck vs skill. We use “skill” to refer to CEO effort and other controllable factors, while “luck” refers to exogenous factors, such as macroeconomic conditions. Assessing stewardship is of practical significance. It allows pay to be better aligned with performance and empowers stakeholders to identify when a change of leadership may be warranted. The case may also be used to spur reflection, in an applied context, on the importance of being alert to unconscious bias, even when evaluating seemingly objective financial reporting data. Recent research, discussed herein, suggests that business students sometimes exhibit bias when making assessments.

The case should be included in discussions of corporate governance, executive compensation and the role of accounting information in efficient contracting. It is appropriate in intermediate financial accounting courses for undergraduates, introductory graduate accounting courses, or other courses with an element of financial statement analysis. Standard introductory accounting textbooks offer helpful supplementary reading for students. Horngren et al.’s (2014) book, Introduction to Financial Accounting (12th ed.), Pearson, London, provides an overview of the income statement and its role in assessing performance (see Chapter 2) as well as a useful discussion on evaluating the components and trends of a business (see Chapter 12). More advanced students may benefit from the in-depth discussion of earnings quality, operating income and non-operating income found in Chapter 4 of Intermediate Accounting (9th ed.), McGraw Hill Education, New York by Spiceland et al. (2018).

The case and discussion questions posed will allow the instructors the opportunity to introduce critical strategic concepts from strategic, nonprofit management and social enterprise literature. Specifically, (1) strategic transformation: countering drift and anticipating future trends and crises; (2) types of leadership: transactional versus transformational; (3) hybridity and mission drift; and (4) nonprofit funding models, the starvation cycle and the overhead myth.

Both primary and secondary sources have been used to prepare the case. The first two authors had the opportunity to interview Thomas Tighe, Direct Relief’s (DR) President and CEO in July of 2019. The interview lasted one hour and was transcribed by one of the authors and reviewed by the other two authors for accuracy. In addition, the authors conducted nonparticipant observations in DR’s headquarters in Santa Barbara (California). Given the longevity and media exposure of the organization, extensive internal and external archival data was also available for the analysis.

This real and undisguised case is based on DR, a +70-year-old humanitarian $1.2bn nonprofit organization headquartered in California (USA). From its headquarters in Santa Barbara, DR responds to emergencies and delivers medical support for vulnerable people affected by poverty, natural disasters and civil unrest in all 50 US states, six US territories including Puerto Rico and US Virgin Islands, and in more than 90 countries.

The case presents Thomas Tighe, DR’s President and CEO, reflecting in late 2018 on the transformation and growth that the organization had experienced since he started his tenure in 2000. Specifically, he is considering the most effective way to allocate an unrestricted recent cash donation. Should DR spend that money on traditional fundraising, reducing its efficiency rate, or should DR take a long-term approach and use the funds to build long-term capabilities? In addition, the case outlines the history and evolution of DR over its more than 70 years of existence, the CEO’s background and motivations, as well as a detailed description of the organization’s revenue portfolio. Students will have an opportunity to learn about a unique nonprofit named among “the world’s most non-for-profit organizations” by Fast Company; DR was also included in the Charity Navigator’s list of the “10 Best Charities Everyone’s Heard of.” In addition, in January 2009, DR was designated as a Verified-Accredited Distributor by The National Association of Boards of Pharmacy, which placed it as the first nonprofit to receive this designation to deliver prescription medicines to all 50 US states. Throughout Tighe’s tenure, DR had been lauded for its fundraising efficiency. The unique distinction to DR’s efficiency is its tradition of adopting new technologies and modern business practices for humanitarian purposes.

Students will learn how DR, under the leadership of Thomas Tighe, reinvented and reinforced the organization’s traditions to retain high levels of efficiency in the face of an ever-larger organizational scale, public scrutiny and demand for humanitarian support across the world. Students will witness many strategic and operational tenets that they may be more familiar with from the for-profit world. The case also will help students to understand the concept of hybrid organizations and different nonprofit funding models.

The case has been written to be used in graduate Nonprofit Leadership Management and Social Entrepreneurship courses. Given the scope and implications, the case could also be used on an upper-level strategy course. To maximize students’ learning, the case should be introduced halfway into the course after students have a solid understanding of what nonprofits are and how they operate. If students are not familiar with some of the concepts introduced in the analysis, the proposed readings will prepare them for a more fruitful discussion.

Public Sector Management.

MBA or postgraduate program courses in public policy and management. MBA or postgraduate program courses on social innovation, social entrepreneurship and public or collective entrepreneurship. Management development programs for public policy professionals, non-governmental organizations and social enterprises.

Despite several country-wide campaigns to improve sanitation levels, India continues to be the country with the highest number of people, over 600 million, practicing open defecation. This case outlines the Sabar Shouchagar Project (Toilets for Everyone) undertaken by the District Administration of Nadia District in West Bengal that transformed the region into the first open-defecation-free district in India. The case begins with providing the context of the problem of open defecation, why it has been hard to eliminate and how undertaking a project to eliminate open-defecation-free practices has myriad institutional and economic challenges. The case then details the conceptualization and execution of the complex Sabar Shouchagar Project which involved a loose coalition of various state programs and civil society organizations. The case ends with questions on the continuity of this project beyond the tenure of the current District Magistrate and on the replicability of such an ambitious project in other parts of the country. The setting of this case, a government agency, is different than most cases and provides an opportunity for students to talk about a state agency and its interstices with civil society. This case explores how to create change through large government machinery and allows the student to explore aspects of social mobilization, social change and social innovation. If taught within a postgraduate or MBA program, the case would serve well to dispel stereotypes and biases about government bureaucracies (such as slow timelines, limited efficacy of projects and so on).

After discussion and analysis of the case, students will be able to: appreciate how administrators within a large government bureaucracy address an ambitious and complex public health issue in a developing world context. Understand the on-the-ground challenges that arise when a change agent pursues a worthwhile goal. There are difficulties such as getting resources beyond what a government office has access to, getting alignments between different key actors within the local community and forging coalitions. Understand initiatives for social transformation within a developing country context. Specifically, the case unpacks the cultural, political, economic contexts that determine how social innovations may be pursued. Understand capacity-building and change management. Evaluate efforts required to sustain social change efforts and the challenges and pathways with respect to replication of successful social change projects in other geographies. Appreciate the design of civic engagement practices in public policy implementation.

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CSS: 10: Public Sector management.

The case briefly describes the history of Electronic Data Systems (EDS) under Ross Perot and GM before turning to the beginning of a tumultuous decade in the late 1990s. As the turn of the century approached, EDS made critical strategic missteps such as missing opportunities in the Internet space, overlooking the onset of client-server computing, and failing to obtain major Y2K-related projects. The company attempted a turnaround by replacing the CEO with Dick Brown, whose leadership helped streamline the sprawling company. Despite initial successes, Brown's tenure ultimately ended in failure, due largely to his failure to recognize the growing Indian market and his willingness to buy business at the expense of the company's margin. The disastrous multibillion-dollar Navy & Marine Corp Intranet contract typified the type of high-profile transactions that Brown pursued, often boosting EDS's stock price in the short term while eroding its cash flow short term and its profitability over the long term. EDS management went through several stages of the turnaround process: the blinded phase, the inactive phase, and the faulty action phase, until Michael Jordan replaced Brown as CEO and enacted a three-tiered operational, strategic, and financial turnaround.

EDS's near-decade of turnaround efforts takes students through every phase of the turnaround process and demonstrates that even initially successful turnaround efforts can become distracted, rendering them ineffective. The case will show both a failed turnaround and a subsequent successful one, while adding an international component with respect to EDS's overlooking an important, growing Indian market.

In July 2007, Mark-Hans Richer became Harley-Davidson's first chief marketing officer. Its riders were aging, which the company saw as an existential threat. Although Harley-Davidson had a record sales year in 2006 and had maintained a commanding share of the heavyweight motorcycle market for the previous decade, it needed to take new action to sustain its growth.

Richer needed to deliver a new generation of riders and a more diverse customer base, all without losing current Harley-Davidson customers. He also knew that he could not relax: the average tenure of a CMO in 2007 was only 27 months and a complete new product development cycle would take a minimum of four years.

After analyzing the case, students should be able to:

• Recommend marketing decisions for a brand with extremely high loyalty in light of various consumer behavior indicators gleaned from market research

• Understand the power of leveraging existing assets as opposed to innovating new products

• Understand the psychological basis of customer loyalty, including drivers and metrics of loyalty

Recommend marketing decisions for a brand with extremely high loyalty in light of various consumer behavior indicators gleaned from market research

Understand the power of leveraging existing assets as opposed to innovating new products

Understand the psychological basis of customer loyalty, including drivers and metrics of loyalty

The case would be specifically useful in courses related to Corporate Governance, Board Dynamics, Leadership, Organizational Behaviour, Corporate Ethics and Strategic Management.

For Post-graduate/Doctoral and Executive Programme/Management Development Programme level courses in Corporate Governance, Board Dynamics, Leadership, Organizational Behaviour, Corporate Ethics and relevant areas of Strategic Management.

The case relates to the imminent departure of Raamit Pell, the founding CEO of Xcelent Services, an educational service provider, to his parental organization at Kozerton after completing his current five-year term. Raamit had moved from Kozerton to become CEO of Xcelent Services. Many of Raamit’s senior executives at Xcelent were not happy about his decision to return. They felt that his departure at this moment might, on the one hand, slow down the ongoing major expansion plans and on the other aggravate a mutiny, under covert Board patronage involving a powerful clique of certain senior executives. The parental agency finally agreed to release him. On the day of Raamit’s farewell, where surprisingly even the clique members were present, many executives appeared sad. Observing the mood, Raamit wondered whether his decision to return to Kozerton was the right one.

To understand the internal governance, leadership and behavioural environment of a company. To understand the impact of internal power equations of a company on the morale of its people. To analyze both the inconsistency between the stated goals of the organization and the revealed actions of its top decision-makers; and the lack of restraint on the power struggle among the top actors of the organization. To identify effective strategies for addressing such issues in future so that their fallouts would be minimized. To relate the behaviour in an organization to the organizational behavioural theories related to leadership, corporate governance, corporate ethics, managerial behaviour and agency problems.

Teaching Notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes.

CSS 11: Strategy.

January 27, 2005, was an extraordinary day for Gillette's James Kilts, the show-stopping turnaround expert known as the “Razor Boss of Boston.” Kilts, along with Proctor & Gamble chairman Alan Lafley, had just orchestrated a $57 billion acquisition of Gillette by P&G. The creation of the world's largest consumer products company would end Kilts's four-year tenure as CEO of Gillette and bring to a close Gillette's 104-year history as an independent corporate titan in the Boston area. The deal also capped a series of courtships between Gillette and other companies that had waxed and waned at various points throughout Kilts's stewardship of Gillette. But almost immediately after the transaction was announced, P&G and Gillette drew criticism from the media and the state of Massachusetts concerning the terms of the sale. Would this merger actually benefit shareholders, or was it principally a wealth creation vehicle for Kilts?

To understand the factors that persuaded shareholders of both P&G and Gillette to merge their companies, the valuation metrics involved in determining the merger consideration, compensation packages for key managers, and the politics (internal, local government, and regulatory) that impact major mergers.

The case study will help to learn about the importance of pre-sanction precautionary measures before lending to self-help groups (SHGs), to learn about the potential lapses and errors while sanctioning SHG finance and to learn about the importance of bank’s guidelines and compliance before sanctioning loans.

This case study details the tenure of Seema in a rural branch of Safe Bank of India located in Haryana which she joined as a manager in the year 2016. She overachieved the target given by the district collector office, and going by the tide, she kept her reliance on the references provided by non-government organization (NGO) without complying the bank’s instructions. She committed errors while sanctioning the loans, which led towards the upsurge of non-performing assets of the branch. Later on, after investigation it was discovered that she did not follow fundamental bank’s instructions. In wake of those lapses and errors, how she could have avoided those lapses and secure the public money? What were the most important documents while granting agriculture finance and what due diligence she should have taken? How did she treat calls from the government departments? Was she right in trusting the suggestions of the NGO?

This case study caters to students of various streams, namely, management, business administration and law, and can be targeted at both undergraduate and postgraduate students. It could be suitable for several types of courses and students. Furthermore, this case study can also be targeted for various training programmes for bank employees and employees of various lending institutions engaged in agriculture finance and credit linkage programmes.

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CSS 1: Accounting and finance.

Data used to develop the case included primary data from employees and supervisors of a commercial floorcovering manufacturing plant in Northwest Georgia. The case company is not disguised.

The survey was developed using existing instruments from the Organizational Behavior and Human Resources Literature. Instruments were listed in Exhibits 2 through 7. The survey administration had the support of the Vice President for Resources and Facilities, and employees and their supervisors were given time to complete the surveys. The data gathered was analyzed by the researcher using SPSS statistical software.

Established in 1957, J&J started as a family-owned business but had grown and diversified its product offerings by focusing on commercial flooring. It survived several economic downturns and remained competitive in a market dominated by more prominent flooring manufacturers. J&J Industries strived to empower its 800 employees with various incentive programs. Employees remained loyal to J&J; many had worked for the company for over 15 years. However, management wanted to measure the impact of empowering and initiatives on employee performance and satisfaction to determine the real power of employee incentive programs. The Resources and Facilities Vice President employed Professor Lopez, a Management Professor, to develop a survey to measure these constructs and analyze the data to guide future incentive programs. Data from the employee and supervisor survey was provided along with the statistical analysis results for interpretation and recommendations for VP Fordham.

The target audience for this case is primarily students in a research methodology course and students studying quantitative regression analysis and interpretation. The focus is predominantly on graduate-level students in Master of Business Administration or Master of Accounting programs in business. Graduate students should have completed courses in management or organizational behavior, business statistics or quantitative methods or data visualization and cleaning as background knowledge for this case. Specifically, students should understand regression analysis and know when and how the tool is used for managerial decision-making.

To evaluate Thomas Cook’s financial condition, students deploy financial analysis techniques including comparative analysis. The role of financial reporting in impressions management is considered in two respects: firstly, the use of separately disclosed items by companies; and secondly, the treatment of goodwill on acquisition.

The case draws on a range of public data from Annual Reports and secondary sources including the Department of Business Energy and Industrial Strategy investigation into the failure of Thomas Cook.

Thomas Cook Group plc’s (Thomas Cook) was one of the oldest travel firms, yet its apparently sudden failure on 23 September 2019 left 600,000 holidaymakers stranded and sparked the largest ever peacetime repatriation of British citizens at cost of £83m to the Department of Transport. Around 9,000 employees who had expected to be paid on 30 September were left unpaid.Could CEO Peter Frankhauser have addressed the challenges faced by Thomas Cook more effectively during his tenure or was the company locked into a flightpath to failure? The case highlights the importance of context when performing financial analysis and encourages students to evaluate the challenges posed by the current standards related to accounting for goodwill and corporate reporting of underlying performance.

This case can be used in undergraduate financial reporting and current issues in accounting courses/modules at the postgraduate level.