Why Didn't We Know?

3270 Words Apr 5th, 2015 14 Pages
A whistle-blower’s lawsuit alerts Galvatrens to deep flaws in its system for uncovering misconduct. How should management and the board respond?

HBR CASE STUDY

Why Didn’t We Know? by Ralph Hasson

COPYRIGHT © 2007 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

It was 9:30 in the evening of what had been a very long Friday when the phone rang in Chip Brownlee’s home study. On the line was Arch Carter, the lead director of Galvatrens, the Houston-based consumer products company that Chip had led as chairman and CEO for the past ten years. “I just got your voice mail,” Arch said. “The parts about a lawsuit and accusations that we manipulated our sales numbers certainly got my attention. What’s going on?” “At this
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He has helped a number of major U.S. corporations design systems for uncovering misconduct and managing conflict. He is a coauthor of Controlling the Costs of Conflict (Jossey-Bass, 1998). The board, employees, and Wall Street had rejoiced when Chip agreed to become the chairman and CEO of Galvatrens in January 1997. He had previously led Paloreq, a pharmaceutical and medical devices company, during a period of tremendous growth, building businesses in medical devices and diagnostics and broadening the firm’s pharmaceutical offerings through shrewd acquisitions. He had attracted a team of stellar managers and scientists through the same sorts of “people” initiatives he would launch at Galvatrens.

The year before Galvatrens’s board hired Chip, it had reached an impasse with longtime CEO Walter Nikels over strategy and management style. Walter, who had taken the helm when Galvatrens was a midsize firm, had run it in an authoritarian, hierarchical fashion. As the company grew larger and more complex, the board urged him to delegate more and inject some fresh blood into the executive team, but he resisted. As a result, top-performing employees were defecting to the competition, and Galvatrens recruiters were having a hard time getting MBA students to sign up for interviews. The word was out that Galvatrens was not the

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