Question

Gutierrez Company, a publicly held corporation, operates a regional chain of large drugstores. Each drugstore is operated by a general manager and a controller. The general manager is responsible for the day-to-day operations of the store, while the controller is responsible for the budget and other financial tasks. The general manager, Tracie Kappan, has been at Gutierrez Company for several years. Employee turnover is high at Gutierrez Company, just as it is in the retail industry in general. Kappan just hired a new controller, Min Yang.

Yang was asked to prepare the master budget. Each retail location prepares its master budget once a year and then submits that budget to company headquarters for approval. Once approved by headquarters, the master budget is used to evaluate the store’s performance. These performance evaluations directly affect the managers’ bonuses and whether additional company funds are invested in that location.

When Yang was almost done preparing the budget, Kappan instructed him to increase the amounts budgeted for labor and supplies by 20%. When asked why, Kappan responded that this budgetary cushion gives store management flexibility in running the store. For example, because company headquarters tightly controls operating funds and capital improvement funds, any extra money budgeted for labor and supplies can be used to replace store furnishings or to pay bonuses to help to retain good employees. She explains that the chance of getting extra funds from company headquarters is not good; this “cushion” is usually the only opportunity to replace store décor or to pay bonuses to key employees. Kappan also needs extra funds occasionally to make “under the table” payments to employees as incentives to work extra hours or to keep them from leaving for a higher-paying job.

Yang feels conflicted. He is eager to please Kappan, and he is wondering what he should do in this situation.

1. Who are the stakeholders in the scenario?

2. Who is responsible for the situation Min Yang is in? The Company or the General Manager? Why do you think that?

3. What would do if you were Min Yang?

Answer 1

The stakeholders are the company headquarters where Standard Operating Procedures and policies are prepared, the general manager of the stores, the controller of the stores and the employees operating at the stores.

The company procedures that allow the general manager of the stores to appoint their own controller are responsible for the situation Min Yang is in. The company procedures should not only ensure that the controller for the stores are appointed at company headquarter level but also have policies to motivate the employees working at the stores. Some ways of motivating the stores employees may be rewards and recognition, opportunities to earn additional income by sharing profits on sales with the employees, treating the employee's family as the company's own family etc.

The controller for the stores should have direct reporting at headquarter level and not to the general manager of the stores. This will ensure that objectivity and independence of the controller for the stores is not compromised.

If I were Min Yang, I would listen to the general manager if I am reporting to him. If I am reporting to the company headquarters, I will consult them also before finalising figures.