Jack Wright Case Series: 1
Wright needs to seriously consider the drawbacks to agreeing to sit on Mega’s board of directors. Although this proposal seems like a prosperous deal for all involved, Wright may be setting himself up for failure if he agrees to join the board. The following are disadvantages facing Wright:
• 8 of the current board members have been on the board for more than 14 years
• Within two years, Wright must invest $100,000 in Mega stock
• Declining stock price
• Off balance sheet defined benefit pension plan is underfunded by $1.1 billion
• Only 4 of 11 subsidiaries are growing
• Mega’s CEO directly and indirectly owns 40% of Mega’s outstanding stock
• Lack of a focused strategy due to varying subsidiary interests
• Possible conflict of interest with Dryden
Of the eight points listed, three are of significant importance. First, eight board members have been on the board for more than fourteen years. Based on the recent financial performance of Mega, this is a negative instead of a positive because the board has failed to facilitate change in the management structure to combat declining sales and stock prices. The board has become too comfortable with operations and does not see change as necessary to revive both sales and stock price. If Wright were to join the board, he would likely be unable to make a difference or accomplish anything for Mega because the majority of the board is likely to side with a newcomer’s ideas and goals.
Second, Mega’s defined benefit pension plan is underfunded by $1.1 billion. This staggering figure is only noticeable to the public in the form of a footnote. Due to the size of this liability, Mega will have to drastically change its investing strategy in order to make up for this market downfall. Expenses will have to be cut and revenues will have to increase. Unless the board can spur management on to find new ways to fund the pension plan, employees will be finding themselves without a healthy retirement. This is
• 8 of the current board members have been on the board for more than 14 years
• Within two years, Wright must invest $100,000 in Mega stock
• Declining stock price
• Off balance sheet defined benefit pension plan is underfunded by $1.1 billion
• Only 4 of 11 subsidiaries are growing
• Mega’s CEO directly and indirectly owns 40% of Mega’s outstanding stock
• Lack of a focused strategy due to varying subsidiary interests
• Possible conflict of interest with Dryden
Of the eight points listed, three are of significant importance. First, eight board members have been on the board for more than fourteen years. Based on the recent financial performance of Mega, this is a negative instead of a positive because the board has failed to facilitate change in the management structure to combat declining sales and stock prices. The board has become too comfortable with operations and does not see change as necessary to revive both sales and stock price. If Wright were to join the board, he would likely be unable to make a difference or accomplish anything for Mega because the majority of the board is likely to side with a newcomer’s ideas and goals.
Second, Mega’s defined benefit pension plan is underfunded by $1.1 billion. This staggering figure is only noticeable to the public in the form of a footnote. Due to the size of this liability, Mega will have to drastically change its investing strategy in order to make up for this market downfall. Expenses will have to be cut and revenues will have to increase. Unless the board can spur management on to find new ways to fund the pension plan, employees will be finding themselves without a healthy retirement. This is