Writing Assignment

This material is part of the Giving Voice to Values curriculum collection (www.Giv ingVoiceToV alues.org).

The Aspen Institute was f ounding partner, along with the Y ale School of Management, and incubator f or Giving Voice to Values (GVV).

Now Fun ded by Babson Coll ege. Do not alter or distribute without permission. © Mary C. Gentile, 2010

1

The Backdating Scandal: Who Am I

Trying to Persuade? (A) 1

Donald Forge had been Chairman of the Manx Corporation, a provider of computer connector technology, for 6 years, and until 6 months ago in April, his association with the successful, publicly

traded firm had been a point of distinct personal pride. But last April was when the article appeared in the Wall Street Journal, naming Manx along with three other firms, as under suspicion for backdating

stock options in senior executive compensation packages. The allegations had come as a shock to Forge and since then, he had done some soul searching about

why that would be so. Had he been too trusting, too naïve, too complacent – or worse, negligent in his oversight and duty of care?

Of course, once the suspicions surfaced, there was a flurry of board activity. Forge was grateful for the fairly clear “road map” that boards are expected to follow in such cases, including the creation of a

“special committee” to investigate the situation and the decision to hire experienced, outside legal advisors. He did not have to invent the wheel or to confront too much resistance from his fellow

directors on these steps. And once the special committee began to talk to Manx senior executives, it became clear very quick ly

that the CEO, the CFO and the General Counsel had been deeply into “cooking the books,” even creating phantom accounts to cover their tracks. Forge gave full support and access to the special committee and listened carefully to the guidance of the outside experts. The reality and scope of the

problem was uncovered; the relevant information was shared with the appropriate regulatory investigators; the CEO, CFO and General Counsel were dismissed; and a new independent director,

Evan Card, was persuaded to join the board. Card was explicitly selected because of his reputation both for impeccable integrity and also for being

hard as nails when it came to standing his ground against the prevailing winds in an organization or on a board. Forge felt it was an act of courage in and of itself to invite such an individual onto the board, and

1 This case was inspired by interviews and observations of actual experiences but names and other situational details have

been changed for confidentiality and teaching purposes.

This material is part of the Giving Voice to Values curriculum collection (www.Giv ingVoiceToV alues.org).

The Aspen Institute was f ounding partner, along with the Y ale School of Management, and incubator f or Giving Voice to Values (GVV).

Now Fun ded by Babson Coll ege. Do not alter or distribute without permission. © Mary C. Gentile, 2010

2

Card’s acceptance came only after the board’s promise that several more new directors would be

brought in within the next few months.

None of these steps had been easy but they were not particularly surprising or controversial either. For the most part the board, which had never knowingly participated in any misdeeds, followed Forge’s leadership and the advice of the outside advisors. They wanted to take the necessary steps to fix the

problems. After all, there were lawsuits being filed against them individually for breach of fiduciary duty and they wanted to protect themselves. They believed that by carefully reviewing the results of the

special committee’s inquiries and rema ining personally involved in the firm remedies, they could protect themselves as well as resuscitate Manx’ reputation.

So when Manx continued to be on the front pages of the business press for months after the initial story broke, and when the firm was de- listed, Forge had to ask the question: “Why? Why won’t this go away?

How do we get on with the business of Manx, which is to make and sell technology products?” His advisors sat him down for some hard truths, explaining that Manx had become the poster child for

backdating, the latest corporate scandal to attract the regulators’, the media’s and the investors’ attention. Their General Counsel had been convicted, their CEO would be soon, and the CFO was

cooperating, in the hopes of a lighter sentence. Every action that Forge and his board took, in an effort to signal a restored integrity to the market, could just as easily be read as an effort to protect their own hides. From an outside perspective, as long as the board -- who in the best scenario had been misled, or

in the worst scenario was complicit -- remained in place, why should the markets or the media be reassured?

Forge sat stunned when his advisors finished speaking and finally countered: “But what else can we do? If we leave the board, there is no assurance that a new board will have the history and the insight into

Manx to lead it out of this mess. And then where will I and my fellow directors be, in light of our personal pending court battles?”

After Forge said this, the advisors just smiled faintly and said: “Precisely…”

It was at this point that Forge realized what he had to do. He knew the arguments for staying on the board: he was loyal to Manx; he knew the firm better than any newcomer and therefore was better

equipped to lead it through this crisis; he was violating no legal or regulatory guidelines by staying; he wanted to fix his own mistakes, to clear his own name; and he feared that to leave would appear an admission of guilt. But after this conversation with his advisors, he was beginning to see that these last

two reasons were ruling his decision. Truth be told, the business was not a mystery. Talented directors with industry knowledge could step in, and perhaps the Manx culture and norms which he claimed to

know so well might not be such an asset anymore anyway. But now Forge faced a new challenge. Even as he began to change his own mind about what was best

for Manx, he realized that he would also need to influence his colleagues on the board. If the problem was the status quo, two or three new directors on a board of nine might not be a strong enough signal.

Manx needed a clean sweep. But given how difficult it had been for Forge himself to accept this message, how could he persuade the

board?

This material is part of the Giving Voice to Values curriculum collection (www.Giv ingVoiceToV alues.org).

The Aspen Institute was f ounding partner, along with the Y ale School of Management, and incubator f or Giving Voice to Values (GVV).

Now Fun ded by Babson Coll ege. Do not alter or distribute without permission. © Mary C. Gentile, 2010

3

Assignment Questions

In s mall groups, discuss the case and craft an action plan and “script” for Forge.

Place yourself in Forge’s shoes: What would you say, to whom, when and how? Consider the

following when answering these questions: o What are the main arguments you are trying to counter? That is, what are the reasons and

rationalizations you need to address? o What’s at stake for the key parties, including those who disagree with you? o How can you find allies among those who may agree with you? Does anyone agree with you?

(Inside the board? Outside the board?) o What is your most powerful and persuasive response to the reasons and rationalizations you need

to address? To whom should the argument be made? When and in what context?

Discussion Questions

Each team will be asked to share their action plans and scripts with the large group, which will discuss the following:

How would you evaluate each team’s action plan and “script”? What are its strengths and weaknesses?

How effective do you think they will be?

How would you improve this approach and Forge’s chances?

Last Revised: 03/01/2010