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―No matter how much training you provide, if you are not held accountable and measured on performance the stuff will hit the fan! Particularly in this industry where the service people may or may not have even a high school diploma. I f we look at many large international companies that are dealing with diversified working force in a specific business area as such as Hospitality, Leisure, Cruise, Airlines etc, they have a very rigid discipline during the training process. They are very aware of ethics and all new hires are going through very selective programs with sever rating scale to measure their responses. When an accident is reported the employee is notified, eventually, laid off.
Ethics and litigation process - The DENNY'S Restaurant case study Introduction I read the case of Denny’s restaurant and I have noted that many have expressed a noticeable doubt about Richardson ability to perform a diligent job in his position. This is also adding to the TW management for missed accountability at all levels and communication on corporate Vision and Culture. I’m trying to analyze where exactly is the problem in Richardson management style and in the TW corporate culture. Before digging in my analysis, please allow me to state some clear diversity from a similar situation in Europe compared to USA. Europe and USA I’m approaching this case with a bit of concern about ethics and litigation process in USA. I know, this sound very bold approach but I think we need to separate what is a company corporate governance policy from national conflicts and administrative procedures. As we know, in Europe we have a less aggressive approach from lawyers and very little space to grow a racial bias to a $2m settlement from ―emotional distress‖ (Becker & Poliakoff, P.A. Announces Discrimination Suit Filed Against Local Denny's Restaurant - FORT LAUDERDALE, Fla. (BUSINESS WIRE) April 27, 2005) or a $28 million dollars worth of worth of "emotional distress, humiliation, and loss of dignity" - as stated by Militant Islam Monitor.org (http://www.militantislammonitor.org/article/id/579 Practical Consideration on Denny’s case I am reading the case against the period when this has occurred, though we need to consider the followings: - 1961: first restaurant managed by of Richardson: - 1989: first incident for Hiring and promotion discrimination (Shoney’s case) - in this case $530m were collectively claimed ( we do not know the correct number of involved) and later settled in 1992 for $105m – Clearly we have similar situation of mismanaged companies HR in Europe but without reaching this very costly claims. - 1991: St Jose incident: 1 case (manager employee) involving a group of 18 students - 1993: Annapolis incident: 1 case (waitress employee) involving 6 agents not promptly served with a clear Racial Bias - 2005: Miami-Dode incident: 1 case with Arabs Americans (as explained above) with $2+2m claims I do not want to be pragmatic here but in a bit of math will help me getting through my thoughts: - from the first restaurant in 1961 till 2007 (36 years), Richardson had 3 cases. - we could estimate an average of 88m (*) customers served per year in the whole chain. Of course there were not 88m in 1961 but we can assume that several hundred million customers have been served in Denny’s restaurants throughout the years while Richardson has been in the restoration business. (*) 1.72m$ per restaurant x year average unit sales. If we assume a meal average cost of $30 we could have an estimation of about 57K customers - which means 88m customer for average of 1550 restaurants – as stated in 2007 official numbers (http://www.dennys.com/en/cms/Company+Info/30.html ) Lets now concentrate on the critical issues: 1. Communicate corporate Vision and Culture: Richardson has positively conveyed lot of enthusiastic experience in TW. The ―Fair Share Agreement‖ and the ―Opportunity 2000‖ are clearly corporate messages that are showing the company TW and the Press that there is a clear intention to change attitude in the company. The message was prepared and distributed to all employees, with the pledges and monitoring feedback. The two programs created a diversified culture and a valid initiative, in addition to $1B cost. I think the response was clear but not effective. I agree on the inefficient process of COO Bernard Scott. He could have had a more clear statement or, even, ask CEO Richardson to step in. 2. Focus on the Customer: I see here a great challenge in unified or diversified company culture. The restoration is a very customer centric business and does require a very specific close monitoring. Specifically in the restoration business the turn-over is quite high, due to lower wages and low education, hence best practices shall be always been encouraged and applied. While the management was focusing on the ―fast track‖ night segment, they lost the tight control directives for close monitoring. Perhaps, in that specific business segment (night shift), the training program was not sufficient enough to support high ethical standards. 3. Actions speak louder than words: A clear sign from the CEO would have had a different impact on the further development of the case. I believe that Richardson has underestimated the gravity of the episode. Sending the COO was a move that defined the level where Richardson felt comfortable. Apply a Zero tolerance policy was a too early stage for him, specifically because this was the first real customer discrimination problem. He could have involved more executive and consultants from the very beginning. As we have learnt from David A. Garvin and Michael A. Roberto in “What You Don’t Know About Making Decisions” - Harvard Business Review - OnPoint 5399 – ―Leaders are made or broken by the quality of their decisions. You would probably be surprised by how many executives approach decision making in a way that neither puts enough options on the table nor permits sufficient evaluation to ensure that they can make the best choice. Most leaders treat decision making as an event—a discrete choice that takes place at a single point in time.‖ 4. Growth without planning: Richardson has devoted his life in grooving his business. He has made certain choices that were relevant for the growth and the expansion in different geographical areas. Sales of SFS to TW in 79. Presidency in 87. Refinancing and new 48% ownership by KKR in 91. The M&A were done probably keeping the management as it was. Despite he had a clear vision he did not mange to execute with the right cultural base and overlapping procedures. 5. Accountability at all levels was missing We all have learnt how important is taking the responsibility for what is being done. The criteria for measuring performances, motivating and executing according to company goals has been partly implemented. The management set up the ―crisis team‖ but it was related to settle an agreement with the Justice Department rather than understanding the root causes of the problem. If the Performance evaluation was done in a more professional manner, they would have discovered the A-blackout policy long before. They would have understood the importance of the case and take more drastic actions to limit it. How would you approach this issue if you were in Richardson's shoes? I see in this decision several concomitant activities that cannot simply happen at the same time. The new challenges require Discipline of building character, Making Differences Matter and Managing Multicultural Teams. These are the topic of our unit. Definitely I need to be on top of my commitments and ensure that a customer satisfaction index is being implemented and monitored. All the relevant data must be collected and discussed with cross references in order to comply with the corporate culture ethics and regulations. I need to have a clear implementation plan from the HR Management on hiring process and training courses Most of all I would need to secure efficiency and profitability. There are key people in the organization that are playing an important role for each of the activities that failed to be recognized and accepted. The shareholders, the regulatory body, the unions and the press. With these key people I would need to co-operate on a daily bases to understand the challenges they are presenting and discuss with them possible solutions. What can we learn from HR? - restaurants in 93: 1460 – Nr of employees: 19,000 (estimation) - restaurant in 07: 1546 – Nr of employees: 21,000 from Dennis Company Information: http://www.dennys.com/en/cms/Company+Info/30.html This is clearly a large number of employees. Looking at the main element of the presentation posted by Prof. Lusk (Human Capital) we can learn that a better Interview process may improve hiring level. We can work with better defined training process where developing and ethics programs are increasing the level of self awareness. BUT, as stated by Prof. Lusk ―No matter how much training you provide, if you are not held accountable and measured on performance the stuff will hit the fan! Particularly in this industry where the service people may or may not have even a high school diploma.‖ I f we look at many large international companies that are dealing with diversified working force in a specific business area as such as Hospitality, Leisure, Cruise, Airlines etc, they have a very rigid discipline during the training process. They are very aware of ethics and all new hires are going through very selective programs with sever rating scale to measure their responses. When an accident is reported the employee is notified, eventually, laid off. We need to be aware that, even a small detail can be of a great damage for a large company. As an interesting example, I was told that an employee of an international cruise company posted on her ―facebook‖ profile that she was home with pig-flu as she came back from holidays. Knowing how sensitive is the public opinion on such matter, if the information would have spread over the net, many potential customers would probably decided to choose another company for their holidays. The HR manager, promptly informed by a colleague, immediately asked that employee to remove that sensitive information from the WEB. An internal bulletin was circulated to inform about the critical use of sensitive information. A note was add to the initial 1 week training to all new employees. The very last consideration: Have you been to a Denny’s restaurant lately? Have you seen a difference? I’ve not been in any Denny’s restaurant lately but I went to look into Denny’s Corporate Governance Documents (http://phx.corporate-ir.net/phoenix.zhtml?c=113027&p=irol- govhighlights ) to understand if there is anything that is pointing at the Title VII of the Civil Right Act of 1964 ―Outlaws discriminations in employment practices based on race, sex, color, religion, or national origin. My search did not produce any such evidence. Best Regards, Cosimo
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