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Ethics and litigation process - The DENNY'S Restaurant case study

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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.

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									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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