ZELTE USA Zelte USA's four departmental managers, Tom Wil- liams, Lloyd Forrest, Bob Hobson, and Dan Offerman, sat around the lunchroom table and wondered what they should do next. They had confronted their boss, Hans Meindle, the company's general manager, about three weeks ago with a list of serious concerns. At the meeting, Hans became furious. He took the list of concerns as an assault on his abilities. Hans agreed to give up some of his respon- sibilities to the four managers, but no changes had occurred since the meeting. Morale problems continued at the com- pany and Zelte's largest customers continued to express their displeasure with Meindle's actions. Both Tom Williams and Dan Offerman joked about how Margot Meindle, company receptionist and secretary and the wife of Zelte USA's general manager, had handled her displeasure. Margot left Kentucky on a flight to London under the guise of attending the wedding ceremony of one of Zelte USA's employees. Margot filed for divorce upon her arrival in London, England, and never returned from her trip. She and her husband, Hans, had a difficult and troubled relationship for the past several years. From Hans's point of view, her departure came abruptly and unexpect- edly. From Margot's point of view, it didn't come soon enough. Several Zelte USA employees knew of Margot's plan, but no one was comfortable with broaching the sub- ject with their boss. It was a very 'awkward time. "We can't change the man, and I'm getting tired of fighting with him," said Williams, biting into his ham sand- wich, and suggested simply giving up on the situation. "People come and go all the time in business, but the company and their products endure. What's important is providing good service and products to the customer," intoned Forrest, "and as managers, we're responsible to our customers. We need to fight for them." Hobson was not as enthusiastic. He made it clear he was ready to start looking for another job by stating, "If we were smart, we'd all get out of here and let Meindle hang himself." Dan Offerman listened intently to his colleagues as he sipped on a cup of coffee. "I've been Germany, and I've spent time working with Dr. Fischer. I agree, I don't think we can continue to battle Hans, but we have to do something. Maybe it's time to talk to Dr. Fischer." History of Zelte USA Zelte USA, a wholly owned subsidiary of Zelte GmbH, had established North American headquarters early in 1979 in a small office and warehouse in an industrial park in Kentucky, approximately two miles from Northern Kentucky-Greater Cincinnati International Airport (which had non-stop service to Germany) and approximately a 40-minute drive from its largest customer. (The area also served as a large center of German heritage and German direct investment.) Dr. Dieter Fischer was the sole owner of the parent company in Ger- many and president and chairman of Zelte USA. Dieter Fis- cher resided in Germany but kept tight control over com- pany operations around the world, visiting every subsidiary at least twice a year and also visiting with major customers during these trips. Dr. Fischer took great pride in supplying the highest quality products and superior service. In addi- tion to his native German, Dr. Fischer spoke both English and French fluently, and held a doctorate in engineering. He had started his career with Zelte GmbH and bought the company from its former owner. Hans Meindle had proven his management ability overseeing the company's operations in South Africa for ten years, and in 1979 Dr. Fischer moved him to Kentucky to run Zelte's U.S. operations. Meindle was born in Berlin shortly after the end of WWII. At an early age, he devel- oped a fascination with Africa, prompted by his frequent visits to the movies to see the latest Tarzan film. At age 18, he packed up and moved to South Africa, where he worked for several years as a truck driver, a lineman for a South African utility, salesman, and finally as general manager of Zelte GmbH's South African subsidiary. Meindle had an ex- wife and daughter in Germany, and had married his second wife, Margot, in South Africa. He held citizenship in both South Africa and Germany. The company manufactured wheels and casters for var- ious types of mobile equipment, such as furniture, carts, and hospital beds. Zelte GmbH had worldwide sales of DM700 million (at the time of the case US$1 = DM2); approxi- mately 1,000 employees; and manufacturing facilities located in Germany, South Africa, Ireland, and the United States. The company also had partially owned sales sub- sidiaries in most Western European countries. In the United States, the company primarily marketed to original equipment manufacturers (OEMs) of hospital beds, stretch- ers, medical equipment, and airline meal/beverage carts. Zelte GmbH had sold products in the United States since the early 1970s using its English-speaking sales staff based in Germany. By the late 1970s, Zelte GmbH management realized the increasing demands and costs, as well as the potential, of con- tinuing to serve the North American market from Germany. Assembly in the United States would reduce costs for cus- tomers, reduce import duties, reduce exchange rate exposure, improve profitability, and create a competitive advantage. Meindle oversaw the construction of a new facility (offices, factory, and warehouse) in an industrial park less than a mile from the original office. The company moved into the new building in 1980, expanded the facility in 1987, and remained there until 1992, when it moved to a new and larger facility only a few miles away. Sales grew from approximately US$1 million to US$10 million, and the number of employees grew from 15 to 40. The Management Team Fischer felt fortunate to have a strong management team at Zelte USA. Four American managers supported Hans Meindle in the growth and expansion of this operation. Tom Williams served as the company's finance man- ager, in charge of accounts receivable and payable, personnel, payroll and benefits administration, and funds management (on both a domestic and international level). Tom had grown up in Kentucky and had a bachelor's degree in accounting. Williams spoke no German and had never trav- eled to Germany. He was married and had two sons. Lloyd Forrest served as the company's production manager. He had a bachelor's degree in plant engineering and had 15 years of experience as a plant manager of a local medical equipment manufacturer. Lloyd had also grown up in Kentucky, and he, his wife, and two sons lived only a few miles from the company's offices. Forrest did not speak German, nor had he ever been to Germany. Bob Hobson served as national sales manager and over- saw three regional salespeople, two of whom worked from their homes in New Jersey and California. The third sales- person worked out of the company's offices in Kentucky. Bob had a bachelor's degree in business administration from a pri- vate college in Indiana and had ten years' sales experience. Hobson came from a wealthy Kentucky family and had recently married. He did not speak German, but had made a brief trip to Germany to visit company headquarters. Dan Offerman grew up in Kentucky, had a bachelor's degree in business and banking from a local private univer- sity, and began his career with Zelte in an internal sales position. After one year, the company promoted him to marketing manager and sent Dan to Germany for two months of management training and indoctrination. Offer- man spoke German fluently and had traveled extensively in Germany both for pleasure and while on a university- sponsored semester work-study program. While working at the company, Offerman completed an MBA at the local state university. He was single and the youngest member of the Zelte USA management team. Concerns Developed Meindle had always maintained tight control over all opera- tions of Zelte USA. He centralized all decision making in his office. He had a number of habits that the managers felt were mildly annoying at best, to insulting-and possibly illegal at worst. Meindle would review every piece of mail that was delivered to the company and personally distribute it to each employee it impacted. He reviewed and signed every purchase order, whether the purchasing manager had issued it for a new piece of capital equipment or for bath- room and cleaning supplies. Meindle intentionally had the offices constructed with large, southern exposure windows, so that all office lighting could be turned off on sunny days in order to save on electrical bills. He routinely instructed the person picking up the daily mail at the post office to grab a handful of rubber bands, so the company would not have to purchase them. He did not allow the purchase of pens or pencils, but rather made it the responsibility of the sales staff to collect these items at conventions and trade shows. Meindle often degraded female employees by saying things such as "I don't know why I ever hired women to work for this company." In meetings, Meindle often spoke in German to the three employees who understood Ger- man despite the presence of other non-German speakers. He expected all office personnel to take lunch with him from 12:00 to 12:30 in a dining room separate from a din- ing room for plant employees. He belittled any office employee who ate with the plant employees. Many Zelte USA employees strongly disliked Meindle. Many referred to him as "The Nazi" or "Herr Meindle," a specific refer- ence to Nazi leader Josef Mengele. One employee stated that Meindle was one of the "Boys from Brazil." [The Boys from Brazil, a 1978 thriller/drama starring Gregory Peck, directed by Franklin Schaffner, and based on the best- selling novel (1976) of the same name by Ira Levin. The movie centers on the plans of Nazi war criminal Josef Men- gele to create a new Hitler through a sinister global conspiracy.] Shortly after his separation from Margot, Hans Mein- dle began to display behaviors that particularly concerned the four departmental managers. The four generally worked well with Meindle, having learned to work within his expectations, even though disagreements occurred. Although Meindle was the general manager, he remained active in sales, personally serving Zelte's three largest cus- tomers; all their customers in the Portland, Seattle, and Vancouver, BC, corridor; and selected companies in Mon- treal and Toronto. He refused to allow another salesperson to call on these customers or even to talk to them when they phoned. Zelte USA (and Zelte GmbH) had developed a reputa- tion of providing the highest quality products available in the industry, but also had developed a reputation for high prices and unreliable delivery. Meindle personally deter- mined pricing for every OEM customer, with some input from the individual salesperson serving that particular account. The company instructed salespeople to promise delivery of most products within 5 to 6 weeks, but company experience generally indicated a wait of 12 to 14 weeks for most first-time orders, and waits of 24 weeks were not unrealistic. Meindle fired two regional salespeople for openly disagreeing on sales policy at a staff meeting. Unfor- tunately for the company, each of these salespeople had developed extremely close relationships with their cus tomers, and the company had to creatively explain its actions to maintain the customers' accounts. At one point, the company faced increasing costs due to fluctuations in the US$ to DM exchange rate. For a while, Meindle decided that the company would "eat" the increased costs and not increase prices to customers. Eventually, the U.S. dollar weakened too much, and the company needed to increase prices to maintain the prof- itability of some accounts with the slimmest of margins. In an abrupt move, Meindle secretly attempted to push price increases onto the company's largest customer by increasing the per-item price on invoices, but never noti fied the customer's purchasing department. His action greatly angered this customer, and it abruptly cancelled US$2 million in orders. This large customer represented approximately 50 percent of Zelte USA's annual sales. Within three weeks and a visit from Dr. Fischer, the com- pany's chairman, the customer renewed all orders and negotiated a new, mutually beneficial price scheme. Simultaneously, several purchasing agents at this same company developed a strong dislike for Meindle. One purchasing agent had a personal goal to convince company management never to do business with Zelte USA until Hans Meindle departed, purely based on his per- sonal dislike for him. Zelte's managers needed to find a solution to this problem, but Meindle continued to refuse to let any employee meet with the largest customer, and dis- missed the situation as a personality conflict. Finally, Bob Hobson and Dan Offerman arranged a secret meeting with the largest customer and devised a method for the purchas- ing agents to bypass Meindle in most day-to-day interac- tions. In addition to Zelte USA's largest customer, two other large customers, each representing between 5 and 10 per- cent of Zelte USA's annual sales, began to complain about Meindle. These companies became the prime concern of the four departmental managers. The New Secretary Shortly after Margot's departure, Meindle hired a new com- pany secretary/receptionist. Suzanne, a German immigrant, who had married a U.S. Army enlisted man, was very young (early 20s) and suffered from homesickness for Germany. She took great comfort in working for a German company and for a German directly. Meindle only spoke to Suzanne in German, even in front of other employees, with the exception of conversation at the lunch table. Office employees soon discovered that Suzanne spied on them at Meindle's direction. Employees regularly loos- ened up" when Meindle traveled or left the office. People took "irregular" lunch breaks, for example, from 11:00 to 11:30 or 1:00 to 1:30 instead of the mandated 12:00 to 12:30 when Meindle ate lunch in the office. Although Meindle dis- approved of food at one's desk, employees often did eat at their desks during his absences, particularly in the mornings, as the person going for the mail might have stopped and picked up donuts on the way back to the office. When Meindle returned from a trip, he often commented on the activities of individuals during his absence. One day during one of Meindle's sales trips, Suzanne was absent due to an illness. Tom Williams, looking on Suzanne's desk for the company's endorsement stamp, came across a diary. To his chagrin, he realized that Suzanne kept records on all activity of office personnel during Meindle's absences. Williams showed the diary to the management team, and during Meindle's next trip, the management team confronted Suzanne about the diary. She admitted that Meindle instructed her to record "violations" and report back to him when he returned from a trip. Suzanne told Meindle about this confrontation with the managers. Withdrawal and Morale Problems During this time, Hans Meindle also began to withhold mail from individuals, and changed his verbal directions to employees (which in every case made employees look incompetent). Employees started to demand directions from Meindle in writing to protect themselves. Meindle often refused to comply, and several employees started writing memos to Meindle to restate the verbal directions that he had given them. Also during this time, Meindle discontinued staff meet- ings. Rather, he met individually and behind closed doors with department managers. The managers often met as a group, both on and off site, to discuss these meetings, and often discovered that Meindle had provided conflicting or differing information on the same matter. Morale in the company reached an all-time low. The shop supervisor, who regularly started his day as early as 5:00 a.m. and left as late as 8:00 p.m., now absolutely refused to work beyond the stated 7:30 to 4:30 plant hours, which left much managerial work undone. The company's purchasing agent quit her job to take a position closer to her home, but for considerably less pay. Williams's accounting clerk quit, and shortly after hiring a replacement, the new clerk quit as well, citing her inability to work for Meindle. Several shop personnel openly expressed their displeasure with Meindle and his management style. Meindle grew more reclusive in his office and discontinued his open door policy. Meindle now summoned people to his office with a phone call, or marched to an office, snapped his fingers, and exclaimed, "We need to talk!" The Afternoon Delight Enough was enough, and the four departmental managers, Williams, Forrest, Hobson, and Offerman, scheduled an all- afternoon meeting with Meindle. As a united front, the four managers confronted Meindle with the various issues of con- cern, and offered a plan to relieve Meindle of his sales duties to allow him to focus his attention on the demands of the growing company operations. Meindle became furious and took the suggestion as a personal assault on his abilities. Meindle said he would consider giving up the West Coast accounts, but not the Canadian accounts nor the accounts for the company's three largest customers. Over the new few weeks, however, the four managers saw no change in Meindle's actions and behaviors. They became increasingly concerned about the company's future, their own jobs, and wondered whether Dr. Fischer, in Ger- many, had any idea of what was going on at Zelte USA. They got together around the lunch table to discuss what they should do next. Lloyd Forrest spoke up first. "It's been weeks and nothing has changed. He still looks through the mail; the plant employees are upset, as are our customers." Bob Hob- son agreed by saying, "You're right, Lloyd. And you know what; I'm getting tired of listening to the purchasing agents at our largest customers vent their anger at me. I know there's a problem, and I know they don't like Hans, but what can I do?" Tom Williams was simply tired of the whole situation, and suggested that they "just live with it" and move on. Dan Offerman interjected, "I know I can't