John Elrod founded the Elrod Manufacturing Company 50 years ago. Vernon Scott is the vice president of plant engineering, reporting to George Elrod, who took over as the company president from his father, John, five years ago. Vernon Scott and John Elrod have been good friends for many years. The company’s products include automotive parts (such as gears, axles, and transmissions), metal stampings, and sheet metal subassemblies.

Also reporting to George Elrod are six plant managers. Each plant has its sales, engineering, manufacturing, warehouse, and other functions. The plant managers are responsible for the profitability of the individual plants. The total employment of the company is 12,000 people.

The company has a standing policy on capital expenditure: expenditures below

$5,000 are to be approved by plant managers, those between $5,000 and $50,000 by Vernon Scott, and those above $50,000 by the executive committee. Vernon Scott favors expenditures for machinery and equipment directly related to manufacturing, but not for maintenance, facility expansion, or improvements that are not related to manufacturing. Over the years, plant managers have become unhappy with Scott’s refusal of expenditures for nonmanufacturing equipment, such as computers. Forced to keep their plants profitable, they cannot help but bypass him by breaking down the nonmanufacturing projects into many small components, each below $5000.

Eventually, Vernon Scott finds out about the piecemeal purchase of a $27,000 computer by Paul Nelson, a very capable plant manager whose plant has become the most profitable in the company. Scott demands that George Elrod fire Nelson, citing insubordination, cheating, and dishonesty.

What would you do if you were George Elrod?