Harvard Case - Glenn Defense Marine Asia (A)
"Glenn Defense Marine Asia (A)" Harvard business case study is written by Susanna Gallani, Anja Anliker, Luke Hodges, Amram Migdal. It deals with the challenges in the field of Accounting. The case study is 33 page(s) long and it was first published on : Sep 17, 2019
At Fern Fort University, we recommend a multi-pronged approach for Glenn Defense Marine Asia (GDMA) to address the ethical and financial challenges it faces. This includes implementing robust internal controls, enhancing corporate governance, and establishing a strong ethical culture. We also recommend a review of GDMA's business model and pricing strategy to ensure sustainability and profitability.
2. Background
The case study focuses on Glenn Defense Marine Asia (GDMA), a company owned by Glenn Defense Marine Asia, Inc. (GDMA Inc.), providing logistical support services to the U.S. Navy in Asia. GDMA's success was built on its close relationship with Navy officials, which allowed it to secure lucrative contracts and generate significant revenue. However, this relationship was also the source of GDMA's downfall. The case study highlights the ethical lapses and potential financial irregularities that led to a federal investigation and ultimately, the indictment of GDMA's founder and several Navy officials.
The main protagonists of the case study are:
- Glenn Defense Marine Asia (GDMA): The company providing logistical support services to the U.S. Navy in Asia.
- Glenn Defense Marine Asia, Inc. (GDMA Inc.): The parent company of GDMA.
- Fat Leonard: The nickname of Glenn Defense Marine Asia, the founder and owner of GDMA.
- U.S. Navy Officials: The individuals who were involved in the corrupt relationship with GDMA.
3. Analysis of the Case Study
This case study presents a complex scenario involving ethical misconduct, financial irregularities, and potential legal consequences. We can analyze the case using a framework that considers:
- Corporate Governance: GDMA's governance structure lacked transparency and accountability, allowing for the unchecked power of Fat Leonard and the potential for abuse.
- Financial Management: The case study suggests potential financial irregularities, including inflated invoices, kickbacks, and bribery, which could have distorted GDMA's financial statements.
- Ethical Conduct: GDMA's actions, including bribery and fraud, violated ethical norms and undermined the integrity of the company and its relationship with the U.S. Navy.
- Risk Management: GDMA failed to identify and mitigate the risks associated with its close relationship with Navy officials, leading to a significant legal and reputational crisis.
4. Recommendations
To address the challenges faced by GDMA, we recommend the following actions:
- Implement Robust Internal Controls: Establish a comprehensive system of internal controls to prevent and detect fraud, including:
- Segregation of duties: Ensure that no single individual has complete control over financial transactions.
- Independent audits: Conduct regular internal and external audits to verify financial statements and identify any irregularities.
- Whistleblower protection: Create a safe and confidential environment for employees to report wrongdoing.
- Enhance Corporate Governance: Strengthen GDMA's corporate governance structure by:
- Independent Board of Directors: Establish an independent board with diverse expertise and a strong commitment to ethical conduct.
- Clear Lines of Accountability: Define clear roles and responsibilities for all employees, including senior management.
- Code of Conduct: Develop and enforce a comprehensive code of conduct that outlines ethical expectations for all employees.
- Establish a Strong Ethical Culture: Create a culture that values integrity, transparency, and accountability by:
- Ethics Training: Provide regular ethics training to all employees to reinforce ethical principles and best practices.
- Ethical Leadership: Foster ethical leadership at all levels of the organization, starting with senior management.
- Open Communication: Encourage open communication and feedback on ethical concerns.
- Review Business Model and Pricing Strategy: Conduct a thorough review of GDMA's business model and pricing strategy to ensure sustainability and profitability. This should include:
- Activity-based costing: Utilize activity-based costing to accurately allocate costs and identify areas for cost reduction.
- Competitive analysis: Analyze the competitive landscape to identify opportunities for differentiation and pricing strategies.
- Transparency and fairness: Ensure that GDMA's pricing is transparent and fair, reflecting the true cost of services provided.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: GDMA's core competency was providing logistical support services to the U.S. Navy. However, the company's mission should be aligned with ethical and legal standards.
- External customers and internal clients: GDMA's external customers are the U.S. Navy, and its internal clients are its employees. The company needs to build trust and credibility with both.
- Competitors: GDMA's competitors are other companies providing similar logistical support services. The company needs to be competitive in terms of pricing and quality of service.
- Attractiveness ' quantitative measures if applicable: The recommendations aim to improve GDMA's financial performance by reducing costs, increasing efficiency, and improving profitability.
- Assumptions: The recommendations assume that GDMA is committed to ethical conduct and is willing to implement the necessary changes to restore its reputation and financial stability.
6. Conclusion
GDMA faces significant challenges related to ethical misconduct, financial irregularities, and legal consequences. By implementing robust internal controls, enhancing corporate governance, establishing a strong ethical culture, and reviewing its business model and pricing strategy, GDMA can address these challenges and create a sustainable and profitable future.
7. Discussion
Other alternatives not selected include:
- Liquidation: This would involve selling off GDMA's assets and distributing the proceeds to creditors. This would be a drastic measure and would likely result in significant financial losses for GDMA's stakeholders.
- Restructuring: This would involve making significant changes to GDMA's operations, such as selling off non-core assets or reducing its workforce. This would be a less drastic measure than liquidation, but it would still be a significant undertaking.
The risks associated with the recommendations include:
- Resistance to change: Some employees and stakeholders may resist the changes recommended.
- Cost of implementation: Implementing the recommendations will require significant investment in time, resources, and expertise.
- Legal challenges: GDMA may face legal challenges from the U.S. government or other stakeholders.
The key assumptions underlying the recommendations include:
- GDMA's commitment to ethical conduct: The recommendations assume that GDMA is committed to ethical conduct and is willing to implement the necessary changes to restore its reputation and financial stability.
- The availability of resources: The recommendations assume that GDMA has the resources necessary to implement the changes recommended.
8. Next Steps
To implement the recommendations, GDMA should take the following steps:
- Form a task force: Form a task force to oversee the implementation of the recommendations.
- Develop a timeline: Develop a timeline for implementing the recommendations.
- Allocate resources: Allocate the necessary resources to implement the recommendations.
- Communicate with stakeholders: Communicate the recommendations and the implementation plan to all stakeholders.
By taking these steps, GDMA can begin to address the challenges it faces and create a sustainable and profitable future.
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Case Description
This case describes the growth of Glenn Defense Marine Asia (GDMA) under the leadership of Leonard Glenn Francis. GDMA provided ship husbanding and logistical support services to the United States Navy when Navy ships visited various ports in Southeast Asia. The case details the role of ship husbanding in U.S. Navy operations and the contracting process for procuring ship husbanding services. In order to help win contracts, Francis developed relationships with an extensive network of U.S. Navy officers, often by treating them to lavish meals and luxury accommodations during port visits. He used this network of contacts to acquire confidential information about U.S. Navy ship operations and port visits, giving GDMA an advantage in bidding for contracts. The case relates how Francis and GDMA came under investigation for these tactics and allows for discussion of whether these tactics were potentially illegal and/or unethical. The (A) case concludes with Francis' arrest by U.S. authorities. The (B) case describes the aftermath of Francis' arrest, including the prosecution and sentencing of his co-conspirators and the termination of U.S. Navy contracts with GDMA. The (B) case further describes a U.S. Navy audit of contracting practices and changes implemented to prevent future unethical or corrupt contracting as had occurred on a widespread basis between GDMA and the U.S. Navy. This case supports a discussion of internal control practices to contain risk of fraud and misconduct.
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