This case deals with responsible business and the impact of firm actions on different stakeholders. In November 2019, the last operating units of the Navajo Generating Station (NGS) in Page, Arizona, were shut down. The plant was losing money and was no longer economically viable or necessary for Arizona's power grid. As the largest coal-fired power plant west of the Mississippi and one of the largest emitters of carbon dioxide (CO2) in the continental United States, the closure was seen by many environmental groups as a success for sustainability and climate change. For the communities that depended on the plant and associated coal mine for jobs and taxes, the impact of the plant closure was less positive. Although the air would be cleaner and water resources better protected, the plant and mine closures meant that the Navajo Nation and Hopi Tribe faced large cutbacks in their budgets. The plant and mine workers, almost all Native American, lost their jobs. The closure left a legacy of health issues on the reservations and unknown environmental issues from the abandoned coal mine.
In 2020 TRX Industrial (TRX) was close to finalizing its acquisition of Wilson Technology Group (Wiltec). Brad Hunter, TRX Chief Operating Officer and head of the acquisition integration steering committee, was planning for a one-day team session to examine the post-merger structure for TRX and Wiltec. One of Hunter's objectives for the session was a decision about how much organizational autonomy, if any, would be retained by Wiltec. Hunter saw various options for Wiltec that ran along a spectrum. Wiltec could retain its independence and continue to operate much as it had before the acquisition. At the other end of the spectrum was absorption - Wiltec would be folded into TRX culture and operating processes and give up its autonomy. Wiltec and TRX could also seek to take the best of both firms in terms of culture, processes, and people and create something new.
In September 2019, Elliott Management (Elliott), a hedge fund manager and activist investor, disclosed that it had acquired a $3.2 billion position in AT&T and was seeking strategic and operational change. In a letter to the AT&T board, Elliott accused the company of becoming "a sprawling collection of businesses battling well-funded competitors, in new markets, with different regulations, and saddled with the financial repercussions of its choices." Elliott outlined the areas of concern and a set of recommendations, including divestments of non-core businesses and a cessation in acquisitions. AT&T must now decide if the recommendations are valid and what actions, if any, are warranted.
In July 2019, Pfizer announced that it would spin off its Upjohn division and merge it with Mylan, a specialty and generic drugs firm. Within Pfizer, the Upjohn business unit was a conduit for Pfizer drugs going off-patent. Divesting the Upjohn business would allow Pfizer to focus on innovative drugs and exit the generics sector. Combining Upjohn with Mylan would create a new company that would compete in branded prescription drugs, generics, biosimilars, and over-the-counter medicines. Cost synergies from the merger of $1 billion were projected. Under the terms of the agreement, each Mylan share would be converted into one share of the new company. Pfizer shareholders would own 57% of the combined new company and Mylan shareholders would own 43%.
This case examines General Motors' (GM) global strategy. From a manufacturing presence in 34 countries in 2007 to only eight countries in 2020, GM has dramatically changed its global strategy. GM has withdrawn from many regions and countries, including Europe, India, Australia, and Indonesia. Many assembly plants have been closed and sales are now heavily concentrated in the United States. Was GM retreating to its profit sanctuary in the United States and giving up on global business? How would GM's strategy fare against more global competitors such as Toyota, Volkswagen, and growing Chinese companies like Geely and Great Wall?
In March 2017 David Stevens was taking questions in an open meeting with a local school board to discuss tax abatements for a new chemical plant. Stevens was the project manager for a proposed new chemical plant. The chemical plant was a joint venture (JV) between U.S. based Allied Chemical and Arachem Group, a Saudi Arabia chemical company. Stevens and the JV partners had been working on the plant location decision for more than two years. A final investment decision would be made in 2017 or 2018. The partners initially looked at more than 50 sites, primarily in Texas and Louisiana. The partners had narrowed the decision down to a site in Louisiana near Baton Rouge. Before an investment decision could be made the JV partners required tax abatements from the local government commissioners and the school board. As the meeting continued, Stevens thought about how the various stakeholders in the project and how the community response should be incorporated into the project investment decision.
The launch of BlackBerry by Research in Motion (RIM) in 1999 laid the foundation for the development of smartphones. The next decade was a period of spectacular growth for RIM, making its two co-CEOs billionaires. At the end of 2007 the company had a market capitalization of more than $60 billion. Sales peaked at almost $20 billion in 2011. In 2016, sales were $2.2 billion and the company had lost money for four straight years. With the market capitalization having fallen to $4 billion by August 2016, the survival of BlackBerry (the company changed its name from RIM to BlackBerry) was uncertain.
One of the most profitable products for Tanner Pharmaceuticals Inc. (Tanner), a major U.S. pharmaceutical company, was a vaccine with the brand name Zorstat. Tanner was facing increased public scrutiny over the price of Zorstat. The company was being accused of "being greedy and raising prices in ways that victimized vulnerable people." In two days Jack Stevens, the lead independent board member for Tanner, would attend the annual meeting of independent directors. The Zorstat pricing controversy was on the agenda. Stevens would have to take and defend a position on Tanner's drug pricing strategy. Inevitably, there would be a heated discussion on Zorstat and whether management was effectively driving shareholder value with drug pricing decisions.
The oil and gas industry is one of the largest, most complex, and most important global industries. The industry touches everyone's lives with products such as transportation, heating and electricity fuels, asphalt, lubricants, propane, and thousands of petrochemical products from carpets to eyeglasses to clothing. The industry impacts national security, elections, geo-politics, and international conflicts. The prices of crude oil and natural gas are probably the two most closely watched commodity prices in the global economy. In recent years, the industry has seen many tumultuous events, such as the growth in oil and gas production in the United States; sanctions on Russia and improved international relationships with Iran; continued technological advances in unconventional oil and gas; ongoing strife in Iraq, Libya, and various other oil-exporting nations; continued heated discussion about climate change and non-hydrocarbon sources of energy; and continued uncertainty in crude and gas prices. All of this comes amid predictions that the global demand for energy will increase by 30-40% by 2040.
From humble beginnings, Petróleo Brasileiro S.A. (Petrobras) became one of the largest integrated oil and gas companies, gaining a reputation for sound leadership and strong technical expertise. By the mid-2000s, the company was often cited as one of the best managed national oil companies. By 2016, Petrobras was in a very different position. The company was embroiled in a multi-billion dollar corruption scandal and was one of the most indebted companies in the world. The decade-long corruption scheme reached the highest levels of business and Brazilian politics - Brazil's President, Dilma Rousseff, was the chairwoman of the Petrobras board from 2003 to 2010. Several senior Petrobras executives and Brazilian politicians had been arrested on allegations of bid rigging and bribery and more arrests were likely. In 2015 Petrobras was forced to write down the value of its assets by $14.9 billion and take a $2.1 billion charge for the scandal. Capital investments would be reduced significantly over the next five years in order to reduce debt and help recover investor confidence.
This case describes the commercial development of natural resources via public-private cooperation. The case can be used to illustrate how natural resources can be well managed and beneficial to national economic development. With a specific focus on oil and gas, the case can be used to explore integration across project development, gas production, market development, and government relations. The role of the Dutch government as regulator and marketer provides a basis for discussing government involvement in natural resource development. The case also illustrates the complexity of major gas projects involving multiple countries and markets.
In 2005, Royal Dutch Shell (Shell) invested in oil exploration leases in the Beaufort Sea in the Alaska Arctic. A few years later, additional leases were acquired in the nearby Chukchi Sea. After years of delays, Shell began drilling in the summer of 2012 with two drillships. More delays and the short drilling season resulted in only two partially drilled wells. On the journey south after drilling was completed, one of the ships had an engine fire and the other one ran aground. The Kulluk, the drillship that ran aground, was eventually scrapped. After spending more than $5 billion on its Arctic exploration program between 2005 and 2015, the company had very few results for its efforts, raising questions about Shell's and the industry's ability to manage large complex oil and gas projects in the Arctic.
Kosmos Energy (Kosmos) was founded in 2003 by a small group of oil and gas industry veterans backed by private equity capital. The company's original plan was to explore for oil along the West African coast. If a commercial discovery was made, Kosmos would sell the asset to an exploration and production (E&P) firm. In 2007, Kosmos and its partners announced a major discovery in deepwater offshore Ghana. Three years later in December 2010, Kosmos was at a crossroads. First oil from the Ghana discovery, now called Jubilee, was delivered in November 2010. Earlier in the year, a sales agreement with ExxonMobil for Kosmos' interests in Ghana was terminated. Kosmos now had to decide on its corporate future and its presence in Ghana. Should the company remain a pure "E" company or expand to E&P, and should it retain its interest in Jubilee's development? Integral to both questions was how the company could either raise capital for, or reap capital from, the Jubilee field
Steve Jackson, a project professional at Western Construction (an international construction conglomerate), is attempting to introduce BSO, a new software package. Engineers at Western who would be using BSO seem to support the change, and BSO has already been adopted successfully by Western's competitor. However, Mike Barnett, a long-term Western employee of undisclosed hierarchical status and strong personal ties to the top, is leveraging every opportunity to kill the BSO project. Knowing that he must find a way to win Barnett over, Jackson attempts a variety of approaches to overcoming resistance to change, including turning to his own boss for assistance.
As Southwest neared its 40th year of service, the company was facing some major challenges. Legacy carriers in the United States had become more efficient, and the recent mega-mergers involving Delta/Northwest and Continental/United were shaking up the industry. Smaller companies like JetBlue and Allegiant were pressuring Southwest's cost-advantage and low-fare focus. A major internal challenge for Southwest would be managing its acquisitions of AirTran, a deal announced in late 2010. To make the acquisition a success, the company would have to integrate a workforce of more than 8,000 (about 25% the size of Southwest), a fleet of aircraft different from the Boeing 737s used by Southwest, and new markets that included non-U.S. destinations.
In early June 2008, Belgian-based InBev NV launched an unsolicited $46.4 billion bid to acquire Anheuser-Busch Co., owner of the 132-year-old Budweiser brand. If completed, the combination would create the world's largest brewer, with sales of about $36 billion annually. The initial response from Anheuser was noncommittal and said, "The company will pursue the course of action that is in the best interests of Anheuser-Busch's stockholders." On June 26, Anheuser's board formally rejected InBev's original proposal of $65 a share, saying it substantially undervalued the company. In mid-July, InBev raised its offer to $70 a share, and the Anheuser board voted to accept the deal, recognizing that a better offer was unlikely. The $70 price represented a substantial premium for Anheuser shareholders. InBev management now has to prove to their shareholders that the premium was justified.
Tom Chong is the country manager in Malaysia for Jextra Stores (Jextra), a multinational retailer with supermarkets throughout Asia. The company is based in Hong Kong. Jextra operates ten Neighborhood Market supermarkets in Malaysia. Chong has two issues he must resolve. One involves a recent conversation with the mayor of a town in which Jextra would like to build a new store. The mayor suggested that Jextra's application for rezoning would be more likely to be approved if Jextra contributed to building a new primary school. The mayor also wants Jextra to help pay for a flyover at the road intersection for the proposed site. Chong's other issue involves one of his category managers. The manager may be accepting money and gifts from suppliers. Although Chong has no proof that the manager is acting inappropriately, there are many rumors floating around Jextra's office.
In July 2008, BP was embroiled in a dispute with the Russian partner of its TNK-BP joint venture. The partners had many areas of disagreement, including the level of capital investment, dividend payouts, international expansion, the number of expatriates, and selection of the CEO. The joint venture also had problems with the Russian government over employee visas and exploration licenses. From BP's perspective, the joint venture was an important part of its global oil and gas business. TNK-BP accounted for nearly one-quarter of BP's oil production, and close to one-fifth of its reserves. How the issues between the partners and with the government were resolved would have a lasting impact on BP and its presence in Russia. The resolution would also impact Russia's overall reputation for attracting and supporting foreign investment.
Fluor Corporation has always prided itself on its competence in safety. It was a core value of the company, and Fluor had achieved remarkable safety records on complex projects all over the world. But now, in the spring of 1997, Fluor found itself managing the Western Hemisphere's largest environmental cleanup site, the Hanford reservation in Washington State. The Hanford site was established as part of the Manhattan Project in the 1940s that gave birth to the atomic bomb. Hanford produced nearly two-thirds of U.S. plutonium during the Cold War period. The Hanford site was half the size of Rhode Island, occupying 586 square miles in southeastern Washington State. The cleanup that began in 1988 was expected to take 30 years or more. Improving safety at Hanford was proving to be a significant challenge. As the new site manager at Hanford, Fluor Hanford (FH) inherited lower- and mid-level managers and thousands of unionized employees, many of whom were second- or third-generation Hanford employees. These employees had seen many contractors come and go over the previous years. Some of the managers who had worked with the previous contractor saw Fluor's emphasis on safety as getting in the way of operations. Union/management relations were fractious. Hanford's culture was described as "production driven-management told everyone what to do, and, if you didn't do it, there were consequences." Worker involvement in designing and implementing safety programs was negligible. FH also was having trouble satisfying its client, the U.S. Department of Energy (DOE).