On June 9, 2011, Empresas La Polar S.A., a Chilean retailer, informed the Chile’s securities commission that it had detected irregularities in its accounting for credit card receivables. A fraudulent credit card scheme masterminded by key executives and missed by directors and auditors was going to result in an estimated write-off in excess of US$300 million. On June 17th, the company advised the commission that the write-off would, in fact, be double the original estimate, amounting to US$640 million, resulting in negative equity. The filing contributed to a decrease in the value of the company’s stock market value, dropping from US$1.2 billion to US$281 million and putting the company at risk of bankruptcy. Should the directors be held responsible and punished for what had happened? What role did the regulators and auditors play? See supplement 9B16C033.
On June 9, 2011, Empresas La Polar S.A., a Chilean retailer, informed the Chile's securities commission that it had detected irregularities in its accounting for credit card receivables. A fraudulent credit card scheme masterminded by key executives and missed by directors and auditors was going to result in an estimated write-off in excess of US$300 million. On June 17th, the company advised the commission that the write-off would, in fact, be double the original estimate, amounting to US$640 million, resulting in negative equity. The filing contributed to a decrease in the value of the company's stock market value, dropping from US$1.2 billion to US$281 million and putting the company at risk of bankruptcy. Should the directors be held responsible and punished for what had happened? What role did the regulators and auditors play?
This is an MIT Sloan Management Review article. Catastrophic events, such as earthquakes, financial storms or mine collapses, can be divided into three phases, each calling for distinct forms of preparation or response. In this article, the authors look at the collapse of a mine in Chile in 2010 and the successful rescue of the trapped miners 69 days later to draw leadership lessons for decision making during a crisis. Following the decisions of Laurence Golborne, Chile's Minister of Mining, was made easier by the intense media focus on this event. His management of the miners'rescue was closely followed by people around the world. In addition to using news coverage of the rescue, the authors interviewed the key members of the top team, including top government officials, the manager of the El Teniente mine and the chief engineer on the site. Building on their previous work on leadership, the authors found 12 leadership principles that emerged from Golborne's actions. These are applicable to managers facing any kind of unprecedented crisis, one with which they have no prior experience. These include taking charge if you are best positioned to make a difference; assembling essential experts on your top team, but keeping the numbers small; delegating decisions beyond your expertise but retaining oversight of them; and being transparent about potential outcomes to sustain stakeholder support.