Paul Sarver is the controller of a corporation whose stock is not listed on a national stock exchange. The company has just received a patent on a product that is expected to yield substantial profits in a year or two. At the moment, however, the company is experiencing financial difficulties; and because of inadequate working capital, it is on the verge of defaulting on a note held by its bank.

At the end of the most recent fiscal year, the company’s president instructed Sarver not to record several invoices as accounts payable. Sarver objected since the invoices represented bona fide liabilities. However, the president insisted that the invoices not be recorded until after year-end, at which time it was expected that additional financing could be obtained. After several very strenuous objections—expressed to both the president and other members of senior management—Sarver finally complied with the president’s instructions.

Ridell University is a large private school located in the Midwest. The university is headed by a president who has five vice presidents reporting to him. These vice presidents are responsible for auxiliary services, admissions and records, academics, financial services (controller), and the physical plant.

In addition, the university has managers who report to these vice presidents. These include managers for central purchasing, the university press, and the university bookstore, all of whom report to the vice president for auxiliary services; managers for computer services and for accounting and finance, who report to the vice president for financial services; and managers for grounds and custodial services and for plant and maintenance, who report to the vice president for the physical plant.

Adam Williams was recently hired as assistant controller of GroChem, Inc., which processes chemicals for use in fertilizers. Williams was selected for this position because of his past experience in chemical processing. During his first month on the job, Williams made a point of getting to know the people responsible for the plant operations and learning how things are done at GroChem.

During a conversation with the plant supervisor, Williams asked about the company procedures for handling toxic waste materials. The plant supervisor replied that he was not involved with the disposal of wastes and suggested that Williams might be wise to ignore this issue. This response strengthened Williams’ determination to probe this area further to be sure that the company was not vulnerable to litigation.

Consumers and attorney generals in more than 40 states accused a prominent nationwide chain of auto repair shops of misleading customers and selling them unnecessary parts and services, from brake jobs to front-end alignments. Lynn Sharpe Paine reported the situation as follows in “Managing for Organizational Integrity,” Harvard Business Review, March-April, 1994:

In the face of declining revenues, shrinking market share, and an increasingly competitive market … management attempted to spur performance of its auto centers…. The automotive service advisers were given product-specific sales quotas—sell so many springs, shock absorbers, alignments, or brake jobs per shift—and paid a commission based on sales…. [F]ailure to meet quotas could lead to a transfer or a reduction in work hours. Some employees spoke of the “pressure, pressure, pressure” to bring in sales.

This pressure-cooker atmosphere created conditions under which employees felt that the only way to satisfy top management was by selling products and services to customers that they didn’t really need.

Suppose all automotive repair businesses routinely followed the practice of attempting to sell customers unnecessary parts and services.

The Association of Medical Personnel (AMP) is a membership/educational organization that serves a wide range of individuals who work for medical institutions including hospitals, clinics, and medical practices. The membership is composed of doctors, nurses, medical assistants, and professional administrators. The purpose of the organization is to provide individuals in the medical field with a professional organization that offers educational and training opportunities through local chapters, a monthly magazine (AMP Review), continuing education programs, seminars, self-study courses, and research publications.

The questions in this exercise are based on one of the fastest growing food retailers in the United States—Whole Foods Market, Inc. To answer the questions, you will need to download Whole Foods Market’s 2004 Annual Report and 10-K/A at www.wholefoodsmarket.com/investor/annualreports.html. In addition, you’ll need to download the company’s mission statement (which it refers to as a Declaration of Interdependence) at www.wholefoodsmarket.com/company/declaration.html and its code of conduct and ethics at www.wholefoodsmarket.com/investor/codeofconduct.pdf. You do not need to print these documents in order to answer the questions.

Required:

1. What is Whole Foods Market’s strategy for success in the marketplace? Does the company rely primarily on a customer intimacy, operational excellence, or product leadership customer value proposition? What evidence supports your conclusion?
2. What business risks does Whole Foods Market face that may threaten its ability to satisfy stockholder expectations? What are some examples of control activities that the company could use to reduce these risks? (Hint: Focus on pages 11–15 of the 10-K/A.)
3. Create an excerpt of an organization chart for Whole Foods Market. Do not try to create an organization chart for the entire company—it would be overwhelming! Pick a portion of the company and depict how the company organizes itself. (Hint: Study the 2004 Global All-Stars mentioned in the annual report and refer to page 16 of the 10-K/A.) Mention by name three employees that occupy line positions and three employees that occupy staff positions.
4. Compare and contrast Whole Foods Market’s mission statement with the Johnson & Johnson Credo shown on page 24.
5. Compare and contrast Whole Foods Market’s mission statement and its code of conduct and ethics.
6. Is Whole Foods Market’s Annual Report and 10-K/A primarily a financial accounting document or a managerial accounting document? What evidence supports your conclusion? (Hint: Refer to Exhibit 1-2 in the text.)