Reference no: EM133201648 , Length: word count:250

Case Study: Senator Foghorn

Submit your answers and be prepared to discuss in the live class session.

Senator Foghorn was a powerful political figure from the South who secretly enjoyed Yankeeland far more than he could ever let anybody know. During his stay in Washington, he made some important business and political connections. As a result, when he was not reelected, he was able to secure several positions as a director for large companies and banks. This served as a sufficient excuse to keep him in the Washington area.

It was not too long a time until he was able to acquire a majority interest in a plating plant in New Jersey. The plant had good facilities and some excellent customers. The former senator naturally wished to expand its operation and started to use some of his political influence in business contacts to that end.

He was also able to get himself enmeshed in a very large housing project in Washington. Through his business affiliations and political contacts at local, county, state, and national levels, Mr. Foghorn maintained that he could exert powerful pressures on the architect and contractors for the housing project to buy from manufacturers of his selection. He said they were very receptive to pressure of this type. His recommendations carried much weight, said Senator Foghorn, and would be the deciding factor in the selection of suppliers on the housing project. With this in mind he approached selected manufacturers to obtain business for his plating plant and offered them in return his help in obtaining orders for the housing project.

One of the companies he approached was Maryland Electric, a firm in a position to supply all the electrical equipment and all the electrical appliances that would be required for the housing project. Foghorn went to see several vice presidents of Maryland as well as Mr. Selby, who was in charge of trade relations, and explained that he was in a position to influence greatly the placement of the electrical work. While he did not say so, he intimated that he could almost guarantee it. Knowing that such influence did not come gratuitously, Mr. Selby tried to probe the former senator for the amount and the form of the return favor. His answer was a detailed explanation of the fine plating plant Foghorn controlled and the excellent quality of the plating it produced.

Mr. Selby knew that the amount of business that Maryland would have to place with the plating plant would be considerable in view of the fact that the order for the electrical equipment and appliances would run into several million dollars. The completely decentralized operation of Maryland Electric posed a problem in such cases, because many division managers and supply managers would have to be sold on the advantages of such a move.

In addition, Maryland owned its own plating facility, which was currently producing more than 75 percent of the company's requirements. The plating facility was operating at 60 percent of capacity at best, and it was trying to secure more work. In spite of these problems, Mr. Selby decided to investigate the possibilities of using Senator Foghorn's plant. This investigation showed that the 25 percent of the company plating requirements that were bought outside were purchased from basic raw material producers or from highly specialized platers who did nothing but intricate work. All of them were good Maryland customers.

Several days passed and Mr. Selby was still unable to resolve the problem. Naturally, he wanted to participate in the housing development, but there was no easy way of giving Senator Foghorn's plating plant any of Maryland's business. During this period Senator Foghorn had produced a very good contract for Maryland in molded plastic parts. He had done this, he said, to prove his value and show his good intentions toward Maryland. In addition, he spoke of other contracts, including one for an extremely large hydroelectric project in Asia. About this time Mr. Selby learned that Mr. Johnson, a recently retired president of one of the largest mail-order companies in the world, had joined forces with Senator Foghorn. The mail-order company handled Maryland equipment exclusively, and the retired president had been singularly responsible for this supply agreement. Mr. Johnson visited Mr. Selby and reiterated the great influence that Senator Foghorn had with the housing project contracts as well as his many other areas of influence.

Question 1:  Should Maryland Electric become involved with Senator Foghorn? If so, to what degree?

Question 2: Should business be taken from Maryland's own plating plant or other good sources of supply to satisfy Senator Foghorn?