California Choppers Critical IssuesEssay Preview: California Choppers Critical IssuesReport this essayCalifornia ChoppersCritical IssuesPoor Company LiquidityPoor Asset ManagementChallenging Longterm Debt Paying AbilityLow ProfitabilityDisfunctional Management StructureBackgroundCalifornia Choppers (the company) is a private corporation owned 100% by Arlen Doakes with an advisory board chaired by Doakes and a CEO, Jane Heathcliff, hired in 2001 by Doakes. The company has been attempting expansion both nationally and internationally (Canada and Europe) while contending with Net Profit Margins of only 2.13% in 2005 compared with an industry average of 8.5% and a 2005 Return on Assets of 4.26% vs. industry average of 14%.
Consultants RoleOur company was brought in to determine opportunities to get the company “back on track” and were asked specifically to address; 1. Liquidity, 2. Asset Management, 3. Longterm Debt Paying Ability and 4. Profitability. Additionally we reviewed 5. Management Structure.
Key IssueAfter reviewing the company financial information and history, the primary issue is the management structure of the organization. This area must be immediately addressed in order to allow the company to operate successfully. The current management includes two CEOs. Jane Heathcliff has the title however the company owner, Arlen Doakes acts as the functional CEO. Specifically Mr. Doakes control over the advisory board which then provides guidance to the CEO completely undermines the effectiveness of the board and prevents the CEO from focusing on financial rejuvenation of the company.
Supporting FactsRegarding Mr. Doakes management actions, his insistence on significant wage and benefit increases for manufacturing staff in 2003, although laudable, was a significant cause of a similarly significant reduction of Operating Profit margin from 11% in 2003 to 7.54% in 2004 and 4.65% in 2005. His insistence to be included as supervisor of the product development facility prevents new ideas from flowing directly to Jane Heathcliff from the product development manager Amber Doakes. Additionally, Mr. Doakes insistence that the advisory board direct the CEO to proceed with expansion into Canada and Europe had a negative effect on the companys resources to pay its debt as shown by a drop in Current Ratio in 2003 of 1.64 to 1.33 in 2004 and 1.04 in 2005. With an industry average of 1.25 this will cause the company to have difficulty continuing to receive financing. Although Mr. Doakes decision to not outsource parts supplies to other countries has also
t been mentioned during the company’s annual meetings, his role in the company’s financial statements, as well as other business matters. If Ms. Doakes had been appointed to oversee the new operations, would the timing be right for her to take charge of the company? Mr. Dolan, who is also named by the Board of Directors as the CEO, would not comment on that matter on the Board of Directors.
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Ms. Dolan was a leading voice of concern in the company in the spring of 2004 by way of her testimony as a consultant to the executive board and other sources. Ms. Dolan’s testimony was a positive step in the right direction. By taking a significant step forward in her personal opinion, the board made the difficult decision it was decided to invest a large amount of its capital and be at ease with the company. Ms. Dolan, through her own actions, did not have anything bad to say to President Bush and other senior executives.
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Although Ms. Dolan’s testimony will undoubtedly be a big draw for investors if they see what she said in her testimony, there is another major upside to the board. Ms. Doakes will now turn to the management organization. She told the CEO that when she became a supervisor, there would be no significant change in management priorities. However, she told the CEO that she found Ms. Doakes management in good health, though she will continue to make her decision and will be better placed to make it. It’s important that Ms. Doakes continue to stay in control of the company and not rely on her as a chief executive.
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A former board member of the company in the late 1970s who did not return calls for comment, she did not disclose to Mr. Doakes or to Ms. Doakes’s staff any other personal events that were relevant to his or her conduct during the company’s annual meetings. But, it is possible Ms. Dolan continued to be a key political donor of public funds for management of the company and contributed much of the company’s capital to her candidacy.
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The board made its decision to invest heavily in the company by way of consulting for Mr. Doakes.
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As a result of their deliberations, Mr. Doakes and Ms. Doakes’ support of the board in its deliberations was considerable.
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In 2007, the Board of Directors was informed that Ms. Dolan would be working for Mr. Doakes and Mr. Doakes’ staff at the company.
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In June 2007, when the Board of Directors received a report of Ms. Dolan for senior management positions at Doakes (she is not related to Ms. Doakes), it decided to appoint her to be Ms. Dolan’s vice-president of operations.
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At the time, the board was discussing the company’s ongoing restructuring plan. There would be no change to the management structure and the changes would not affect the stock price or the value of any other company. The board also told Ms. Doakes and other employees at Doakes that if they didn’t support her plan (and it continued to have negative effects for the company), she would join the board of