A Collection Scandal at Sears Roebuck.doc

A Collection Scandal at Sears Roebuck & Company Its just 8:30 A.M. on a Sunday morning. While most of Chicago was either still asleep or out retrieving the morning paper (取报纸), Arthur C. Martinez was meeting with a dozen of his companys top executives at their headquarters building in suburban Hoffman Estates. For a few moments, the room grew quiet as Martinez tried to digest what he had just been told. Lawyers for Sears Roebuck & Company were explaining how employees had secretly violated federal law for nearly a decade. Martinez couldnt believe what he was hearing: Sears attorneys (lawyers) and credit employees, according to a bankruptcy judge in Boston, had for years been dunning delinquent credit card holders (向到期未付账的购物信用卡持有人讨债) who had filed for (申请)-and had been granted（并已获得）-bankruptcy protection. The newspaper and cable television news channels didnt have the story yet, but it would only be a matter of hours before they would. The company that Martinez, a former Saks fifth Avenue executive, had struggled to turn around (扭转局面) would quickly be mired in (陷入) the worst legal and ethics scandal in its 111-year history. The United States Department of Justice (司法部) was already considering not only civil penalties （民事处罚）, but criminal prosecution （刑事起诉）. Worse, this wasnt simply a rogue operation （缺乏责任感的行为）or an honest misinterpretation of the law: Sears appeared to have been violating the rights of many of its customers systematically and intentionally. The company, the lawyers were suggesting, may even have put the illegal practice into its procedures manual（过程手册）. How could such wrongdoing have gone unchecked （未受约束，未加制止）for years? Martinez wanted to know. “Not one phone call about this? Ever?” he demanded. According to at least one participant in the meeting, it was a “sickening moment.” A “Half-million Dollar” Handwritten Letter As an extensive investigation would later reveal, Sears struggled-first to understand and then to deal with criminal charges （刑事指控）and an ethical lapse （道德过失）that would cost the company nearly 500 million dollars. According to Sears senior vice president Ron Culp, the collection scheme （收债计划，讨债诡计）began to unravel （公开，明朗） in November 1996, when Francis Latanowich, a disabled security guard（保安人员）, hand wrote a letter on a yellow legal pad, begging the Boston Bankruptcy Court to reopen his case. Although Judge Carol Kenner had wiped out （勾销） his debts, Sears later asked Latanowich to repay the $1,161 he owed for a TV, an auto battery, and some other merchandise. But the monthly payment, he wrote, “is keeping food off the table for my kids.” Sears, it turned out, had mailed Latanowich an offer（协议，提议）. In return for $28 a month on his account, the company wouldnt repossess the goods（收回赊购货物）he had bought with a Sears charge card （赊账卡） before he went bankrupt. The practice of urging debtors to sign such deals, called reaffirmations （重新确认）, is legal and relatively widespread in the retail credit business, but many judges view them as unethical practices that keep people from getting a fresh start （使人不能重新开始）. Moreover, every signed reaffirmation must be filed with the court （到法院登记备案） so a judge can review whether the debtor can handle the new payment. Sears Roebuck & Company hadnt filed this one with the court and Judge Kenner wanted to know why not. At a January 29, 1997, hearing （审讯）, a Boston attorney working for Sears offered a convoluted technical excuse （错综复杂的技术上的借口）for not filing. Kenners response: “Baloney （胡扯，鬼话）.” According to Newsweek magazine, there were hints from prior cases that Sears, both praised and feared nationwide as the most aggressive pursuer of reaffirmations, wasnt filing many of them with the court. If true, the company was using unenforceable agreements（不可强制执行的协议）to collect debts that legally no longer existed. Judge Kenner pushed (催促，逼迫) Sears for a list of such cases. Sears response, delivered reluctantly in mid-March by a credit manager, was shocking: The company had apparently ignored the law nearly 2,800 times in Massachusetts alone. Martinez and his senior team could only imagine what the company was up to in the other 49 states. Soaring Personal Bankruptcies Between 1994 and 1998, personal bankruptcies in the United States rose form 780,000 to more than 1.3 million, leaving many retailers and credit card issuers awash in bad debt（信用卡发行商深陷坏账中）. Sears, as the nations second-largest retailer, was in a particularly vulnerable position. That year, the company earned 50 percent of its operating income（营业收益） from credit, including charge cards held by more than 63 million households with Sears credit cards（购物信用卡）. The problem, as Martinez would come to discover, is that too many of those new card-holders barely qualified for credit. In its zeal to attract new business, Sears became a lender to its riskiest customers. As the number of bankruptcies rose nationwide, so did the number of unpaid accounts（未付的账，赊购账，欠账） at Sears. By 1997, more than one-third of all personal bankruptcies in the United States included Sears as a creditor. Companies heavily dependent on income from their credit cards chose to aggressively pursue bad debts, and Sears was just one of many to do so. The list included such prominent creditors as Federated Department Stores, the May Company, G.E. Capital, Discover Card, and AT&T. As Martinez would also come to discover, the problem was neither isolated nor small. During the previous five years, some 512,000 customers had singed reaffirmation agreements with Sears, pledging （保证）to repay debts that totaled $412 million dollars. Martinez suspected that his companys transformation from an exhausted, defeatist bureaucracy(失败主义的官僚机构) into “an aggressive, can-do company” had an unanticipated consequence: Managers simply wouldnt send bad news up the chain of command （指挥连）. A culture of aggressively pursuing bad debts while filtering out bad news from top management had become part of the companys culture and official policy. Michael Levin, chief of Sears law department, explained to his CEO that at least one outside law firm had told someone in the company that Sears policy was questionable. But word of the alert（警戒的话）, which might have triggered（引发）a broader investigation within the company, somehow never worked its way up through the bureaucracy. Martinez leaned back and motioned to his executive assistant, “Call a meeting of the Phoenix Team,” he said, “Eight Oclock tomorrow.” That would mean 200 of Sears Roebuck & Companys top executives would get the bad news directly from their CEO. It would also signal the start of Sears response to the charges. Martinez then turned to Ron Culp, Sears senior vice president for public relations and government affairs, and Bill Giffen, vice president for ethics and business policy. “Give me your best thinking,” he said. “Tell me what you think we should do.”Discussion Questions1. What is Sears best strategy at this point? What would you advise Arthur Martinez to do?2. As Ron Culp thinks about corporate communications and the events that have just unfolded in the board room, which audiences would you advise him to focus on first?3. What do you suppose the interests will be for each of these audiences? Are they similar interests or are some of them