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The Mental Case

On February 31, 1991 Erica Petersen looked out the window in her corner office on Manhattan, facing Battery Park. She saw a few ducks wandering around the park on their flat feet. “Quack”, said one of them. The other replied with an even louder “quack” (see Exhibit 1 for a complete list of duck species frequenting Battery Park, and Exhibit 2 for other deceptive information, meant to distract students from cracking the case). That’s when she finally regretted that she never listened to her FRC professor at HBS, and spent most of her time playing Minesweeper from the skydeck.

Right after she started her job, Erica eliminated the accounting department, since it was often the source of accounting mistakes and creative bookkeeping. Accordingly, there were no budgets, financial statements, or annual reports since she started, which had upset a few shareholders, including the head of the Securities and Exchange Commission. Since she accepted the position as CEO of Mental, Inc. – a mental hospital specializing in ex-manager patients, who could not handle the pressure – everything had gone down the drain. Profits went down, inventories went down, the elevators went down. Actually, the only things that went up were her salary, bonus, and the fair market value of the stock options that she had awarded herself last week. She had invested most of her $100 million personal wealth in put options on Mental, Inc.’s stock – a move that was somewhat unpopular with the investors. Some claimed she would benefit from stock price going down, while she claimed that she was just hedging her risks.

Erica Peterson
Graduated from HBS in 1985. Worked as a consultant at McKinsey in New York City both before and after graduation. Her summer internship was at Morgan Stanley, however. This brief diversification on the resume enabled her to get a job as a financial advisor in Mental, Inc. After serving as a personal advisor for the Chairman of the Board Gary Oldswine and working long nights, she was suddenly promoted to CEO after a traumatic incident that resulted in Gary firing his ex-country club friend Melanie Nubidubi by stamping “Cancelled” on her personnel file.

Mental, Inc.
The mental hospital was started in 1909 after HBS put out their first candidate. The need for treatment was immediately recognized by a French health care physician named Andr‚ Preneur. Andr‚ led the company until 1913, when he was charged for recognizing the net present value of all HBS graduates’ combined salaries as unearned revenue on December 31, 1912. He got out of prison after eight years, because none of the prison guards remembered to keep track of the number of years that he served in prison.

With Andr‚ now out of the picture, his mother Noentre Preneur took over the operations (see Exhibit 3 for a family tree/organizational chart – in this company it is the same thing). However, she misunderstood the Chairman’s wish to “take over operations’, and immediately started open heart surgery – a job she was obviously not qualified for, even though she did knit a few sweaters for Andr‚, and his 15 brothers back in Marseilles. These sweaters were often in tricolors, just like the French flag. Lots of other interesting things happened in the company before the time of the case, but Kim Clark has told me to cut down on the company history, since the students never read that part of the case anyway.

The Current Situation
The financial statements, until Erica chose to discontinue them, are in Exhibit 4 (modified to prove the point the case writer wants to make, of course). Right now, Erica was in the middle of a major reorganization of the company. The head nurse was upgraded from a cubicle to a larger cubicle and allowed to add “Senior” to her title. The doctors all opposed, since it would be too costly in printing new business cards. Furthermore, the carpets were not cleaned according to corporate policy. Immediate action was needed.

The Decision
Erica scratched her hair, and looked again at the situation. She had to make a decision soon. The clock was indeed ticking, and a decision had to be made before lunch. Should she make the call? A Papa’s Pizza order of a pepperoni supreme was indeed delicious, but heading down to the company cafeteria was faster and easier. Which decision would turn out to be right? (Students: Remember to fill out the poll. It closes yesterday at 11 PM. I’ll write the results on the board, but we won’t use them for anything).

Professor Wilder Shad Spangler (Morgan 999. For an appointment with the professor or a date with his assistant call or email Carol Opyslave at 5-5555 or copyslave@hbs.edu) wrote this case to familiarize coming MBA graduates with poor companies and incompetent management. It is not meant to serve as fruitful class discussion, in fact discussions will presumably be dull, until the professor lists the three key take-aways on an overhead at the end of class. Professor Spangler is a George W. Bush Professor in Illogical Management.

September 27, 2004
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