An examination of employees' observations and informal information in a distressed organisation : the case of Fortex Group Limited
Degree GrantorUniversity of Canterbury
Degree NameMaster of Commerce
A review of previous qualitative corporate distress research reveals that non-managerial employees appear to have been overlooked as a potential source of information on a failed company. Yet assertions by Argenti (1976a) and an analysis of Altman's (1983) and McBarnet, Weston and Whelan's (1993) research indicates that employees can potentially observe the symptoms of distress. However, Argenti (1976a) reported that employees could only observe the non-financial systems of distress, and that they could not determine that an organisation was distressed. McBarnet et al's (1993) research and a pilot case study indicated otherwise. The pilot study also found that employees had access to the informal communication network, or grapevine, and an informal accounting information system (IAIS). McBarnet et al (1993) report that informal information may assist employees to detect problems or unusual events within a company. Consequently, this research sought to clarify the anomaly between Argenti's assertions and McBarnet et al's (1993) and the pilot study's findings, determining the problems or concerns that employees observed in a company before. it collapsed, and whether these observations could cause employees to believe that a company was distressed before it failed. The research also examined whether information from an IAIS and/or the grapevine contributes to employees' observations and opinions in a distressed company. A single case study of a failed organisation was conducted. The subject was Fortex Group Limited, a South Island meat-processing company. The findings challenged and extended previous beliefs regarding employees' observations in a distressed company, indicating that they may not only observe the symptoms of distress, but also observe the defects and mistakes which cause, and contribute to, failure. Moreover, from the symptoms observed, the employees recognised that the company was distressed. The research also established preliminary links between the grapevine, IAISs, employees' observations and corporate distress. Each area was identified as an alternative source of information which could potentially assist the early detection of corporate distress. Despite limitations, this research increases the body of knowledge in these areas, and recommends directions for future research.