Roebuck & Company Case Analysis

This memo recommends that Sears, Roebuck & Company execute two primary actions: (1) reimburse each customer who made payments on their credit card after being served a reaffirmation not filed with the court; and (2) apologize for our actions. The apology should be communicated both to the public, in the form of a press release and public remarks, and to individuals affected, in the form of a letter.

BACKGROUND

Recent findings uncovered that Sears, Roebuck & Co. unlawfully pursued payment from Sears' credit card holders who had previously declared bankruptcy. Our Sears' attorneys and credit employees requested payments from debtors by issuing reaffirmation letters. While reaffirmations are a legal practice, the signed letters must be filed with the courts to allow a judge to review. Many of our letters were not filed with the court, and therefore, illegally collected debt under unenforceable agreements.

Although details are still being uncovered, facts known to date include:

* 512,000 customers have signed reaffirmations from Sears within the past five years, pledging to repay $412 million (we do not yet know how many of these are unfiled).

* Nearly 2,800 reaffirmation letters were signed and left unfiled in Massachusetts.

* This practice has been occurring for nearly ten years.

Sears' routine of pursuing debt payment was uncovered when Francis Latanowich, a disabled security guard, wrote to the court asking for his bankruptcy case to be reopened. Sears requested that Mr. Latanowich pay $28 a month on his outstanding debt. Latanowich pleaded that the payment was preventing him from buying food for his family.

Sears is facing civil penalties and possible criminal prosecutions. The courts believe that we have systematically and intentionally violated the rights of our customers. They suggest that the illegal practice is even included in some of our procedure manuals.

DISCUSSION

The illegal practices that have come to light are troubling. We can conclude that many Sears' employees were aware of, and involved in, the illegal procedures. It is also likely that some of our managers were abreast of the situation, and possibly driving the actions. This fundamental breakdown in our communication system is critical. All employees, no matter their level, should feel empowered and secure enough to report poor numbers, illegal actions, or any other critical information.

It is my fear that employees involved were taking direct orders from management to proceed with the illegal measures. We need to determine who these individuals are, and assess why they encouraged these actions. Sears should evaluate both our incentive and communication systems. Why did management shy away from reporting poor numbers up the chain of command? How did we let the pressure become so great that managers turned to illegal measures? How did the practice go undetected for so many years?

Due to the actions of the involved Sears employees, Sears, Roebuck & Co. is responsible for the compensation of our valued customers. These customers were not aware that they we were collecting without legal support, and therefore must be reimbursed for the payments collected. Our ability to communicate this compensation to our customers in a timely manner will be a crucial step. Sears will undoubtedly undertake a large financial loss for these actions; however, it is my belief that repayment is necessary. Without appropriate compensation, our company image will be forever tainted, and the long-term effects on our bottom line will be great.

As I'm sure you are aware, this caliber of a scandal has the potential to be devoured by the media. An ongoing illegal practice like this could be extremely harmful to the public perception of our company. Therefore, it is necessary for Sears to react publicly in a timely manner. The newspapers and cable television channels do not yet have the story, but they undoubtedly will soon. It is essential that we have our remarks prepared, and are ready to respond. It will also be necessary for Sears to engage in public relations measures to ensure that we regain a positive image of our company.

In addition to public communication, it will be necessary for Sears to address employees and business partners. We should address employees to explain the situation, reinforce Sears' policies, and ensure that they do not lose faith in our great company. Our employees are the face of Sears; therefore, it is essential that they support us. We also need to be prepared to reassure business partners that the scandal does not reflect the values Sears' holds, and that Sears will remain a faithful and strong partner.

My final concern is the impending civil, and possibly criminal, suits. It is crucial for Sears to be prepared for these matters, and appropriately handle the negative media that will undoubtedly surround them. Although the scandal was not the decision of senior management, our company made a mistake, and we will need to pay. It will be our responsibility to admit where

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