Channel stuffing basically means shipping goods and then booking them as sales without having actually sold them. According to allegations by the Securities and Exchange Commission, as the end of 1993 approached, Bausch & Lomb's contact lens division managers told distributors to buy as much as two years' worth of inventory, at prices at least 50 percent more than had been charged three months earlier, or risk losing their distributorships. The SEC said some distributors were told they could return unsold lenses, though Bausch & Lomb allegedly included the entire sale in its earnings.
The SEC also claimed the contact lens division inflated results by shipping lenses to third-party warehouses after the year ended and including that in sales. Then-associate director of the SEC's enforcement division, Thomas Newkirk, said "If you're going to flog your people to make their numbers, you need to make sure they're not engaging in the kinds of antics that were present here."
The resolution: In late 1997, the eyewear manufacturer agreed to settle the SEC allegations that it improperly booked sales of contact lenses and sunglasses, and as a result, overstated revenues and earnings in 1993. The company and the executives allegedly involved didn't admit or deny wrongdoing. Bausch & Lomb also settled a shareholder class-action suit related to the alleged overstatement.
VA hospitals: Gaming the wait-list
What happened: A Veterans Affairs hospital in Phoenix was found to have a waiting list that averaged up to 115 days for vets seeking medical help, far higher than it had reported. The VA had set a systemwide performance goal of shortening waits to 14 days for new appointments; the goal was put in employee performance plans. As time went on, the numbers showed that VA hospitals were getting closer to that goal. No one seemed to probe very deeply into how this was being accomplished, however. Turns out the waiting lists were being gamed. In some cases, not every patient was entered onto an electronic waiting list, and in others waiting lists were purged.
In a 2014 hearing, Representative Jeff Miller, chairman of the House Veterans Affairs Committee, said "the quest for monetary gain rather than public service has led to data manipulation and secret lists designed to create a false impression of quality health care that is timely and responsive to veterans." In fiscal year 2013, every one of the 470 senior managers at the VA got performance ratings that made them eligible for additional compensation.
The resolution: The 14-day goal was abandoned and removed from employee performance plans, and another program put in place to try and shorten wait times, among other changes. The head of the VA resigned and a $16.3 billion bill was passed by Congress that included an overhaul of the agency.
And one company that got it’s goal right...
Southwest Airlines Co. is often heralded for its strong company culture. Former CEO Herb Kelleher said in a 2013 interview that "having a simple set of values" for a company was "very efficient and expedient." Kelleher explained that, at Southwest, "if somebody makes a proposal and it infringes on those values, you don’t study it for two years. You just say, `No, we don’t do that. And you go on quickly.'"
Back when the company was fighting to stay in business, executives figured they'd need 10-minute turnaround times at airport gates to be efficient enough to survive. Most people thought such a big "stretch goal" was impossible—stretch goals were originally popularized by former General Electric Co. CEO Jack Welch. They're supposed to be targets so beyond reach that they force executives to think more creatively (Elon Musk anyone?). They can also be demoralizing, but it worked at Southwest. Executives bought into their mission, and the airline met its goal by using an approach inspired by race-car pit crews.
This article was provided by Bloomberg News.