Jonas Heese is an Associate Professor of Business Administration in the Accounting & Management Unit. He teaches the Business Analysis and Valuation course in the MBA elective curriculum. He has also taught first-year MBAs in Financial Reporting and Control. His research focuses on corporate misconduct, with a special focus on the role of regulators, whistleblowers, the media, and organizations’ compliance systems to prevent such misconduct.
Jonas Heese is an Associate Professor of Business Administration in the Accounting & Management Unit. He teaches the Business Analysis and Valuation course in the MBA elective curriculum. He has also taught first-year MBAs in Financial Reporting and Control.
In his research, Professor Heese focuses on corporate misconduct, with a special focus on the role of regulators, whistleblowers, the media, and organizations’ compliance systems to prevent such misconduct. In particular, he has studied the political economy of regulatory enforcement of accounting standards in the United States, the effect of public disclosure of regulatory oversight activities to strengthen compliance with regulations, and the effect of media on firm behavior. His current work explores the role of monitoring by senior management to curtail misconduct as well as the importance of whistleblowers in detecting fraud. His research has been published in leading academic journals such as the Academy of Management Journal, The Accounting Review, the Journal of Accounting and Economics, the Journal of Accounting Research, and the Journal of Financial Economics. He is regularly invited to present his research to academics and regulators, including the Securities and Exchange Commission and the European Securities and Markets Authority. Professor Heese’s research has been quoted by the media, including in the Boston Globe, Forbes, The Wall Street Journal, and the Sueddeutsche Zeitung.
Prior to joining the faculty of the Harvard Business School, Professor Heese (a German citizen) obtained a Ph.D. and an M.Sc. in accounting from Maastricht University in the Netherlands.
Jonas Heese, Ranjani Krishnan and Hari Ramasubramanian
We examine drivers and consequences of U.S. Department of Justice (DOJ) oversight of whistleblower cases of corporate fraud against the government. We find that the DOJ is more likely to intervene in and conduct longer investigations of cases that have a higher chance of victory and yield greater monetary proceeds, indicating that DOJ enforcement is influenced by its performance measures. DOJ intervention also affects the firm- and aggregate-level fraud environment. Firms subject to DOJ intervention improve their employee relations, internal controls, and board independence, and experience lower future whistleblowing risk. Whistleblowers avoid courts and agencies with low DOJ intervention rates. In contrast, we do not find that cases pursued by whistleblowers alone affect firms’ or whistleblowers’ behavior, suggesting that public enforcement through DOJ intervention has a greater deterrent effect on fraud than private enforcement by whistleblowers acting alone.
We study the effects of headquarters’ visits on facility-level misconduct. We use the staggered introduction of airline routes to identify exogenous travel-time reductions between headquarters and facilities and test whether such reductions affect facility-level misconduct. We find that, on average, a travel-time reduction decreases the number of facility-level violations by 2% and associated penalties by 23.4%, indicating that management focuses on reducing costlier violations as opposed to simply reducing the number of violations. The effects are concentrated in firms with weaker control systems, suggesting that strong controls can act as substitutes for visits. Further, the introduction of broadband internet attenuates, but does not eliminate, the effect of visits on misconduct. Lastly, we find that visits result in greater facility-level misconduct when firms are subject to strong performance pressure. Overall, our study provides a nuanced understanding of the effects of on-site visits on facility-level misconduct.
This paper studies the effect of the public disclosure of the Securities and Exchange Commission (SEC) comment-letter reviews (CLs) on firms’ financial reporting. We exploit a major change in the SEC’s disclosure policy: in 2004, the SEC decided to make its CLs publicly available. Using a novel dataset of CLs, we analyze the capital-market responses to firms’ quarterly earnings releases following CLs conducted before and after the policy change. We find that these responses increase significantly after the policy change. These stronger responses partly occur while the review is still ongoing and persist on average for two years. Corroborating these results, we also document a set of changes that firms make to their accounting reports following CLs. Our results indicate that disclosure of regulatory oversight activities can strengthen public enforcement.
This paper examines whether fraud allegations affect firms’ contracting with the government. Using a dataset of whistleblower allegations brought under the False Claims Act against firms accused of defrauding the government, we find that federal agencies do not reduce the total dollar volume of contracts with accused firms; however, they substitute approximately 14% of the harder-to-monitor cost-plus contracts for fixed-price contracts. This effect is concentrated in the procurement of services and explained by contract and service substitution. Lastly, we find that after the conclusion of the investigation, the government reduces the contract dollar volume by approximately 15% for cases that resulted in a settlement. Our findings indicate that contract-design changes are used to mitigate uncertainty in suppliers’ reputation.
I examine whether political influence as a response to voters’ interest in employment levels is reflected in the enforcement actions of the Securities and Exchange Commission (SEC). I find that large employers are less likely to experience SEC enforcement actions. Next, I examine whether variations in politicians’ sensitivity to employment levels result in variations in enforcement against large employers. I find that large employers are less likely to face enforcement actions during presidential elections if they are based in politically important states. Large employers also face fewer enforcement actions if they are based in high-unemployment states during elections of senators who serve on SEC oversight committees. Large employers based in high-unemployment districts enjoy lower enforcement if their congressmen serve on SEC oversight committees. The findings suggest that voters’ interests are reflected in SEC enforcement.
This paper examines the role of overbilling in hospitals’ earnings management choices. Overbilling by hospitals is a form of revenue manipulation that involves misclassifying a patient into a diagnosis-related group that yields higher reimbursement. As overbilling allows hospitals to increase revenues without altering operations, affecting costs, or having to reverse such behavior in the future, I propose and find that overbilling reduces hospitals’ use of managing accruals or cutting discretionary expenditures. Next, I find that hospital managers prefer overbilling to managing accruals (cutting discretionary expenditures) when cutting discretionary expenditures (managing accruals) is constrained and vice versa. Collectively, my findings suggest that overbilling is an important alternative manipulation tool in hospitals.
The media can impose reputational costs on firms because of its important role as an information intermediary and its ability to negatively slant coverage. We exploit a quasi-natural experiment that holds constant the information event across firms, but varies the availability of a major news outlet in local markets. We find that firms subject to the threat of slanted coverage suppress the release of negative information before the event and release it subsequently. Our results are consistent with theory on the active role firms can play in managing their reputational capital through anticipatory actions to avoid negative media coverage.
SEC oversight of publicly listed firms ranges from comment letter (CL) reviews of firms’ reporting compliance to pursuing enforcement actions against violators. Prior literature finds that firm political connections (PC) negatively predict enforcement actions, inferring SEC capture. We present new evidence that firm PC positively predict CL reviews and substantive characteristics of such reviews, including the number of issues evaluated and the seniority of SEC staff involved. These results, robust to identification concerns, are inconsistent with SEC capture and indicate a more nuanced relation between firm PC and SEC oversight than previously suggested.
Organizations often respond to institutional pressures by symbolically adopting policies and procedures but decoupling them from actual practice. Literature has examined why organizations decouple from regulatory pressures. In this study, we argue that decoupling occurs within regulatory agencies and results from a combination of conflicting institutional pressures, complex goals, and internal fragmentation. Further, regulatory decoupling is selective, i.e., regulators fail to adequately enforce standards only for one set of organizations. Regulated organizations that benefit from selective regulatory decoupling use non-market strategies to maintain their favorable regulatory status and in the process selectively decouple their norms in one organizational activity but not others. As an empirical context, we use the hospital industry where regulators have to balance conflicting pressures to be tough on fraud, while maintaining the community’s access to essential but unprofitable services such as charity care and medical education. In response, hospital regulators selectively decouple and exhibit leniency in enforcement of mispricing practices towards beneficent hospitals, defined as hospitals that provide more charity care and medical education. In turn, beneficent hospitals selectively decouple their service and profit goals by providing unprofitable services to uninsured patients, while mispricing insured patients to earn higher reimbursements.
Heese, Jonas, Ranjani Krishnan, and Frank Moers. "Selective Regulator Decoupling and Organizations' Strategic Responses."Academy of Management Journal 59, no. 6 (December 2016). (Selected for Best Paper Proceedings of the 2015 Academy of Management Annual Meeting. Winner of the Healthcare Management Division of the Academy of Management 2015 Best Paper Award.)
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We posit that nonprofits that provide a greater supply of unprofitable services (beneficent nonprofits) face lenient regulatory enforcement for mispricing in price-regulated markets. Consequently, beneficent nonprofits exploit such regulatory leniency and exhibit higher mispricing. Drawing on organizational legitimacy theory, we argue that both regulators and beneficent nonprofits seek to protect their legitimacy with stakeholders, including those who demand access to unprofitable services. Using data from hospitals, we examine mispricing via "upcoding", which involves misclassifying ailment severity. Archival analysis indicates less stringent regulatory enforcement of upcoding for beneficent nonprofit hospitals, defined as hospitals that provide higher charity care and medical education. After observing regulator leniency, beneficent hospitals demonstrate higher upcoding. Our results suggest that lenient enforcement assists beneficent nonprofits to obtain higher revenues in price-regulated markets.
Heese, Jonas, Ranjani Krishnan, and Frank Moers. "Regulator Leniency and Mispricing in Beneficent Nonprofits." Art. 11998. Academy of Management Proceedings (2015).
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In May 2020, an analyst was assessing eHealth’s performance. eHealth was an online / tele-sales broker of health insurance products. The stock had recently hit all-time highs, closing at a peak of $146 on March 4, 2020. But now, May 4, 2020, eHealth traded at $103. The recent fall had wiped nearly $1.0B from the company’s market capitalization because well-known short seller Carson Block had released a short-report on the company. Carson Block argued that eHealth’s management had undertaken “massive stock promotion.” In the report, Block said that eHealth’s adoption of the new revenue recognition standard – ASC 606 – inflated revenue and masked the fact that eHealth was losing money on each new policy that it sold.
Still, eHealth’s valuation remained elevated at 3.3x FY2021E Revenue, 21x FY2021E adjusted net income, even assuming away accounting uncertainty. In addition, the mean consensus share price target as of May 4, 2020 was $179.
Did the latest news provide a buying opportunity? Or was it best to avoid eHealth, even perhaps consider shorting the company?
Jonas Heese, Gerardo Pérez Cavazos and Julia Kelley
This is a supplement to the “Accounting for Leases at American Airlines (A)” case. The (B) case describes American Airlines’ financial results for the first quarter of 2020, as well as the continuing effects of coronavirus on the airline industry.
Jonas Heese, Gerardo Pérez Cavazos and Julia Kelley
In March 2020, as coronavirus reduced demand for air travel, an analyst was forecasting American Airlines’ (American’s) first quarter financial results. To develop a forecast, she needed to familiarize herself with Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842),” passed four years earlier by the Financial Accounting Standards Board. ASU 2016-02 required companies to disclose all leases on their balance sheets, but it made an exception for leases with variable payments, allowing companies to leave such leases off-balance sheet. The Wall Street Journal estimated that more than 50% of American’s leases remained off-balance sheet due to the exclusion of variable leases. Should American and other companies be allowed to leave variable lease payments off-balance sheet? How did the decision to leave these payments off-balance sheet affect companies’ risk profiles and valuations?
In December 2019, Atabek Nazirov, head of Uzbekistan’s capital market regulatory agency, prepared the release of Uzbekistan’s capital market strategy. As Nazirov was getting ready to release the strategy, he reflected on the first year of his tenure and the steps ahead. Did he take the right actions to strengthen Uzbekistan’s capital market? What additional features would the capital market need to build trust with both the citizens of Uzbekistan and international investors? How could he convince the critics within the administration that his focus on a market-based economy would serve Uzbekistan best? And how could he deliver quick results to retain the president’s support?
The case discusses the strategy of DER SPIEGEL, the leading news magazine in Germany, in the aftermath of the discovery of a fake reporting scandal. It had come to light that one of DER SPIEGEL’s own reporters had falsified and made up entire articles for years, despite DER SPIEGEL’s large fact-checking departments. New editor-in-chief Steffen Klusmann and an internal investigation commission had set to work to discover the problems within DER SPIEGEL that made this failure possible and had come up with a series of recommendations for improvement. At the heart of the investigation was the question whether the scandal was the result of one bad apple or whether DER SPIEGEL had systematic failures in its control systems.
Mark Cooke, Global Head of Operational Risk, needed to decide between a traditional regulatory control system and a new regtech system to manage non-financial risks.
Non-financial risks failures such as money laundering and tax evasion had cost HSBC billions of dollars in fines and settlements over the previous decade. In response, HSBC had hired thousands of risk and compliance staff and invested billions in traditional control systems. Cooke, however, could not be sure HSBC’s traditional methods were sufficient and he was worried they were not sustainable. Cooke recently ran a pilot test of a regtech solution that promised to warn of problem areas in advance, and do so at a much lower cost than traditional systems. The regtech solution provider was a small startup and the technology was not fully developed. Cooke wondered how much he could trust a technology from a startup company with a handful of employees and almost no revenue to meet the needs of a world-leading bank with global operations.
Stephen Scott needed to decide whether to keep his behavioral analytics startup in the people analytics sector or shift his company into the RegTech sector. Starling had develop technology that enabled its customers to anticipate and shape the behavior of their employees by examining company data on employees, including email traffic. Starling had struggled to grow in the people analytics sector while RegTech was an emerging sector that might provide better opportunities to grow.
Dey, Aiyesha, and Jonas Heese. "Starling Trust Sciences: Measuring Trust in Organizations." Harvard Business School Teaching Note 120-048, October 2019.
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Jonas Heese, Gerardo Pérez Cavazos, Eugene F. Soltes and Grace Liu
Teaching Note for HBS No. 120-024.
Citation:
Heese, Jonas, Gerardo Pérez Cavazos, Eugene F. Soltes, and Grace Liu. "Creating Accountability in Afghanistan." Harvard Business School Teaching Note 120-030, August 2019.
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Jonas Heese, Gerardo Pérez Cavazos, Eugene F. Soltes and Grace Liu
By early 2019, the United States had contributed $132 billion to the Afghan reconstruction. John Sopko, in his role as the Special Inspector General for Afghan Reconstruction (SIGAR), was in charge of providing accountability for U.S. aid funding. Sopko’s oversight faced severe limitations such as a growing on-budget assistance, pervasive corruption, and lack of transportation, infrastructure, and security for his staff. To fight those odds, SIGAR has implemented multiple strategies with relative success. For example, cultivating a network of sources and informants had allowed SIGAR to save the U.S. over $200 million from a fuel contract bid-rigging scheme. The SIGAR Fraud Hotline had received and reviewed over 3,200 reports. However, with the Afghan presidential elections and peace talks looming on the horizon, Sopko was wondering how SIGAR would have to adapt to a new reality that could potentially be much worse.
Teaching Note for HBS Nos. 120-032, 120-033, and 120-034.
Citation:
Heese, Jonas, and Suraj Srinivasan. "Accounting Fraud at Tesco Stores (A), (B), & (C)." Harvard Business School Teaching Note 120-035, September 2019.
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This case describes the accounting fraud at Tesco Stores Limited (TSL), which was discovered by a senior accountant in TSL’s finance department. The accountant was concerned about TSL’s handling of commercial income, which, according to the accountant, overstated Tesco’s profit by an estimated £246 million. Beyond the accounting issue, the case describes Tesco’s organizational and cultural shortcoming causing this problem, how Tesco’s new CEO Dave Lewis responded to the allegations, and how the court held the Tesco accountable for its fraudulent accounting.
In September 2014, Amit Soni, a senior accountant in Tesco Stores Limited’s (TSL) finance department filed a report with Tesco’s legal team. Soni was concerned about TSL’s handling of commercial income. According to the accountant’s allegations, TSL employees had been inflating commercial income to meet the division’s financial targets, causing Tesco’s projected trading profit for the six months ended August 23, 2014 to be overstated by an estimated £246 million. Tesco’s legal team had quickly referred the issue to CEO Dave Lewis, who had started in the role just a few weeks earlier, on September 1. Lewis had to decide how to respond to these allegations. Did the allegations have merit and what are the causes for the accounting violations? Should managers be removed if Tesco determined that the allegations had merit? What were the legal consequences for Tesco and how should Tesco’s organizational structure and culture evolve?
Heese, Jonas, and Suraj Srinivasan. "Fair Value Accounting at Berkshire Hathaway Inc. (A) and (B)." Harvard Business School PowerPoint Supplement 119-717, May 2019.
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This case explores the interplay of global corporations, management styles, and local traditions through the high profile arrest of auto industry icon, Carlos Ghosn, in November 2018. The case allows students to debate opposing theories that led to the arrest and examines several key themes, such as leadership challenges in an increasingly global market, role of culture, and the design and role of incentive and governance mechanisms. The case also allows for discussions on personal accountability in light of misbehavior.
Heese, Jonas. "Accounting for Nuclear Power Provisions at RWE, Student Spreadsheet." Harvard Business School Spreadsheet Supplement 119-704, March 2019.
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Heese, Jonas. "Accounting for Nuclear Power Provisions at RWE, Instructor Spreadsheet." Harvard Business School Spreadsheet Supplement 119-703, March 2019.
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Heese, Jonas, Paula A. Price, and Suraj Srinivasan. "Dollar General Bids for Family Dollar Spreadsheet Supplement." Harvard Business School Spreadsheet Supplement 119-702, January 2019.
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Jonas Heese, Suraj Srinivasan, Francois Brochet and Christine Johnson
Teaching Note for HBS No. 119-030 and HBS No. 119-090
Citation:
Heese, Jonas, Suraj Srinivasan, Francois Brochet, and Christine Johnson. "Fair Value Accounting at Berkshire Hathaway Inc. (A) and (B)." Harvard Business School Teaching Note 119-063, January 2019. (Revised March 2019.)
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Jonas Heese, Suraj Srinivasan, Francois Brochet and Christine Johnson
In May 2018, Berkshire Hathaway announced an unprecedented loss of more than $1 billion for the first quarter of 2018. Warren Buffett blamed this loss on the new accounting rules for equity securities which he criticized. In the case ‘Fair Value Accounting at Berkshire Hathaway, Inc.’ students will evaluate the impact of a new rule related to the fair value accounting as it pertains to Berkshire Hathaway and Alphabet. Students will debate the topic of relevance and reliability in fair value accounting as compared to historical cost accounting and discuss the intended purposes of the balance sheet and income statement (with particular attention to net income). Students will also have a chance to review the business model of Berkshire Hathaway to debate how to measure and report the economic performance of Berkshire Hathaway.
Heese, Jonas, Zeya Yang, and Mike Young. "Stock-Based Compensation at Twitter." Harvard Business School Teaching Note 119-059, November 2018. (Revised February 2020.)
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Olivia Nash, an analyst at leading hedge fund BlueShark Capital Management, had just finished listening to the hour-long earnings call for Twitter’s Q4 2017 results. Was Twitter doing well? That depended on which numbers she chose to believe. According to Generally Accepted Accounting Principles (GAAP), Twitter had recorded a $108M net loss for 2017. But on the earnings call, CEO Jack Dorsey and CFO Ned Segal had emphasized a slightly different and much better-looking metric: non-GAAP net income of $329M. This adjusted version of net income was a measure Twitter had defined itself when it first went public in 2013. The biggest difference between the two was that Twitter’s non-GAAP net income stripped out stock-based compensation expense. Olivia couldn’t help but wonder: Was stock-based compensation a true expense? Why did analysts and even regulators condone non-GAAP metrics? And, most importantly, how did the reporting of these metrics impact Twitter’s profitability and the way the company was managed?
Robert Mayhem, a senior manager at International Game Technology, had filed a whistleblower report with the U.S. Securities and Exchange Commission alleging that the company had misstatements in its financial reports. Mayhem’s report involved IGT’s practice of refurbishing used parts in one of its reporting segments and then transferring those parts to another reporting segment. Mayhem indicated that IGT’s method of determining the costs of the refurbished parts was inaccurate and resulted in profits being shifted from one segment to another. Prior to his report to the SEC, Mayhem had reported his concerns to his managers and to the company’s internal compliance hotline. At about the same time, IGT announced that it had accepted an offer to be acquired by another large player in the industry, which would soon move its incorporation out of the U.S. and into the UK. What should IGT do regarding the whistleblower and his report?
Dey, Aiyesha, and Jonas Heese. "The Whistleblower at International Game Technology." Harvard Business School Teaching Note 118-110, April 2018. (Revised December 2019.)
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This note provides an overview of U.S. federal legislation relating to whistleblowing, Sarbanes-Oxley, Dodd-Frank (including the Office of the Whistleblower), and the False Claims Act.
Jonas Heese, Suraj Srinivasan, David Lane and James Barnett
Unlike its rival Airbus, Boeing had used a practice called program accounting to record its commercial aircraft expenses since the 1980s. Program accounting allowed Boeing to expense estimated average costs instead of the actual production costs of an aircraft. This practice lowered the effect of the initially high costs of manufacturing new aircraft models on Boeing’s profitability and reflected potential learning efficiencies that could drive down manufacturing costs over time. By 2016, Boeing had deferred about $27 billion in production costs related to its 787 program. If Boeing had been forced to expense these costs, it would have shown profits of $1.4 billion between 2012 and 2016 instead of $25.2 billion, raising questions about Boeing’s true profitability.
Heese, Jonas, Suraj Srinivasan, David Lane, and James Barnett. "Accounting Turbulence at Boeing." Harvard Business School Case 118-020, August 2017. (Revised September 2018.)
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In early 2016, RWE, a utility that operates nuclear power plants in Germany, came under scrutiny from regulators and the media over the adequacy of its provisions for costs of decommissioning and dismantling (D&D) its nuclear power plants. Accounting standards required utilities to record the present value of projected D&D costs as a liability. However, there were many uncertainties associated with these estimates given the actual cash outlays that would be incurred decades into the future. In addition, German government bond rates used to discount projected future costs had fallen to record lows, and RWE as well as its competitors were struggling with depressed electricity prices. Would RWE's provisions be adequate to cover the future costs?
Jonas Heese, Krishna G. Palepu and H. David Sherman
Teaching Note for HBS Nos. 117-020 and 117-039.
Citation:
Heese, Jonas, Krishna G. Palepu, and H. David Sherman. "Accounting for the iPhone Upgrade Program (A) and (B)." Harvard Business School Teaching Note 117-041, December 2016.
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Jonas Heese, Krishna G. Palepu, H. David Sherman and Monica Baraldi
In October 2016, Apple Inc. announced the financial results for its fiscal year 2016. CEO Tim Cook commented on a very successful fiscal year 2016 and focused on all the positive financial results. However, Apple’s 2016 annual report was also telling another story. Apple’s total revenue had decreased 9%, and iPhone revenue decreased 13% compared to the fourth quarter of fiscal year 2015. Apple also faced some criticism from consumers regarding the iPhone 6 and iPhone 6 Plus Upgrade Program. A September 2016 survey reported that an increasing number of customers decided to subscribe to the iPhone Upgrade Program. In spite of this, the company was very supply constrained on the iPhone 7 and 7 Plus, and financial analysts were still eager to receive more information on the impact of the iPhone Upgrade Program on Apple’s financials.
This case serves as a complement to the case "Accounting for the iPhone Upgrade Program (A)".
Jonas Heese, Krishna G. Palepu, H. David Sherman and Monica Baraldi
On September 9, 2015, Apple Inc. announced the “iPhone Upgrade Program,” a new way to purchase iPhone models 6s and 6s Plus in Apple’s retail stores throughout the U.S. Next to the strategic implications of the Upgrade Program, financial analysts tried to understand the accounting implications, especially the recognition of revenue, which the Upgrade Program could have on Apple’s financials.
Analysts’ reactions to the disclosure were mixed. Was Apple’s accounting system “right” for the iPhone Upgrade Program introduced in 2015?
In spring 2015, Dollar General CEO Rick Dreiling was looking ahead to retiring at year's end but worried about ensuring continued growth for the company he had built since 2008 into a market leader in the U.S. discount retail world. Dollar General operated over 11,500 stores in 40 states at the start of 2015, but had recently been rebuffed in a tender offer for its leading rival, Family Dollar. Though Dollar General had held talks with Family Dollar as early as 2013, Family Dollar shareholders chose to ignore Dollar General's more lucrative tender offer and the urging of several activist investors and sold their firm to the smaller Dollar Tree chain. Dreiling could not help but revisit some of the key decisions he and the rest of the board had made in their pursuit of Family Dollar. From a governance perspective, he was confident that the Dollar General board had fulfilled its duty to shareholders during the bidding process despite Family Dollar's decision to sell to Dollar Tree. From a strategic perspective, he wondered whether Family Dollar had been the right competitor to buy.
Heese, Jonas, Paula A. Price, and Suraj Srinivasan. "Dollar General Bids for Family Dollar." Harvard Business School Teaching Note 116-052, April 2016. (Revised June 2017.)
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Jonas Heese, Paula A. Price, Suraj Srinivasan and David Lane
In spring 2015, Dollar General's CEO Rick Dreiling was looking ahead to retiring at year's end but worried about ensuring continued growth for the company he had built since 2008 into a market leader in the U.S. discount retail world. Dollar General operated over 11,500 stores in 40 states at the start of 2015 but had recently been rebuffed in a tender offer for its leading rival, Family Dollar. Though Dollar General had held talks with Family Dollar as early as 2013, Family Dollar shareholders chose to ignore Dollar General's more lucrative tender offer and the urging of several activist investors and sold their firm to the smaller Dollar Tree chain. Dreiling could not help but revisit some of the key decisions he and the rest of the board had made in their pursuit of Family Dollar. From a governance perspective, he was confident that the Dollar General board had fulfilled its duty to shareholders during the bidding process despite Family Dollar's decision to sell to Dollar Tree. From a strategic perspective, he wondered whether Family Dollar had been the right competitor to buy.
