These days, if you buy a new hard drive for your computer, it’s almost certain to come from one of a handful of big name manufacturers. Seagate, WD, Samsung, Toshiba, IBM, and so on. Actually, it was the decision of IBM in 1985 to start manufacturing drives that kicked off a curious chain of circumstances.
Prior to that, one of IBM’s suppliers had been MiniScribe: IBM had been their largest customer. But they lost the contract when IBM began to manufacture their own hard drives, and the company almost folded. A venture capital company was persuaded to inject some cash in return for a share of the company and on condition of imposing a new CEO, a certain Q.T. Wiles.
Wiles was known for restoring failing companies to financial health. Wall Street called him “Dr. Fix-It”. The employees of MiniScribe had other, less complimentary names for him, mostly referring to crazed, totalitarian dictators from history. He was aggressive, intolerant of others’ views, and abusively demanding towards all his subordinates. His management and commercial theories were aso completely nuts. First step was to break the company up into twenty independent, noncooperating subunits.
When that didn’t improve the company’s overall performance (and how would it?), Dr. Fix-It decided to get everyone to focus on sales targets. Clearly, the more drives they sold at a profit, the more money they would make. (That isn’t nuts.) But the unrelenting pressure from their crazed boss caused some MiniScibe employees to get a bit creative with their sales accounting.
One of the earliest of the unconventional practices was when a customer, a computer manufacturer, was shipped twice as many hard drives as they had ordered. This “mistake” was rectified and the excess equipment taken back, but only after the quarterly accounts showed the full double consignment as a “sale”. Then they would count, when it suited them, cargoes sent by sea from their warehouse in Singapore as “delivered” on the day they left, bringing the actual sale ahead by several weeks and showing up in the accounts for the current quarter. Obviously, that meant you had to make up the deficit (somehow) in the following quarter, or your sales would show as down.
Because faulty drives returned by customers would count on the negative side of the balance sheet, MiniScribe started to miss some of them off the accounts. Instead, they’d be sent out to different customers, to repeat the cycle and postpone having to book the loss. Employees joked that some drives were travelling so much that their cardboard boxes were wearing out. Actually they weren’t really joking.
Then, to inflate sales figures further, intermediate warehouses were set up in the USA, and stock sent to them to await customer orders was booked as sales. With the company accounts showing all of this successful selling, MiniScribe’s stock price increased by a factor of three between 1985 and 1988. But it was at the end of 1988 when they finally went off the rails entirely.
Somebody came up with an idea to help the cash flow. It was known that customers, the computer manufacturers, would take several weeks after delivery before inspecting or using the drives, so instead of shipping known faulty ones to customers and booking the sale, why not send them something equally useless, but cheaper? Say, bricks. The plan was to take the money and then issue a quality recall of the specific serial numbered boxes containing bricks. They would have to send replacement drives, but the cost of that would not show up until the following year’s accounts.
You might think that this plan would have been reconsidered the following morning after everyone had sobered up, but no, they went ahead with it. And they might just have got away with it if it hadn’t been for the pesky manager who, faced with demands to cut costs, laid off a number of staff just before Christmas. Unfortunately for the scam, these included people who had been involved with packing and shipping the items of masonry, and who were, understandably, a little annoyed at being thrown out on the street in late December. Some of them spoke to journalists, and the whole ugly story began to emerge.
The board of MiniScribe filed for bankruptcy on their first meeting at the beginning of January. Dr. Fix-It resigned (also from several other directorships he held) and became a recluse, although he was never charged with a crime or sued as an individual. Maxtor bought MiniScribe’s assets, although I’m not sure if that included the bricks.