I’m stuck on a Management question and need an explanation.

Read the following: The Box Tree. (pgs. 133-141)

THE BOX TREE *

This was such an unbelievable time, Gila Baruch thought. She made it through difficulties she could not even envision. As the new owner of the Box Tree restaurant and hotel, she had settled the longest restaurant/hotel strike in New York City’s history. Now it was time to take the next step. Tremendous challenges were still ahead. After more than four years of bitterness, bad blood, and raucous picketing, she had no choice but to take back the seven strikers who wanted to return. She had vivid memories of these same people hurling insults at customers as they tried to cross the picket line to dine. The memories of the dirty tactics they used to undermine the restaurant were still very fresh for her and those who crossed the picket line to work. Was she supposed to pretend that nothing ever happened? How would the replacement workers who helped her get through the strike feel about working with the former strikers? What could she do to get them all pulling together to reclaim the reputation the Box Tree once had? The restaurant, and her investment in it, which included over four years of time and energy devoted to managing the restaurant through the strike, depended on it. THE RESTAURANT The Box Tree was a fine dining restaurant and hotel located on 49th Street in the shadow of the United Nations building. When its workers went out on strike in December 1993, the Box Tree had been in existence for 20 years. Known for its five-course prix fixe meals, priced at $86 per person without beverages, tax, or tip, the Box Tree was anything but typical in terms of its concept, service, and décor. With only eight tables and twenty seats in the main dining area, the restaurant was quite intimate. A few steps down from street level, one entered a foyer/reception area. In addition to the podium where the reservation book and phone were located, there was a seating area with several overstuffed armchairs situated around a fireplace. The entire first floor, consisting of the reception area, a bar/lounge area used for dinner on busy nights, and the main dining room, had walls painted a dark evergreen. The ceiling was steel blue, and the wainscoting was gold. All the rooms were filled with antiques, mostly of dark, rich woods, and each had a working fireplace. The bar, which was stunning, was mahogany and was replete with sterling silver service ware. Upstairs, through the lounge area, were three private dining rooms. Each room had a working fireplace and distinctive decoration. The “music room” was at the head of the stairs on the right, and seated up to 14 people. The music room was quite formal and had a long, rectangular table. To the left of the landing was the “blue room” which accommodated 12 to 14 people around its large, round table. The blue room was considered the “power room”. It was frequently booked for lunch and/or dinner meetings by high-level executives and government officials. Past the blue room was the “gold room” which had a Versailles feel. The artwork and furnishings were magnificent—very formal and very French. The feeling in this room was one of opulence, from the crystal and gold chandeliers to the detail work on the ceiling and walls, all painted in gold leaf. *Reprinted by permission from the Case Research Journal. Copyright 2006 by David L. Corsun, Cheri A. Young and Rachel S. Shinnar and the North American Case Research Association. All Rights Reserved. The three floors above the private dining rooms, and the top four stories of the adjoining brownstone, housed the Box Tree Hotel. The hotel had 13 rooms, each with a king bed and private bath. The rooms were appointed with antiques, fine linens, Chesapeake china, and all the amenities one would expect in a luxury property. The attention to detail was incredible and the owners spared no expense—the china soap dish in each bathroom wholesaled for $45. In 1996, the rooms sold for $240 per night. For years, the Box Tree served the crème de la crème of New York society, from CEOs to politicos like the Kennedys and Kissingers. Though they visited occasionally for simple, intimate dinners, these power players were known to hold small private functions for family and friends, and mostly lunch or dinner meetings. The dining areas afforded enormous privacy. This privacy, the restaurant’s pricing structure, and its exclusivity, made it the perfect place for society’s power players to meet and do deals. The service staff worked in teams of a captain and a waiter or two. Rather than typical American service, more formal service was the standard. Diners did little themselves save chewing and swallowing. The service staff guided the diners through meals that were culinary and gustatory experiences. Despite the high degree of server–customer contact, the formality of the service and the skill of the staff provided diners with great privacy. THE OWNER Augustin V. Paege conceived and built the restaurant. A few years after he moved the Box Tree to 49th Street he bought an adjoining brownstone, renovated it and the rooms above the restaurant, and opened the hotel. Paege, a Bulgarian-born multi-millionaire, was an absentee owner who spent most of his time in Europe. Although he certainly wanted to—and did—turn a profit on the restaurant and hotel, in some respects it seemed they were little more than creative outlets for him. He was an artist for whom the creative process held much more interest than day-to-day management. Paege hired people to “mind the store” for him. Two or three times a year, he visited New York and the Box Tree, and occasionally he called to check in. However, he never asked to see financial statements and did not inquire about the restaurant’s operating results or its operations. In 1992, the year prior to Gila Baruch’s arrival as comptroller, Paege’s cousin managed the operation. It was Paege’s cousin, just prior to her own departure, who hired Baruch. Once Baruch arrived in late August 1993, management was by committee, with no one person overseeing the entire operation. She was responsible for all the restaurant’s and hotel’s financial matters, the chef was responsible for the day-to-day management of all back-of-the-house functions, and the maitre d’hotel ran the dining rooms. GILA BARUCH Bulgarian born, and raised in Israel, Gila Baruch spent the better part of her adult life in the United States and Europe. She began her financial career as the assistant to one of New York City’s most prominent jewelers, Fred Leighton, and through people she knew socially, began working in restaurants. However, other than her experience as a customer in many of New York’s finer restaurants, Baruch had no restaurant management experience. Though she never had the formal title until her position at the Box Tree, she had a comptroller’s responsibilities in the various restaurants in which she worked. Baruch was a partner in a restaurant called Jezebel prior to joining the Box Tree. One of New York’s hotspots, Baruch frequented this upscale soul-food restaurant over the years. After becoming part of the Jezebel “family” of regulars, Baruch was almost like a working customer. She helped her good friend Jezebel, who owned the restaurant, out in the front-of-the-house if she happened to be there on a busy night. After much discussion over a period of years, Baruch and Jezebel decided to partner on a new Jezebel location—in Paris, France. As with her previous restaurant work, Baruch operated mostly behind the scenes, handling the financial aspect of the business. With a French partner, they opened and operated successfully for two years. Success in restaurants, however, could be peculiar. Jezebel was full almost all the time but somehow it was not generating enough revenue to be profitable. Baruch and Jezebel discovered that their French partner was swindling the restaurant by conspiring with its suppliers and bleeding the restaurant’s profits. The suppliers were overcharging the restaurant, and the partner was collecting kickbacks. Rather than fight him in the courts, Baruch and Jezebel closed the restaurant and returned to New York. Weeks later Baruch was on salary at the Box Tree, working as the restaurant’s comptroller. The Strike at the Box Tree Gila Baruch had been working at the Box Tree approximately four months. As she walked toward the restaurant on that cold, December day in 1993, she saw a crowd in front of the Box Tree—they were making noise and chanting “Boycott the Box Tree!” As she got closer, Baruch recognized the faces of the people in the crowd and saw that many of them were holding large placards. The hourly employees at the Box Tree were on strike. Baruch did a quick head count. Thirty-one people were on the payroll at the Box Tree, and she counted at least that many people on the picket line. The placards many of them held indicated the union was behind the strike. Baruch figured HERE (Hotel Employees and Restaurant Employees Union) must have recruited picketers who were not even Box Tree employees. She crossed the picket line as the hourly employees shouted at her, calling her names. “The first thing I did when I got downstairs to the office was to call the owner, Augustin Paege, in Europe. He had to be alerted as to what was going on.” Why the Strike Began Many New York City restaurants and hotels were unionized, and the Box Tree had become a target of Local 100 of the Hotel Employees and Restaurant Employees Union. It was not entirely clear why HERE was so interested in such a small operation, though a fair number of small- to medium-sized, high-end operations were union shops. Possibly, because of its pricing and high-profile clientele, including politicians, the union saw the Box Tree as an opportunity to garner at least local press and for the Box Tree to serve as a catalyst for unionizing many other smaller operations. According to Brian McLaughlin, the then president of the New York City Labor Council, “Even though this is a small struggle by labor standards, it’s symbolic. What we have here with the Box Tree is a typical situation where, in a place where affluent people gather and that’s doing quite well, management is not doing the right thing” (Goldberg, 1995). Until the late 1980s, the Box Tree’s service staff had never been interested in unionizing; workers had always made a very good living. For those who were nontipped, hourly workers—the cooks, dishwashers, and the housekeepers on the hotel side—the union was promising insurance coverage and higher wages. These workers felt they had much to gain from union representation. However, it took an inadvertent misstep by the owner to rally the service staff and get most everyone thinking pro-union. Baruch recounted that: … the owner had a system. He was very shrewd, but probably unknowingly, he made a mistake with the system. Essentially, the system kept payroll costs low by providing everyone in the front-of-the-house with a cut of the tips. The restaurant pooled tips and distributed them based on a point system. The captains got six points and waiters received four. There were no bussers. The hourly wages paid for each position were the minimum allowable. The problem started when the owner decided to cut costs by not having a full-time manager. He changed the tip distribution to include the maitre d’ and even gave the chef points. The staff felt the owner was stealing their money. He was saving nearly $100,000 in payroll; but without thinking about it, he made problems for himself. The service and kitchen staffs suddenly united against him. Employees voted to become unionized in 1990, but HERE was never able to negotiate a contract. According to Baruch, Paege thought the restaurant was too small to be unionized. He thought having workers who would be more concerned with the specifics of their positions according to a union contract than with providing top quality service would make managing more complicated. The fear was that workers would start saying, “that’s not my job.” Ultimately, the lack of a contract coupled with the continuation of conditions and practices that led to unionization led the workers to strike on December 16, 1993. All the Box Tree employees, with the exception of one cook, one maid, and a butler, went on strike. According to Baruch, these three employees “Were not into it. They didn’t care. They all needed their jobs.” As a result of the massive walkout, no one was running the restaurant. Baruch remembered: From the day they walked out, it fell on my shoulders. I thought about not taking the responsibility, but it was around Christmas time and we had two weddings that weekend—I couldn’t do that to the brides. Once I was in it, I was determined to see it through. There was a lot of adrenaline from the fighting. What got me through was being able to blow off steam at the gym. This was my release. Life During the Strike Even though she had been working in restaurants for some time and had been a part owner of one, Baruch’s role had been primarily financial. She had never managed day-to-day operations, a task that became increasingly difficult as problems cropped up. However, Baruch instinctively knew that closing the doors would be the Box Tree’s death knell. Somehow, she would have to staff a restaurant and small hotel on a moment’s notice—at the busiest time of year. The restaurant was fully booked that first evening of the strike and through Christmas with private parties. The reservation book was full with a-la-carte reservations for the season as well. The hotel had scheduled a wedding in three days. Baruch felt she could not simply call the bride to apologize, saying the workers were striking. Calling on friends and colleagues for referrals, Baruch pieced together a staff to get her through the near term. She managed to find professional waiters and captains willing to cross the picket line, and was willing to make do with less than perfect service until things settled down and people learned the systems. She even borrowed her friends’ and neighbors’ maids to help keep the hotel open. Baruch believed that as long as she “created the show, everything was kind of normal.” Having gotten the situation under control enough to keep the doors open, Baruch updated Paege. She recommended for the first of several times over the next few years that he meet with the union leadership. He adamantly refused to recognize the union. There would be no negotiation. Once he knew the Box Tree was still doing business, albeit not quite as usual, Paege was content to let the strikers continue. He believed they would ultimately give up rather than spend the winter on the picket line. Baruch continued to run the Box Tree with the temporary staff becoming permanent. Though their numbers dwindled significantly, the strikers remained out front every day for over four years. “Snow, sunshine, rains, winds—they didn’t miss a day.” According to Baruch, the strikers stopped at nothing in their efforts to chase away business and make life difficult for Box Tree employees and customers. Business dropped off by about 40 percent because of customers’ reluctance to cross the picket line. It was not necessarily a pro-union stance—customers just did not want to subject themselves to the picketers’ verbal abuse. When people called to make reservations, Baruch warned them that there were picketers out front; they were essentially told “if you want to cross the picket line, fine, we would be happy to serve you.” Baruch knew that she could not have people pull up in limousines without knowing they would find a picket line waiting for them. According to Baruch, and Abby Sims, a residential neighbor of the Box Tree, strikers called the women who came to dine “whores, bitches, and other words like that.” When the women, or their dinner companions, responded to the strikers, the strikers in turn said things like “Hey you #&%*ing old bag, if I looked like you I wouldn’t open my mouth.” The New York Times reported that: … strikers on the picket line carried cellular phones and arranged for potential Box Tree patrons to eat instead at Lutèce or Café des Artistes. The union telephoned companies that had reserved party rooms at the Box Tree to urge them to cancel their parties …. Some workers who crossed the picket said the picketers … sometimes dropped dog feces in front of the restaurant. Sims noted that the Box Tree had a tuxedoed employee outside greeting customers during the strike, attempting to shield them from the picketers. In the early days of the strike, other neighbors, both quite noteworthy, were open in their support of the union. Both Katharine Hepburn and Stephen Sondheim, owners of neighboring townhouses, were upset with Paege’s expansion into the second townhouse. The street was disrupted by the construction, but what was worse was that the private garden shared by a group of townhouses on the block was made less private by the presence of the Box Tree hotel. Hepburn occasionally sent cocoa to the strikers that first winter, and even permitted them to use the bathroom in her townhouse. Sondheim joined forces with the union by opposing Paege, who sought permits for the construction already underway on an adjoining restaurant space he purchased and additional construction he hoped to undertake, adding two floors to the hotel (Howe, 1994). Near the end of the strike’s second year, the union filed charges with the NLRB, saying the “Box Tree refused to bargain, coerced workers, obstructed the union, and harassed it.” In addition, the union acted as a whistleblower, encouraging various government institutions to examine the Box Tree’s practices. Health inspectors found it operating without a license and cited conditions “conducive to vermin.” Buildings officials issued zoning and safety violations for apartments converted to a hotel, illegal construction and demolition of a load-bearing firewall. State Labor Department officials ordered repayment of $92,000 in tips and overtime. Federal labor officials ordered the rehiring of two workers fired for union activity (Lambert, 1995, p. 21). Baruch said the visits from City agencies were a routine occurrence: Every day, every second day, another inspector from another bureau was here. Because the union called those departments—the fire department, the health department, the building department, the labor department. Forget the labor department. I have an audit now for back pay from all this. Here’s another example. When [Paege] opened this hotel he didn’t apply for permits at all. It’s a little hotel, you know, up in the building. Because everything he had done here, was done along the way. He purchased the building. And, he had the restaurant and tenants upstairs. So, some of the people that used to come to eat here said “wouldn’t it be fun? Ah, the way we feel now we’d just go upstairs and …,” whatever the story was. Just because of the ambience. So, it gave him an idea [for the hotel]. He just opened those rooms and he never went for the permit. In actuality, after Paege’s instruction to convert the residential units, it was his then manager who oversaw the development of the hotel, and failed to execute on the required permit process. As with the payment of all appropriate wages (overtime and otherwise), taxes, and fees, Paege simply assumed his managers through the years had done what was legally required of the restaurant. In describing to a reporter how the Box Tree had operated prior to her arrival, Baruch stated, “Paege is an absentee owner … He has been an absentee owner since the beginning, but he had managers who were not familiar with government requirements and who failed to alert him to problems.” Baruch further stated: And what do I know? This was an established place. It’s not like it’s new and you’re part of the thing and you know what [they’ve] done and what [they] haven’t done. The building department asked me what was upstairs and I said “we have rooms.” They asked “are they transient?” I said “yes” and then I realized that I’m in trouble because I saw it wasn’t transient on the C of O (certificate of occupancy). But, we used to pay the taxes for hotel occupancy to the city. So it’s kind of a Catch 22. On one hand, [the City is] taking the money [and taxing us as if we are a hotel] and on the other hand, [the City says we] can’t operate as such. So, the city can force you to get a proper C of O. To have the proper C of O you have to do certain things involving the fire department. They coincide with the logistics of whatever you should and shouldn’t have. In the meantime, I’m still open, paying hotel tax, and I never got the paperwork. It’s still not legal. I paid a lot of fines. I went in and out of courts for the past four years, and I’m still in business. The union’s use of hardball tactics led Paege to dig in his heels further. As noted in HERE’s NLRB filing, Paege fired back with a slander and defamation lawsuit in which he sought $1.7 billion in damages. This suit was the source of the harassment alleged by HERE. The NLRB judge refused to hear the case, declaring the suit frivolous (Prewitt, 1996). Paege also attempted to wage war in the press over a period of years. In a New York Times interview he paraphrased the famous line spoken by Emile Zola during the Dreyfus trial in France. He said “This is not just a little restaurant thing, this is ‘j’accuse’ … This is not about hamburgers. This is about ideology.” Paege, the Bulgarian multimillionaire, painted himself the underdog in this fight. He claimed that U.S. labor unions and their “13 million soldiers are looting and raping the country.” In describing the union’s whistle-blowing tactics, he was quoted further, saying “For me, they’re fascists because I can’t see much difference between Kristalnacht and what they’re doing to me for the last two years. The last two years have been Kristalnacht for me.” Kristalnacht was the night the Nazis smashed nearly every window in every synagogue and Jewish-owned business in Germany in the beginning of WWII. Amazingly, through all the trials and tribulations the Box Tree went through over the course of the strike, the restaurant operated in the black. Even with the fines and legal expenses, and the reduced revenue, the restaurant broke even. The results heartened Paege, and they fortified his resolve. He stuck to his principles and refused to bargain with, or even acknowledge, the union. Paege believed the financial results, particularly under these trying circumstances, indicated that the restaurant was in capable hands. He hardly ever heard from Baruch, and frankly, according to Baruch, he liked it that way. He was “hands off” when times were good, and he certainly did not want to change suddenly. The Beginning of the End Baruch thought she had handled everything the union could throw at her through the first three years of the strike, and she had. There were at most a handful of picketers outside the restaurant each evening. The clientele and the neighbors had become so accustomed to their presence that the picketers seemed to be having little effect. Baruch thought HERE chose its next tactic out of desperation. “How many more inspectors can they go through?” she figured. According to Baruch, HERE began sending underage people into the restaurant to dine, and more important, to drink. The staff was not accustomed to serving such a young clientele and, because the HERE insiders looked older, at least in their early 20s, no one asked for proof of age before serving alcohol to them. Further, when caught serving minors, the Box Tree could not dispute the stories the young men posing as customers told. They were all cadets at the New York City Police Academy (Greenhouse, 1997). After a few violations and $1,000 fines issued by the State Liquor Authority, the staff checked the identification of everyone who looked even close to being underage. Next, what Baruch characterized as the union’s sting operation moved into the hotel side. A second, separate liquor license was required in order to serve alcohol in the rooms. The Box Tree did not have such a license. A couple checked in. They claimed to be celebrating some occasion. They requested and received a bottle of champagne in their hotel room. According to Baruch, “they took pictures, the whole shebang. It was a setup.” The holder of a liquor license issued by the New York State Liquor Authority (SLA) must renew it every three years. Typically, the renewal paperwork was sent to the restaurant and the process, provided nothing outrageous occurred over the previous license period, was relatively perfunctory. The SLA did not revoke licenses or decline renewal applications unless something was seriously wrong. Baruch, knowing the Box Tree’s license was up for renewal, was expecting the paperwork from the SLA. It never came. She called the liquor lawyer the Box Tree used—reputed to be the best in the City—and expressed her concern. He suggested it was probably in the mail, because in his experience, the Box Tree’s violations were not serious enough to jeopardize a license renewal. The attorney indicated that Baruch should call Albany (the SLA’s main office location) to inquire after the paperwork if it would assuage her. Baruch’s call to the SLA had the reverse effect. The clerk Baruch spoke with asked for the restaurant name and license number. After putting Baruch on hold, the clerk came back on the line and said “I’m very, very sorry but we have a big sign on the computer. ‘No liquor license for the Box Tree.’” It was November 1996, and the holiday season was once again around the corner. Without a liquor license, Baruch thought, it would not even be worth keeping the doors open. How could the Box Tree expect people to pay $86 a head to dine (and even more for the private functions) and not be able to order wine with dinner? Baruch was to appear with the liquor attorney at an SLA hearing to discuss the restaurant’s violations. The hearing was to take place after the license expired—too late to do anything about the renewal. Baruch called the liquor attorney immediately upon hanging up from her conversation with the SLA clerk. He cautioned her to be vigilant about potential future violations and told her he would do what he could. The attorney was successful in moving up the hearing date. He and Baruch hoped all would be resolved in time to renew the license. Baruch described the hearing this way: We walked into the hearing and, to our dismay, there were about seven or eight people, one from every single bureau. Liz Holtzman, Mark Green, Roy Goodman—you just name it, every politician was there. If you remember, this past year was election year. Every single representative was in this hearing. Little did we know it was for us. We said “What the hell was going on here?” So many people. And, the union representatives, naturally, and my lawyer, all there. Each one of them got on the podium and said, “No liquor license for the Box Tree.” Apparently the union said [to the politicians], “Listen, you want the vote, you’ve got to do this for us.” I couldn’t believe this was happening. So, the Liquor Authority said, “No license.” The Box Tree’s attorney went to Federal court, which granted a stay, enabling the restaurant to continue serving alcohol on its expiring license. The stay was to last until the court could hear the matter with the restaurant and the SLA presenting their cases. After approximately a year, the court held the hearing. At the hearing, convinced the case was too politically charged, the lawyer predicted the Box Tree would lose the appeal. He had a suggestion though—an idea he believed would provide the Box Tree with its only chance at a liquor license. The attorney suggested that Baruch call Paege at his home in Paris and present him with two options: Paege could either close up shop or sell the restaurant to Baruch. The plan to sell the restaurant was viable because New York State liquor licenses belong to the person, not the establishment. There was no reason to believe Baruch could not get a license to sell liquor at the Box Tree. In order to reduce the political pressure and enhance the Box Tree’s profit potential, the attorney also suggested Baruch settle with the union. If she became the owner and welcomed the union in, he believed the politicians and the SLA would have to reward her by letting the license through. So, a little over four years after she first walked through the Box Tree’s front door, Gila Baruch owned the restaurant through a lease agreement with Paege. A New Beginning and New Challenges As part of the settlement with HERE, Baruch had to rehire any strikers who wished to return to the Box Tree. Seven people chose to return, four in the kitchen and three in service positions. The restaurant had to reinstate all seven with seniority, which meant they got the choice schedules. However, Baruch was adamant about not firing anyone hired during the strike. She wanted to reward the hard work and loyalty they showed her. People would have to work a four-day workweek until the Box Tree rebounded and volume picked up. Demand, she hoped, would solve her overstaffing problem. However, it really was not that simple. She was tired and angry after the four years of battle with the union. Now she had to welcome back the returning strikers, the same people who had make her life a living hell. On top of that, the replacement workers who had seen her through four years of very bad times, the people to whom she owed her sanity, now believed they would be second-class citizens. According to Ned Goodman, who was the maitre d’ during much of the strike, tension was inevitable now that strikers were returning to work. He noted that, “Given the language they used, the animosity they showed toward the clientele and all of us who stayed on working, it will be difficult for us to cooperate with them.” With all the terrible things that went on during the strike, would people be able to forget and move on? How could she ever restore the once sterling reputation of the Box Tree? How could Baruch get these two groups of employees working as one to produce the great food and service for which the Box Tree had once been known? As these questions raced through her head, Baruch knew that unless she found the answers, she would lose her investment in the Box Tree. References Goldberg, C. Tiny strike at restaurant has epic tone.The New York Times, December 1995, sec. 1, p. 25. Greenhouse, S. Restaurant’s liquor license suspended.The New York Times, March 1997, sec. B, p. 3. Howe, M. E. Neighborhood report: East Side. The New York Times, January 1994, sec. 13, p. 6. Lambert, B. Neighborhood report: East Side; Rulings rain on Box Tree. The New York Times, October 1995, sec. 14, p. 21. Prewitt, M. 1996, September. Three-year Box Tree labor strike marches on. Nation’s Restaurant News, 30(38): 104.


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2. Read the case carefully. Assume that you are Gila Baruch. In an essay format, answer the following:

3. How could you ever restore the once sterling reputation of the Box Tree?

4. How could you get these groups of employees working as one to produce the great food and service for which the Box Tree had once been known? As Gila Baruch you are well aware that until and unless you find answers you would lose your investment in the Box Tree.

5. Recommend strategic approaches to the issues presented.

6. Submissions will be graded against the “Writing Expectations” rubric posted in our online classroom as well as the strength of strategic recommendations.

7. Apply APA formatting (title page, introduction, in-text citations, concluding paragraph, headings, and reference page).

8. Due: Sunday of Week 1