Foley v. Interactive Data Corp. (1988) 47 C3d 654 [After Interactive Data Corporation fired plaintiff Daniel D. Foley, an executive employee, he filed this action seeking compensatory and punitive damages for wrongful discharge. Foley asserted several distinct theories for wrongful discharge, including a tort cause of action alleging a discharge in violation of public policy and a contract cause of action for breach of an implied-in-fact promise to discharge for good cause only. The Court of Appeal determined that Foley alleged no statutorily based breach of public policy sufficient to state a cause of action, and that his claim for breach of implied contract to discharge only for good cause was barred by the statute of frauds. The California Supreme Court granted review to consider the Court of Appeal determinations.] * * * * Facts * * * * According to the complaint, plaintiff is a former employee of defendant, a wholly owned subsidiary of Chase Manhattan Bank that markets computer-based decision-support services. Defendant hired plaintiff in June 1976 as an assistant product manager at a starting salary of $18,500. As a condition of employment defendant required plaintiff to sign a "Confidential and Proprietary Information Agreement" whereby he promised not to engage in certain competition with defendant for one year after the termination of his employment for any reason. . . . It did not state any limitation on the grounds for which plaintiff's employment could be terminated. Over the next six years and nine months, plaintiff received a steady series of salary increases, promotions, bonuses, awards and superior performance evaluations. In 1979 defendant named him consultant manager of the year and in 1981 promoted him to branch manager of its Los Angeles office. His annual salary rose to $56,164 and he received an additional $6,762 merit bonus two days before his discharge in March 1983. He alleges defendant's officers made repeated oral assurances of job security so long as his performance remained adequate. Plaintiff also alleged that during his employment, defendant maintained written "Termination Guidelines" that set forth express grounds for discharge and a mandatory seven-step pretermination procedure. Plaintiff understood that these guidelines applied not only to employees under plaintiff's supervision, but to him as well. On the basis of these representations, plaintiff alleged that he reasonably believed defendant would not discharge him except for good cause, and therefore he refrained from accepting or pursuing other job opportunities. The event that led to plaintiff's discharge was a private conversation in January 1983 with his former supervisor, Vice President Richard Earnest. During the previous year defendant had hired Robert Kuhne and subsequently named Kuhne to replace Earnest as plaintiff's immediate supervisor. Plaintiff learned that Kuhne was currentl.

1. Foley v. Interactive Data Corp. (1988) 47 C3d 654
[After Interactive Data Corporation fired plaintiff Daniel D.
Foley, an executive employee, he filed this
action seeking compensatory and punitive damages for wrongful
discharge. Foley asserted several
distinct theories for wrongful discharge, including a tort cause
of action alleging a discharge in violation of
public policy and a contract cause of action for breach of an
implied-in-fact promise to discharge for good
cause only.
The Court of Appeal determined that Foley alleged no
statutorily based breach of public policy sufficient
to state a cause of action, and that his claim for breach of
implied contract to discharge only for good
cause was barred by the statute of frauds. The California
Supreme Court granted review to consider the
Court of Appeal determinations.]
* * * *
Facts
* * * *
According to the complaint, plaintiff is a former employee of
defendant, a wholly owned subsidiary of
Chase Manhattan Bank that markets computer-based decision-
support services. Defendant hired plaintiff
in June 1976 as an assistant product manager at a starting salary
of $18,500. As a condition of

2. employment defendant required plaintiff to sign a "Confidential
and Proprietary Information Agreement"
whereby he promised not to engage in certain competition with
defendant for one year after the
termination of his employment for any reason. . . . It did not
state any limitation on the grounds for which
plaintiff's employment could be terminated.
Over the next six years and nine months, plaintiff received a
steady series of salary increases,
promotions, bonuses, awards and superior performance
evaluations. In 1979 defendant named him
consultant manager of the year and in 1981 promoted him to
branch manager of its Los Angeles office.
His annual salary rose to $56,164 and he received an additional
$6,762 merit bonus two days before his
discharge in March 1983. He alleges defendant's officers made
repeated oral assurances of job security
so long as his performance remained adequate.
Plaintiff also alleged that during his employment, defendant
maintained written "Termination Guidelines"
that set forth express grounds for discharge and a mandatory
seven-step pretermination procedure.
Plaintiff understood that these guidelines applied not only to
employees under plaintiff's supervision, but
to him as well. On the basis of these representations, plaintiff
alleged that he reasonably believed
defendant would not discharge him except for good cause, and
therefore he refrained from accepting or
pursuing other job opportunities.
The event that led to plaintiff's discharge was a private
conversation in January 1983 with his former
supervisor, Vice President Richard Earnest. During the
previous year defendant had hired Robert Kuhne

3. and subsequently named Kuhne to replace Earnest as plaintiff's
immediate supervisor. Plaintiff learned
that Kuhne was currently under investigation by the Federal
Bureau of Investigation for embezzlement
from his former employer, Bank of America. Plaintiff reported
what he knew about Kuhne to Earnest,
because he was "worried about working for Kuhne and having
him in a supervisory position ..., in view of
Kuhne's suspected criminal conduct." Plaintiff asserted he
"made this disclosure in the interest and for
the benefit of his employer," allegedly because he believed that
because defendant and its parent do
business with the financial community on a confidential basis,
the company would have a legitimate
interest in knowing about a high executive's alleged prior
criminal conduct.
In response, Earnest allegedly told plaintiff not to discuss
"rumors" and to "forget what he heard" about
Kuhne's past. In early March, Kuhne informed plaintiff that
defendant had decided to replace him for
"performance reasons" and that he could transfer to a position in
another division in Waltham,
Massachusetts. Plaintiff was told that if he did not accept a
transfer, he might be demoted but not fired.
One week later, Earnest informed plaintiff he was not doing a
good job, and six days later, he notified
plaintiff he could continue as branch manager if he "agreed to
go on a 'performance plan.' Plaintiff
asserts he agreed to consider such an arrangement." The next
day, when Kuhne met with plaintiff,
purportedly to present him with a written "performance plan"
proposal, Kuhne instead informed plaintiff he

4. had the choice of resigning or being fired. Kuhne offered
neither a performance plan nor an option to
transfer to another position.
* * * *
I. Tortious Discharge in Contravention of Public Policy
We turn first to plaintiff's cause of action alleging he was
discharged in violation of public policy. Labor
Code section 2922 provides in relevant part, "An employment,
having no specified term, may be
terminated at the will of either party on notice to the other. ..."
This presumption may be superseded by a
contract, express or implied, limiting the employer's right to
discharge the employee. . . . Absent any
contract, however, the employment is "at will," and the
employee can be fired with or without good cause.
But the employer's right to discharge an "at will" employee is
still subject to limits imposed by public
policy, since otherwise the threat of discharge could be used to
coerce employees into committing crimes,
concealing wrongdoing, or taking other action harmful to the
public [welfare].
Petermann v. International Brotherhood of Teamsters . . . first
stated the foregoing principle. There, the
plaintiff, a union business agent, alleged he was discharged
when he refused to testify falsely to a state
legislative committee. . . .
Similarly, Tameny v. Atlantic Richfield Co. . . declared that a
tort action for wrongful discharge may lie if
the employer "condition[s] employment upon required
participation in unlawful conduct by the employee."
In Tameny, the plaintiff alleged he was fired for refusing to

5. engage in price fixing in violation of the
Cartwright Act and the Sherman Antitrust Act. . . .
[In both the Petermann and Tameny] cases, an employee was
discharged for his refusal to violate a
penal statute. The plaintiff in Petermann, however, had framed
his complaint in contract, and sought only
back wages; the Tameny plaintiff sought tort damages. In
upholding the claim in Tameny, we explained
that the cause of action was not dependent on an express or
implied promise in the employment contract,
"but rather reflects a duty imposed by law upon all employers in
order to implement the fundamental
public policies embodied in the state's penal statutes." . . . We
noted also that the existence of a
contractual relationship would not bar an injured party from
seeking relief . . . through tort remedies when
the "employer's discharge of an employee contravenes the
dictates of public policy.". . .
* * * *
We . . . must still inquire whether the discharge is against
public policy and affects a duty which inures to
the benefit of the public at large rather than to a particular
employer or employee. For example, many
statutes simply regulate conduct between private individuals, or
impose requirements whose fulfillment
does not implicate fundamental public policy concerns. . . .
In the present case, plaintiff alleges that defendant discharged
him in "sharp derogation" of a substantial
public policy that imposes a legal duty on employees to report
relevant business information to
management. An employee is an agent, and as such "is required
to disclose to [his] principal all

6. information he has relevant to the subject matter of the agency."
. . . Thus, plaintiff asserts, if he
discovered information that might lead his employer to conclude
that an employee was an embezzler, and
should not be retained, plaintiff had a duty to communicate that
information to his principal. . . .
* * * *
Whether or not there is a statutory duty requiring an employee
to report information relevant to his
employer's interest, we do not find a substantial public policy
prohibiting an employer from discharging an
employee for performing that duty. Past decisions recognizing
a tort action for discharge in violation of
public policy seek to protect the public, by protecting the
employee who refuses to commit a crime . . . ,
who reports criminal activity to proper authorities . . ., or who
discloses other illegal, unethical, or unsafe
practices . . . No equivalent public interest bars the discharge
of the present plaintiff. When the duty of
an employee to disclose information to his employer serves only
the private interest of the employer, the
rationale underlying the Tameny cause of action is not
implicated.
We conclude that the Court of Appeal properly [held that Foley
did not allege a breach of public policy tort
claim.]
II. Breach of Employment Contract
* * * *

7. Although plaintiff describes his cause of action as one for
breach of an oral contract, he does not allege
explicit words by which the parties agreed that he would not be
terminated without good cause. Instead
he alleges that a course of conduct, including various oral
representations, created a reasonable
expectation to that effect. Thus, his cause of action is more
properly described as one for breach of an
implied-in-fact contract.
* * * *
We begin by acknowledging the fundamental principle of
freedom of contract: employer and employee
are free to agree to a contract terminable at will or subject to
limitations. Their agreement will be enforced
so long as it does not violate legal strictures external to the
contract, such as laws affecting union
membership and activity, prohibitions on indentured servitude,
or the many other legal restrictions already
described which place certain restraints on the employment
arrangement. As we have discussed, Labor
Code section 2922 establishes a presumption of at-will
employment if the parties have made no express
oral or written agreement specifying the length of employment
or the grounds for termination. This
presumption may, however, be overcome by evidence that
despite the absence of a specified term, the
parties agreed that the employer's power to terminate would be
limited in some way, e.g., by a
requirement that termination be based only on "good cause." . . .
The absence of an express written or oral contract term
concerning termination of employment does not
necessarily indicate that the employment is actually intended by

8. the parties to be "at will," because the
presumption of at-will employment may be overcome by
evidence of contrary intent. . . .
* * * *
In the employment context, factors apart from consideration and
express terms may be used to ascertain
the existence and content of an employment agreement,
including "the personnel policies or practices of
the employer, the employee's longevity of service, actions or
communications by the employer reflecting
assurances of continued employment, and the practices of the
industry in which the employee is
engaged." . . .
* * * *
Defendant [argued] that even if a promise to discharge "for
good cause only" could be implied in fact, the
evidentiary factors . . . relied on by plaintiff, are inadequate as
a matter of law. This contention fails on
several grounds.
First, defendant overemphasizes the fact that plaintiff was
employed for "only" six years and nine months.
Length of employment is a relevant consideration [and] six
years and nine months is sufficient time for
conduct to occur on which a trier of fact could find the
existence of an implied contract . . . Plaintiff here
alleged repeated oral assurances of job security and consistent
promotions, salary increases and
bonuses during the term of his employment contributing to his

9. reasonable expectation that he would not
be discharged except for good cause.
Second, an allegation of breach of written "Termination
Guidelines" implying self-imposed limitations on
the employer's power to discharge at will may be sufficient to
state a cause of action for breach of an
employment contract. [An implied agreement to limit the
termination to "cause" can be based on the
personnel manual or policies or individual performance
evaluations] . . . .
Finally, . . plaintiff alleges that he supplied the company
valuable and separate consideration by signing
an agreement whereby he promised not to compete or conceal
any computer-related information from
defendant for one year after termination. The noncompetition
agreement . . . may be probative evidence
that [the parties intended] limitations upon the employer's
dismissal authority [because the] employee has
provided some benefit to the employer . . . beyond the usual
rendition of service. . . .
In sum, plaintiff has pleaded facts which, if proved, may be
sufficient for a jury to find an implied-in-fact
contract limiting defendant's right to discharge him arbitrarily --
facts sufficient to overcome the
presumption of Labor Code section 2922. . . .
* * * *
Conclusion
Plaintiff may proceed with his cause of action alleging a breach
of an implied-in-fact contract promise to
discharge him only for good cause . . . . His cause of action for

10. a breach of public policy . . . was properly
dismissed because the facts alleged, even if proven, would not
establish a discharge in violation of public
policy. . . .
Accordingly, that portion of the judgment of the Court of
Appeal affirming the dismissal of plaintiff's causes
of action alleging a discharge in breach of public policy . . . is
affirmed. That portion of the judgment of
the Court of Appeal affirming the dismissal of the cause of
action alleging an implied-in-fact contract not
to discharge except for good cause is reversed, and the case is
remanded for action consistent with the
views expressed herein.
9B13M094
CHARLES CHOCOLATES
Professor Charlene Zietsma wrote this case solely to provide
material for class discussion. The author does not intend to
illustrate
either effective or ineffective handling of a managerial
situation. The author may have disguised certain names and
other identifying
information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized
or otherwise reproduced in any form or by any means without
the
permission of the copyright holder. Reproduction of this
material is not covered under authorization by any reproduction

11. rights
organization. To order copies or request permission to
reproduce materials, contact Ivey Publishing, Ivey Business
School, Western
University, London, Ontario, Canada, N6G 0N1; (t)
519.661.3208; (e) [email protected]; www.iveycases.com.
Copyright © 2013, Richard Ivey School of Business Foundation
Version: 2014-11-17
In March, 2012, Steve Parkland started his new job as president
of Charles Chocolates (Charles), a
privately held premium chocolate producer based in Portland,
Maine. The board of directors had asked
him to double or triple the size of the company within 10 years.
Each member of the board and the
management team had a different idea about what Charles
needed to do. Parkland needed to devise a
strategy that would fit the company’s culture, and then gain the
support of the board, the management
team and the employees.
THE PREMIUM CHOCOLATE MARKET
The U.S. market for chocolates was US$19.3 billion1 in 2011,
and had been growing at about 6 per cent
annually. The premium chocolate market ($2.7 billion), which
had higher margins, was growing at 10 per
cent annually, and imports of ethically produced cocoa grew by
156 per cent2 as aging baby boomers
emphasized quality and ethics in their purchases. Incumbents
such as Hershey’s and Cadburys had
moved into the premium chocolate market through acquisitions
or upmarket launches.
About one-quarter of annual chocolate sales typically occur in

12. the eight weeks prior to Christmas.
Twenty per cent of “heavy users” account for more than half of
these pre-Christmas sales. These heavy
users tend to be established families, middle aged childless
couples and empty nesters with high incomes.
They purchase more high quality boxed chocolate than bars or
lower quality chocolate.3
In line with social trends, demand was growing for organic
chocolate and dark chocolate due to its heart-
healthy anti-oxidant properties. At the same time, however,
large chocolate manufacturers wanted the
United States Food and Drug Administration to redefine the
term “chocolate” to allow them to produce
cheaper versions (with less chocolate content) and still call it
chocolate. Consumers and employees also
increasingly demanded corporate social responsibility.
Chocolate companies were targeted because
1 All currency in U.S. dollars unless specified otherwise.
2 http://www.vreelandassociates.com/us-chocolate-sales-up-6-
while-premium-jumps-10/, accessed August 14, 2013.
3 Company insider citing a presentation by Neilson at the
Confectionary Manufacturer’s Association conference, 2007.
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forced labor and child labor was still sometimes used in cocoa
bean production in West Africa.
Environmental concerns influenced packaging, procurement and
operational decisions.
COMPETITORS
Chocolate competitors in the premium chocolate segment in the
United States featured strong regional
brands and large international players. Godiva, backed by
Nestle, had taken the business by storm with
glitzy packaging, high price points, and widespread distribution
among gift retailers. Godiva’s quality
was not as high as Charles, but it obtained about 15 per cent
higher price points for standard products on
the strength of its sleek and modern packaging, variations in
chocolate molding and coloring, advertising
and distribution. Godiva’s high-end products sold for 200 per
cent to 300 per cent of Charles prices.
Lindt, a large Swiss firm, sold mid-quality chocolate bars and
truffles broadly in mass merchandisers,
drug and grocery retailers, and their pricing was about 90 per
cent of Charles.
Strong regional players included Delice Chocolates and
Cardon’s. Delice, based in Providence, Rhode
Island, had 32 retail stores, mostly in tourist and downtown
locations in northeastern states, with four
stores in California. The company’s quality was high and it
excelled at frequent flavour introductions.
Delice’s copper boxes could be customized at the store. Pricing
was similar to Godiva. Cardon’s was a
120 year-old Boston firm with 50 locations nationally, nearly
all in malls. Cardon’s was most successful

14. in New England. It had tried to launch in Chicago, but had not
done well there. Cardon’s price point was
about 35 per cent lower than Charles, and it had moderate
product quality level. Cardon’s did a strong
business in corporate gifts and group purchases, offering 20 per
cent to 25 per cent discounts for high
volume orders.
Other premium chocolate companies included extremely high
end custom chocolatiers, Belgian producers
that sold through American retailers or online and niche
wholesalers of single varietal bean or organic
chocolates. Other companies commanded price premiums over
their quality level because of their
distribution and/or store concept. For example, Dolce Via,
which emphasized mall stores, and The Great
American Candy Company, which sold more candy than
chocolate and used a franchise model, had
higher price points than Cardon’s but lesser quality.
CHARLES CHOCOLATES COMPANY HISTORY
Founded in 1885, Charles Chocolates was New England’s oldest
chocolate company. For the last two
decades (during which time sales had grown by more than 900
per cent), the company had been owned by
a private group comprised principally of two financial
executives, an art dealer, and a former owner of a
bus company. These four plus a past president of Charles
comprised the board of directors. Charles’ head
office was located above its flagship store in Portland’s Old
Port area, a tourist area known for its
cobblestone streets, 19th century buildings, and active nightlife.
Charles produced high-quality, hand-wrapped chocolates
including its premier line, Portland Creams,

15. along with truffles, nuts and chews, almond bark, chocolate-
covered ginger, caramels, brittles, and orange
peel in various assortments, bars, nutcorn and premium ice
cream novelties. Charles chocolates were of
the highest quality, and the company had many loyal customers
around the world. In 2009, the company
won a prestigious Superior Taste Award from Belgium’s
Institute for Taste, which described the product
as “classy, refined and elegant,” and “top-of-the-range,” with
“rich chocolate aromas.”
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PRODUCTION
Charles chocolates were made in a 24,000-square-foot factory
owned by Charles on the outskirts of
Portland. There were 75 retail and 35 production employees, all
non-unionized, and 20 employees in
management, administration and sales (see Exhibit 1).
Production took place from 7 a.m. to 4 p.m. each
day. With so many different products, batch processing and
hand packing were used, and set-up times
were a significant component of costs. Employees learned
multiple job functions and enjoyed a variety of

16. work and tasks. There were no measures of productivity or
efficiency in the plant, and thus no way of
telling on a day to day basis if the plant was doing a good job.
Demand forecasting was difficult due to the seasonality of
sales, but product shelf life was long (up to a
year), and significant inventories were kept. Nevertheless,
there were significant problems with out-of-
stocks each week. The Christmas season was particularly
chaotic. The wholesale business required early
seasonal production, whereas the online and retail business
required late production. Production planning
was complicated by data distortions arising from out-of-stocks
and over stocks. When an item was
produced after being out of stock for a month, filling back
orders would unnaturally spike sales, yet these
spikes would be used for production planning the following
year. Similarly, when there was too much
stock, the retail stores would push or discount the items,
creating distortions in the sales data, which
would be used for production planning the following year.
Because out-of-stocks in the wholesale
channel created problems with customers, short supplies were
diverted from the company’s own stores
and delivered to wholesalers. Furthermore, when a special
order arrived in wholesale, it was not
uncommon for the plant to put production plans on hold to focus
on the special order.
The company’s heritage, commitment to quality and strong
family values were cherished by employees,
some of whom were third-generation Charles employees. New
ideas were often resisted by employees
over fears that the company was compromising its values and
heritage. Turnover was low, and wages
were competitive. Permanent employees were on a first-name

17. basis with all of the senior leaders,
including the president.
BUSINESS LINES
Charles earned revenues in four major areas: retailing chocolate
products through company-owned stores,
wholesaling, online/phone sales and sales from Sandwich
Heaven, a well-known eatery in Portland,
which Charles had purchased in 2009.
Retail. Charles’ 11 wholly owned retail stores produced 50 per
cent of sales. The stores’ theme was
heritage, and the flagship store had been designated a heritage
site. Sales staff offered chocolate samples
to customers, and the aromas and images in the store
contributed to an excellent retail experience. In
2005, Charles had won America’s Innovative Retailer of the
Year award in the small business category.
Most stores were in tourist locations, such as Bar Harbor, and
Boston’s Back Bay and Beacon Hill areas.
Most were leased, though the flagship store was owned. Stores
were about 500 square feet in size, with
the exception of the Bar Harbor and cruise ship terminal
locations, which were booths. Although other
retailers sold Charles Chocolates, they purchased the products
wholesale through direct sales from
Charles. Exhibit 2 shows the store locations and their
approximate annual sales. The two newest stores,
Back Bay and Beacon Hill in Boston, were showing steady sales
growth in their first two years of
operations, but significantly shy of expectations. The Portland
stores benefited from Charles iconic brand
image in Maine.
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Wholesale. Approximately 30 per cent of sales came from
wholesale accounts in five categories: 1)
independent gift/souvenir shops, 2) large retail chains, 3) tourist
retailers, such as duty-free stores, airport
or train station stores and hotel gift shops, 4) corporate
accounts that purchased Charles products for gifts
for customers or employees and 5) specialty high-end food
retailers. Some large accounts, including
department stores, gift chains and coffee chains, had been
significant Charles customers, but had recently
changed their purchasing to focus either on their own products
or on less expensive lines. A salaried
national sales manager based in Boston oversaw eight sales
agents across the United States, and a salaried
rep located in Maine. Sales agents had exclusive rights to sell
Charles products within their territory but
also carried non-competing giftware lines. Many had been with
the company as long as the previous
president, who had established the wholesale division nearly
two decades earlier, but contractually, they
could be terminated with 90 days’ notice. Marketing Vice-
President Mary Bird said:
Some [reps] perform very well. They cite many challenges with

19. our brand — niche market, high
prices, inadequate shelf life, old fashioned (“not glitzy or
fashionable enough”) packaging, and an
unknown brand in many areas. Some reps have stronger lines
and just carry Charles as an add-on.
The salaried rep in Maine receives constant requests for our
products, as it is our “home turf” and
we do extensive advertising locally for our own stores. In
Portland, some accounts will say they
are honored to carry Charles. In other parts of the United States,
they have not heard of us and are
dismissive of the products and their price points as they do not
understand the brand and the value
of the product. If the remote reps are not well trained, they just
cannot present the brand
adequately and sell it.
Retailers typically marked items up by 100 per cent. Charles
earned about half the gross margins on
wholesale sales as it did on retail and online sales and the
company paid its sales agents approximately 10
per cent commission. There were 585 active wholesale
customers in 2011. Of these, 221 purchased less
than $1,000 per year, and another 125 purchased between
$1,000 and $2,000 per year. There had been
problems in the past with smaller accounts selling stock past its
expiration date. Some wholesale
accounts ordered custom products, such as logo bars for special
events. In the past, some regular
customers had ordered with too little lead time, so the plant
typically kept some logo bars in inventory for
customers in anticipation of their orders.
Online and Phone. Charles’ online business generated four per
cent of sales and its phone business
generated 6 per cent of sales. Sixty per cent of all orders were

20. from regular customers. Average sales were
$138 by phone and $91 from the website. The proportion of
people who shopped online in the United
States had grown considerably in the last decade, with about 59
per cent of respondents in a 2012 Neilsen
poll saying they prefer to shop online because of its
convenience.4 Charles’ online business had not gone
up with the trends. Orders received by phone, mail or online
were processed within three to four days,
then shipped via FedEx. Shipping was free for orders over $500.
Orders went to the United States (60 per
cent), Canada (35 per cent) and 50 countries internationally (5
per cent). They were delivered to the far
North, sometimes via dogsled, to lighthouses on both coasts and
to Antarctica. Online and phone orders
were given priority for inventory allocation, and stock would be
transferred back to the factory from the
retail stores if necessary.
Sandwich Heaven. Ten per cent of sales came from Sandwich
Heaven, which featured made-to-order
sandwiches, soups and salads, desserts (including Charles ice
cream) and wine and beer. At lunch in the
summer, the lineup regularly extended out the door. Since
Charles had purchased Sandwich Heaven, most
of the long term staff had turned over, and recruiting new
employees was difficult in Portland’s tight labor
4 http://www.medialifemagazine.com/nielsen-59-percent-prefer-
to-shop-online/, posted June 7, 2012.
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Page 5 9B13M094
market. Sandwich Heaven had had to curtail its evening hours
due to staff recruiting problems. Although
Sandwich Heaven had a liquor license, the volume of alcohol
sold was very small.
MARKETING
Since Charles’ chocolates were fairly expensive, the company
targeted affluent customers for themselves
or for gifts. Cruise ship visitor and other tourists visited the
store then often became phone or online
customers. Locals were frequent and loyal purchasers. Local
businesses also saw Charles as their
corporate gift of choice. According to Bird:
Our most loyal clients have an emotional connection to Charles.
For example, they were in the
Portland store on a holiday, or it was a traditional gift in their
family. Many then give Charles as a
gift and some of those recipients then become loyal customers.
Other customers are affluent
people who want something unique. They see us as an obscure
but classic gift. But how do you
reach these people to promote to them? They are scattered
across the United States and of course
they are courted by every advertiser. We cannot make mistakes
or disappoint them in any way. If
we do, we apologize and replace the product immediately —

22. good old-fashioned service.
The Charles brand emphasized heritage, with traditional
packaging, including pink or brown gingham-
wrapped squares, packed in a burgundy box or tins. Some tins
featured old-fashioned scenes such as
English roses, cornucopias or floral arrangements, while others
featured American art. Chocolate bars
came in a variety of packaging.
The brand had a very loyal following. Parkland described the
brand perception:
When I first began investigating Charles, I asked everyone I
knew what they thought of the brand.
Most people had never heard of it. Others said “Oooooh,
Charles! That’s the best chocolate I’ve
ever had.” The retail experience is key in creating memories
that lead to repeat sales. Through
store décor, sampling, aromas, taste and service, I think Charles
delivers “chocolate orgasms” to
its customers.
The growth challenge would be to increase awareness without
diluting the brand. The premium price
scared some consumers and wholesalers. Discounting, or
making cheaper products to piggyback on the
brand, would risk brand integrity. The brand’s heritage image
was an issue. As Charles’ loyal customers
aged, would younger buyers appreciate the traditional image?
Bird cited brands such as Chanel and
Lancôme, which had developed classic images and refused to
compromise, and brands such as Jaguar,
Cadillac, BMW and Volvo, which had developed a younger,
sexier image while maintaining core design
elements to maintain brand integrity.

23. Charles advertised in tourist publications, seasonal print media
and radio spots. Charles also donated
product extensively to charitable events. Direct mail and solid
search engine rankings promoted the online
business. Charles’ website was kept basic to make it load easily.
It had an ordering facility, a reminder
service that emailed customers about their upcoming special
occasions and optimized search engine
placement. The website also had links to resellers, however, the
sales agents had not been good about
providing links for their top accounts, as they did not seem to
understand the value provided by such
links.
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FINANCIALS5
Charles was in a strong financial position. Although Charles
had gone through a period of significant
growth just after the current shareholders acquired the company,
growth had slowed considerably in the
past few years. In part, this decline had resulted from the
slowdown in tourism since the financial crisis.

24. In fact, chocolate sales had declined since 2008, though the
company’s revenues had grown slightly due
to the contributions of Sandwich Heaven. Margins remained
strong, however, at about 50 per cent of sales
on average. Financial statements are shown in Exhibits 3 to 6.
LEADERSHIP
Jim Bell had been president of Charles from 1989 until 2012.
When he announced his intention to retire
in 2010, the controlling shareholders (and board of directors)
considered selling Charles. It was a healthy
company with significant assets, great cash flow and good
margins. Yet the board felt that Charles had
significant potential to grow and sought a new leader (see
Exhibit 7). In the two years during the search,
managers knew that Bell was retiring, and decisions were put
off until a new leader could be found.
Steve Parkland was vice-president of operations for a meat
processing company, in charge of six plants
and approximately 2,300 employees, when he saw the ad.
Previously, Parkland had been president of a
seafood company and general manager of a meat processing
subsidiary. His career had involved stints in
marketing and sales in addition to operations, and he had an
MBA from Duke University. Parkland had an
empowering style and a strong commitment to values and
integrity. Charles appealed to Parkland because
he enjoyed the strategy aspect of general management, and
wanted to move to New England. He was
offered the job with the provision that he purchase a significant
number of shares in the company each
year for the first three years.
The senior management team included three others. Mary Bird,

25. vice-president of sales and marketing, a
Charles employee since 1999, managed the retail stores,
developed marketing plans and oversaw the
online and wholesale businesses, Sandwich Heaven, and the ice
cream business. She supervised the
wholesale sales manager, the retail operations manager, a
communications manager, and the order desk
staff. The product development person and purchasing and
sales planner reported indirectly to Bird,
though they worked more directly with Ray Wong. Bird worked
long hours at the office and often helped
at Sandwich Heaven when staff didn’t show, or drove product to
stores on the weekends when they were
short-shipped. Bird was a shareholder.
Ray Wong, vice-president of production, oversaw production at
the factory. Wong earned a bachelor of
food science in 1983, and later took courses in material
requirements planning, candy-making, ice-cream
making and management. He had worked in progressively
responsible operations positions in a variety of
food and beverage companies prior to joining Charles in 1995.
Wong did not own shares in the company.
Wong was especially interested in computer programming, and
he had developed all of Charles internal
production planning systems himself.
Sven Amundsen, vice-president of finance and chief financial
officer, had retired as chief financial officer
of a bus company in 1996, but joined Charles in 2002 at the
urging of his former partner, who was on
Charles’ board. Previously, Amundsen had worked in financial
management in manufacturing and retail
after articling as a chartered accountant with Price Waterhouse.
Amundsen’s expertise was in

26. 5 All financial figures in the case are disguised.
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Page 7 9B13M094
reorganizations, acquisitions and dispositions. He maintained
Charles books by hand, as he had never
learned accounting or spreadsheet software programs.
Amundsen owned shares in the company.
Bird and Amundsen were a cohesive team, but conflict between
Bird and Wong had escalated to the
board level during the past two years, as Bird sought to reduce
out of stocks and launch new products,
while Wong sought to retain control of scheduling and
production. Furthermore, because the wholesale
division was favored by the past president, the wholesale
manager in Boston had regularly gone over
Bird’s head to have the president overturn her decisions.
GROWTH OPPORTUNITIES
During the recruitment process, Parkland had been probing the
managers and board members to get their
perspectives on growth options. There was a dizzying array.

27. The idea of franchising Charles stores or Sandwich Heaven had
been discussed but not truly investigated.
The online business also appeared exciting, with its low costs of
sales, lack of intermediaries, and high
reorder rate. The corporate gift market also seemed promising.
Offering discounts of 25 per cent to
corporate purchasers enabled Charles to still earn stronger
margins than wholesale, without the costs of
retail. One board member said Charles approach to cruise ship
traffic needed to be reconsidered as many
of the passengers were bypassing Charles’ location to visit
attractions in other parts of town that were
promoting themselves aggressively on the ships.
There were many other possibilities. Should Charles open more
stores in Boston? Or should Charles
extend its product line to take advantage of its strong brand
awareness in Maine? Although ice cream had
not been the runaway success the company had hoped, its sales
were still building. Another option might
be for Charles to concentrate its efforts outside of Maine. If
tourists had stopped coming to Portland,
should Charles go to them? Should Charles increase its
wholesale or retail penetration outside of New
England? Would the current sales agency structure be
appropriate for increased wholesale penetration?
Should Charles consider an acquisition of another niche
chocolate company or a joint venture with
another firm to increase its geographical reach? Were there
opportunities to pair Charles chocolates with
other high end brands for mutual benefit?
Charles traditional brand image was also a concern: while it
was treasured by loyal customers and
employees alike, it didn’t seem to play well outside of Portland.
The packaging had been described as

28. homey or dowdy by some, yet others were adamant that it
should not be changed. Parkland had spoken to
a brand image consultant that had won numerous awards in the
wine industry. The consultant had
suggested that the only dangerous thing in today’s market was
to play it safe – consumers loved edgy
brands. Should Charles throw off tradition and try to reinvent
itself?
Of course, if sales were to be increased, Charles would need
more internal capacity to produce products
and fill orders. Should more capacity be added in Portland, with
its expensive real estate and significant
shipping costs to reach large markets, or should it be placed
somewhere with lower costs and easier
access to markets?
As Parkland pondered all these options, he also knew that he
had to take into consideration the culture of
the organization and the desires of the board of directors and
owners. Would the current managers and
employees be willing and able to grow the organization? Would
the board endorse a growth strategy that
would increase the risk profile of the company? And with all
these options, what should Parkland do
first?
DO
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Page 9 9B13M094
EXHIBIT 2: RETAIL STORES SALES IN FISCAL 2007
(ROUNDED TO NEAREST THOUSAND)
Store Date Acquired Approximate Annual Sales Contribution
Margin
Portland Old Port 1885 $2,775,000 45.3%
Sandwich Heaven 2009 $1,598,000 8.9%*
Factory Store 1990 $726,000 36.7%
Boston Beacon Hill Dec. 2010 $686,000 (11.5%)

40. Portsmouth 2000 $639,000 8.2%
Portland Arts District 1988 $517,000 22.86%
Portland Fore Street 2008 $401,000 29.1%
Boston Back Bay April 2011 $138,000 (22.3%)
Portland Cruise Ship Terminal 2005 $60,000 (Mostly ice cream)
15.5%
Bar Harbor downtown 2011 $42,000 (All ice cream; summer
only) 18.2%
Bar Harbor Cruise Ship
Terminal
2010 $35,000 (All ice cream; summer only) 21.1%
*Reflects full costs of expenses to refurbish the store.
Source: Company files.
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Page 10 9B13M094

41. EXHIBIT 3: CONSOLIDATED STATEMENT OF EARNINGS
AND RETAINED EARNINGS
Year Ended March 31 2011 2010
Sales $11,850,480 $11,991,558
Cost of sales
Amortization of property and equipment 135,385 108,759
Direct labour 1,545,794 1,677,247
Direct materials 1,770,603 2,745,995
Overhead 1,933,306 846,186
5,385,088 5,378,187
Gross profit 6,465,392 6,613,371
Interest income 664 1,610
6,466,056 6,614,981
Expenses
Interest on long term debt 91,465 86,943
Selling and administrative 5,221,520 5,007,145
5,312,985 5,094,088
Earnings before income taxes 1,153,071 1,520,893
Income taxes 261,989 451,567
Net earnings $891,082 $1,069,326
Retained earnings, beginning of year $4,748,611 4,381,155
Net earnings 891,081 1,069,326

42. Dividends - (701,870)
Retained earnings, end of year $ 5,639,692 $4,748,611
Source: Company files.
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EXHIBIT 4: SCHEDULE OF SELLING AND
ADMINISTRATIVE EXPENSES
Year ended March 31 2011 2010
Selling Advertising & Promotion $489,345 $536,886
Bad debts 23,000 12,796
Credit card charges 125,198 125,544
Mail order 118,606 133,081
Office & Telephone 29,975 27,274
Postage and freight 483,003 476,724
Stores: Factory Store 112,885 122,897
Sandwich Heaven 572,495 323,995
Portland Fore Street 75,854 84,047
Cruise Ship Terminals 42,709 38,592
Dept. Store Boston (closed in 2006) 3,938 4,058

43. Dept. Store Portland (closed in 2006) 4,236 2,759
Bar Harbour downtown -- 24,179
Portland Arts District 87,103 119,058
Portsmouth 168,157 182,939
Royalties 29,862 31,099
Salaries & benefits 812,269 715,325
Travel 68,364 46,830
Total 3,246,999 3,013,658
Less: postage and freight recoveries 343,116 369,823
2,903,883 2,638,260
Admin Amortization 196,970 135,267
Automotive 28,658 24,404
Bank charges and interest 22,533 20,882
Consulting 102,241 107,379
Foreign exchange -6,272
Insurance 80,704 78,777
Management fees 191,226 183,627
Office supplies and postage 134,159 118,582
Professional fees 42,872 67,952
Rent, property taxes and utilities 61,211 56,815
Repairs and maintenance 18,378 21,105
Stores: Sandwich Heaven 326,901 179,834
Portland Fore Street 26,559 28,159
Cruise Ship Terminals 22,038 26,927
Dept. Store Boston 10,082 18,251
Dept. Store Portland 32,123 37,939
Bar Harbor Downtown 14,647
Portland Arts District 49,849 45,002
Portsmouth 112,450 105,720
Salaries and benefits 810,049 1,030,336
Telecommunications 27,824 32,588

44. Travel and promotion 27,082 34,692
Total Admin Expenses $2,317,637 $2,368,885
TOTAL S, G & A Expenses $5,221,520 $5,007,145
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EXHIBIT 5: CONSOLIDATED BALANCE SHEET
March 31 2011 2010
Assets
Current
Cash $ 112,185 $ 750,948
Receivables 358,969 461,874
Inventories
Packaging materials 620,452 576,287
Raw materials 169,235 179,119
Work in progress 89,146 66,467
Manufactured finished goods 643,105 692,517
Finished goods for resale 21,878 36,241
1,543,816 1,550,631

45. Investments 103,136 76,822
Income taxes receivable 127,515 –
Prepaids 84,620 56,566
2,330,241 2,896,842
Property and equipment (see Note 1) 4,364,527 3,922,183
Intangible assets
Goodwill 916,999 916,999
Trademarks 783,596 783,596
Total Intangible Assets 1,700,595 1,700,595
TOTAL ASSETS $ 8,395,363 $ 8,519,620
Liabilities
Current
Bank indebtedness $ 186,929 $ 599,146
Payables and accruals 1,098,232 1,226,570
Income taxes payable - 127,845
Current portion of long term debt 419,971 373,405
1,705,132 2,326,966
Long term debt 1,017,679 1,411,184
TOTAL LIABILITIES 2,722,811 3,738,150
Shareholders’ Equity
Capital stock 32,860 32,860
Retained earnings 5,639,691 4,748,611
TOTAL EQUITY 5,672,551 4,781,471
TOTAL LIABILITIES & EQUITY $ 8,395,362 $ 8,519,62
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Page 14 9B13M094

59. EXHIBIT 6: CONSOLIDATED STATEMENTS OF CASH
FLOWS
Year Ended March 31 2011 2010
Increase (decrease) in cash and cash equivalents
Operating
Net earnings $ 891,081 $ 1,069,326
Amortization 332,355 244,026
1,223,436 1,313,352
Change in non-cash oper. working capital (328,344) 350,045
895,092 1,663,397
Financing
(Repayments of) advances from LT debt (349,168) 661,806
Dividends paid - (701,870)
(349,168) (40,064)
Investing
Purchase of assets of Sandwich Heaven - (1,198,500)
Purchase of property and equipment (772,470) (419,307)
(772,470) (1,617,807)
Net (decrease) increase in cash and cash equivalents (226,546)
5,526
Cash and cash equivalents, beginning of year 151,802 146,276
Cash and cash equivalents, end of year $ 74,744 $ 151,802
Comprised of:

60. Cash $ 112,185 $ 750,948
Bank indebtedness (186,929) (599,146)
$ 74,744 $ 151,802
Source: Company files.
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EXHIBIT 7: JOB AD
A unique company........ a unique location........... a unique
opportunity.
Our client, one of New England’s oldest and respected
confectionery companies, is seeking a
PRESIDENT to oversee the entire business on a day-to-day
basis, and provide the vision and
guidance for long-term success and profitable growth.
Reporting to the Board of Directors, the President will:
� Deliver superior results and guide the organization to
improve.
� Develop formal planning systems and ongoing personnel

61. development.
� Oversee the development of business and marketing strategies
to maintain market
leadership.
� Provide the necessary leadership to motivate and transform
the organization to meet
growth expectations.
� Leads, protects and reinforces the positive corporate culture,
and is the overseer of the
ethics and values in the organization.
An executive level compensation plan commensurate with the
importance of this role is offered.
An opportunity that blends an executive level position with the
lifestyle only Portland can
offer.
CANDIDATE PROFILE:
Given the high levels of autonomy and accountability, the
President must display considerable
maturity and business experience.
From a personal perspective, the ideal candidate will be:
� A strong non-authoritative team builder.
� A highly motivated and results oriented self-starter.
� Extremely, customer, quality and safety oriented.
� People oriented with the innate ability to establish a high
degree of credibility.
� Capable of providing objective insight in a non-
confrontational manner.

62. The successful candidate will likely be or have been in one of
the following positions in a
manufacturing environment:
� President or General Manager
� At a VP level in operations/finance/marketing looking to rise
to the next level
While food manufacturing experience would be a clear
asset, it is not a pre-requisite. DO
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"Change Readiness"
· Review the case study entitled “Charles Chocolates”. Next,
evaluate the organization and its industry in terms external and
internal pressures. Create a proposal about how the company
can overcome internal and external pressure.