History (1990): MiniScribe Files Bankruptcy

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1990 MiniScribe files bankruptcy
An interesting study of management and corruption in HDD industry

Why its important
In 1985 MiniScribe, suffering from a volume loss due to cut back in IBM procurement was reorganized under the leadership of turnaround specialist QT Wiles.

MiniScribe then appeared to make a successful recovery only to file for bankruptcy in 1990, in part, as a result of accounting fraud in which bricks were shipped in lieu of product in order to make quarterly revenues.

MiniScribe was later acquired by Maxtor.

Discussion
The management style of Q.T. Wiles was a form of confrontation where performance to a plan was the only survival skill. Quarterly ‘DASH Meetings’ were held with program managers presenting their results; under-performers were at best banished to a penalty box and in some cases summarily dismissed. Over achievers were well rewarded at the same time. The climate was one of fierce competition and extraordinary effort to achieve results; unfortunately it seems at any cost.

One group of managers as a survival tactic to inflate results shipped bricks from Singapore in lieu of drives. They went as far as to calculate the number of bricks required so that a pallet of ersatz drives weighed the same as a pallet of real drives. The pallets were shipped by boat at the end of a quarter and recalled for ‘quality reasons’ in the next quarter before they reached any customers.

Other tactics included mis-statement of work in progress as finished goods, again to inflate results.

Maxtor sent a technical team to Longmont, CO, in October of 1989 led by Mike Warner to review two companies for possible acquisition. One candidate was a 2.5″ drive firm with ex-HP management, but no significant market presence. Maxtor marketing manager Taroon Kamdar favored MiniScribe due to its well developed manufacturing operation and established customer base. After the acquisition he was put in charge of that operation. It’s easy to remember the date the team returned, October 17, the date of the Loma Prieta earthquake. Maxtor acquired MiniScribe in April 1990.

In 1992 MiniScribe’s accountants paid $93 million to settle claims relating to their work for MiniScribe during this era, at its time among the largest amounts ever tendered by an accounting firm to settle a professional liability case.

In 1994 QT Wiles was found guilty of insider trading and security fraud and in 1995 sentenced to 36 months in jail and fined $60,000. After appeal, he began serving his sentence in 1997. Other MiniScribe executives were also found guilty of various crimes and received lesser punishments.