Management 3610 Ethics Assessment Case

jon, Rick, and Beth had been friends for a long time and their relationship had been very profitable. They met while each was working toward an MBA at the esteemed Jennings School of Business Middle Tennessee State University. Together, thethree developed a business plan for a company that would acquire businesses and aftergraduation they gave it a go.Their company, Raider Inc., had purchased several distressed companies and had either developed them to become cash cows or had sold them for great profit. Beths strength was marketing, Rick was a finance specialist, and Jon was the management guru who developed strategy and kept the group on task. Another company, PacificLife Books(PLB),appeared on the radar as a possible acquisition candidate. Jon, Rick, and Beth visited the company and had gathered information related to their particular business discipline. This was not their first rodeo.The trio worked methodically, not wasting time by steppingon the turf ofanother.Itwas now time to compare notes and determine if proceeding to acquire the company was a good move.

Jon called a meeting of the three to consider the possibilities. As was their norm, the three met in Raider Inc.sconference room to deliberate. These intense sessions took most of a day and sometimes spilled over into another.In front of them lay all the related information: financial statements, marketing reports, lease agreements, etc.

Pacific Life Books was a publishing company which specialized in novels related to life on theAmerican West Coastunder the theme lifenear the ocean. Beth reported that the companys brand was solid and could be the basis of a strong marketing effort going forward. Rick identified the cause of the companys distress. In an effort to lower unit costs, PLB typically procured large quantities of books from its supplier; the result was a large growing inventory that continually drained PLBs cash coffers.Jon provided insight into the organizational chart and management culture at PLB; vast improvement opportunities were available on that front. However, if a sale of PLB wasnt consummated soon, PLBs existence was threatened.

After much deliberation, a potential strategy was developed. Raider Inc. would purchase equity in PLB, converting it to a privately owned C-corp,and the previous owners would continue as minority owners. The inventory would be reduced through the utilization of new digital printing techniques designed to produce smaller quantities at lower unit costs. Jon would intervene as a consultant, working a couple of days per week, coaching the remaining management team on how to organize, lead, and control the business. The prospects were good, with the strategy developed by the Raider Inc. team, that PLBwould soon be generating cash.

Then Rick asked, What about JohnsonPrinting? Johnson Printinghad been a loyal and trusted PLBvendor, continuing to provide novelsduring lean and prosperous times as a true strategic partner.Johnson Printing hadinventoried books and allowed extended terms on its accounts receivables with PLB. Without Johnson Printings support, PLBmight not have survived the last few years, much less enjoyed growth in the book segment of its business. PLBowed Johnson Printing $250,000. This represented PLBs largest accounts payable, by far.

"Of course, well default on that unsecured debt,Jon quickly replied. Jons answer didnt surprise Rick. Rick countered, I am not sure I am completely comfortable with that. Johnson Printing is a small company, a blowthat big could put them out of business. Surprised that Rick would question the strategy, Jon stated, Well give them the opportunity to do business with us in the future. As for the $250,000, if they choose to pursue legally well just bankrupt PLBand continue to execute our strategy. As for you, me, and Beth, well be protected by the C-corp status of both PLBand Raider Inc.(Note: Generally, when one company buys another, theylegally assume both the assets andthe liabilities.)

Rick paused and said, I know weve successfully executed this type of maneuver, walking away from a companys previous debt,several times in the past. I recognize that weve never suffered legal recourse from vendors weve defaulted on. But several loyal vendors have suffered much because of our actions; we drove more than a few out of business. Weve made a lot of money buying and selling companies...a lot of money. In the first few years, the only way we could do a deal like this was to default on the accounts payable. But now, is it necessary that we put another good vendor in distress to get this deal done?

Questions for Ethics Assignment:

1.What is the ethical issue in the case?What makes this an ethical issue?

2.Who are all of the stakeholders that are impacted by the ethical issue in the case? Discuss how the ethical issue impacts each stakeholder.

3.Discuss at least three solutions for Raider Inc. to solve the ethical issue. Be sure to discuss the impact of those different solutions for the organization and stakeholders.

4.Recommend a course of action for Rick to resolve the ethical issue. What steps should he take? Be sure to discuss the benefits and risks of this course of action.

5.Assuming that the leaders of Raider Inc. donot want theiremployees to behave unethically, what are several (at least three) things that can be done to improve the ethical climate? What steps can the managers at Raider Inc. take to guide employeesto make more ethical decisions?