The R&D division of Simplex Chemical Corp. has just developed a chemical to sterilize the voracious mountain pine beetles that are invading Western Canada's forests. The president of Simplex is anxious to get the new chemical to market and has already named it PinebeetleX101. Simplex's profits need a boost and the president's job is in jeopardy because of decreasing sales and profits. Simplex has an opportunity to sell this chemical in several Central American countries, where the laws about proving a product's safety before beginning to use it or sell it are much more relaxed than in Canada.
The director of Simplex's R&D division strongly recommends more laboratory testing for side effects of this chemical on other insects, birds, animals, plants, and even humans. He cautions the president, "We could be sued from all sides if the chemical has tragic side effects that we didn't even test for in the labs." The president answers, "We can't wait an additional year for your lab tests. We can avoid losses from such lawsuits by creating a new separate corporation called Simplex Central America Inc., which will be 100% owned by Simplex Chemical Corp., to operate our business in those countries. We will invest just the patent covering this chemical in Simplex Central America Inc. That corporation will have limited liability so we can't lose any more than the assets that we put into it. Since we will own 100% of the shares of Simplex Central America Inc., we can put ourselves on its board of directors, and then we can make it pay dividends to Simplex Chemical Corp. when it makes a profit. We'll reap the benefits if the chemical works and is safe, and avoid the losses from lawsuits if it's a disaster."
The following week, Simplex Chemical Corp. creates the new 100%-owned corporation Simplex Central America Inc., sells it the chemical patent for PinebeetleX101 for $10, delivers a shipload of the chemicals, and watches the spraying begin.
Instructions
(a) Who are the stakeholders in this situation?
(b) Are the president's motives and actions ethical?
(c) Can Simplex Chemical Corp. be certain that it is protected against all losses related to the activities of Simplex Central America Inc.?