Problem
After reading the following business ethics dilemma fact pattern, submit your recommendation as to the proper solution to this ethical dilemma. Be sure to state all assumptions you are making. Make a final recommendation supported by legal and ethical theories as well as your stated assumptions.
ETHICAL DILEMMA I
Sally Cook owned stock in the Graham Corporation, which was a highly profitable cookie manufacturer. Ralph Bossey was a corporation takeover specialist. He would buy large amounts of stock in corporations, drive up the price of the stock, in doing so take over the corporation, sell many of its assets (which were often worth far more than the "book value"), and force the company taken over to issue bonds to pay for the large purchases of its own stock. In effect, the company taken over (the target) replaced equity (stock) with debt (bonds), which legally obligated the target corporation to pay high interest on the debt/bonds it issues.
Bossey offered Cook and all other Graham Corporation stockholders double the current market value for their holdings in the Graham Corporation. Cook knew that if she accepted Bossey's offer for her stock that there would probably be layoffs of many employees at the Graham Corporation's plants, as there had been after other Bossey takeovers.
ETHICAL DILEMMA II
This was because the target corporations were so loaded with debt that a larger percentage of corporate income was needed to pay the interest on the bonds. Also, any decrease in the target's income would cause net income after debt payments to be correspondingly lower. This, in turn, could jeopardize future income growth, because research and development would have to be cut. In the highly competitive food business, this would hurt product innovation and nutritional improvements, which were constantly necessary to maintain the market share of health-
conscious Americans.
Despite all of these factors, Cook's stock would be worth $800,000 instead of $400,000. She could retire or at least work her last few years without a financial worry in the world. Should Cook accept Bossey's offer? What factors should enter into her decision?