Lois Kenseth, president of Sycamore Corporation, is concerned about several large stockholders who have been very vocal lately in their criticisms of her leadership. She thinks they might mount a campaign to have her removed as the corporation's CEO. She decides that buying them out by purchasing their shares could eliminate them as opponents, and she is confident they would accept a “good” offer. Kenseth knows the corporation's cash position is decent, so it has the cash to complete the transaction. She also knows the purchase of these shares will increase earnings per share, which should make other investors quite happy. (Earnings per share is calculated by dividing net income available for the common shareholders by the weighted-average number of shares outstanding. Therefore, if the number of shares outstanding is decreased by purchasing treasury shares, earnings per share increases.)
Instructions
Answer the following questions.
(a)
Who are the stakeholders in this situation?
(b)
What are the ethical issues involved?
(c)
Should Kenseth authorize the transaction?
a) The stakeholders in this situation are Lois Kenseth (president of Sycamore Corporation), large stockholders, Minority shareholders, creditors, debtors, etc. Please note that there is a difference between the the term stakeholder and shareholder.
b) The ethical issues involved are whether it would be a good step to buy investors who are sharing their views which are negative. It is subjective as it depends upon what exactly would be the consequences of this step. The common objective of company is wealth creation for shareholders and this should be given utmost priority. Minor differences with shareholders should not be a key point for this decision. However, if this is in good for the company and other shareholders, then this decision would be right and ethically correct.
c) As stated in the question that this decision would increase the earning per share and also would help in keeping the good reputation of the company, Kenseth should authorize the transaction.
Lois Kenseth, president of Sycamore Corporation, is concerned about several large stockholders who have been very...
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