Question

Summary: Singer was employed by General Automotive Manufacturing Company (GAMC) as its general manager from 1953 until 1959. He had worked in the machine-shop field for more than thirty years and enjoyed a fine reputation in machine-shop circles. GAMC was a small company with only five employees and a low credit rating. Singer attracted a large volume of business to GAMC and was invaluable in bolstering the company’s credit rating. At times, when collections were slow, Singer paid the customer’s bill to GAMC and waited for his own reimbursement until the customer remitted. Also, when work was slack, Singer would finance the manufacture of unordered parts and wait for recoupment until the stockpiled parts were sold. Some parts were never sold, and Singer personally absorbed the loss on them. While working for GAMC, Singer set up his own sideline operation, in which he acted as a machinist–consultant. As orders came in to GAMC through him, Singer would decide that some of them required equipment GAMC lacked or that GAMC could not do the job at a competitive price. For such orders, Singer would give the customer a price, arrange for another machine shop to do the work at a lower price, and pocket the difference. Singer conducted his operation without notifying GAMC of the orders that it (through Singer) did not accept. Contending that Singer’s sideline business was in direct competition with its business, GAMC sued Singer for breach of fiduciary duty. [See General Automotive Manufacturing Co. v. Singer, 120 N.W.2d 659 (Wis. 1963).]

Questions:

What was the result?

What were Singer’s duties to GAMC as its agent?

Was Singer’s operation of a sideline business ethical?

Would it have been ethical if he had disclosed it to his GAMC superiors?

Compare Modern Materials, Inc. v. Advanced Tooling Specialists, Inc, 557 N.W.2d 835:

Synopsis Corporation filed action against former manager for breach of fiduciary duty, and against former manager and two other former employees for conspiracy to injure and damage company’s business. The Circuit Court, Winnebago County, William E. Crane (Links to an external site.)Links to an external site., J., granted summary judgment to former manager and former employees. Corporation appealed. The Court of Appeals, Snyder (Links to an external site.)Links to an external site., J., held that plant manager’s duties and responsibilities did not rise to level of “corporate officer,” as required to find that he owed fiduciary duties of loyalty, good faith, and fair dealing to corporation.

Answer 1

What was the result?

The result was that the court found Singer liable for the breach of fiduciary duty that he owed to GAMC. The court determined that even though GAMC could not have followed through on these orders that were filtered by Singer, he owed GAMC a duty to disclose his secondary operation. There was also a contract where Singer had agreed to work exclusively for GAMC and that contract was violated as well.

What were Singer’s duties to GAMC as its agent?

Singer’s duty was as the manager of GAMC. His duty was to make sure that the organization GAMC is moving towards a situation of better profit and better market presence. As general manager he was responsible for the overall business of the organization. Due to this, it makes him an agent of the organization (which will be considered as principal). As per the legal agency-principal relationship the agent needs to work towards the interest of the principal and if there is any activity of the agent that may cause conflict of interest, he/she needs to disclose and discuss matter formally with the principal. As an agent Singer owed (at least) the duty to notify GAMC about his undertaking of these projects.

Was Singer’s operation of a sideline business ethical?

Singer’s operation can raise serious question on ethical standpoint. On one hand, he was only accepting projects that were not possible to be served by GAMC and hence did not really cause any loss for GAMC in direct terms. However, he had the knowledge and the expertise to undertake these projects through third party and could have easily used this as an opportunity to add capability to GAMC. This is where the opportunity cost comes into play.

However, considering that he was contractually obliged to serve only GAMC and he failed to do that, he violated the ethical principle of justice as per the frameworks of deontology and utilitarianism. Thus, we can say that his sideline business was not ethical.

Would it have been ethical if he had disclosed it to his GAMC superiors?

One of the key ethical principles that we must keep in mind is autonomy. This means that whenever we deal with another party and if there is ethical doubt, then we must inform the other party about the conflict. In this case this principle is applicable.

Singer should have informed GAMC about his intention to do the side business. Then GAMC could decide (autonomously) if they would like to increase their company capabilities or will they allow Singer to conduct his sideline business. In either way, if there was transparency maintained between the two parties about their own dealings then the action would have been ethical.