Question

The essay must be a minimum of three paragraphs  

Follow the Instruction. Do not answer with short answers!!!

Jim Marks is the president, founder and majority owner of Galena Medical Corporation,

an emerging medical technology products company. Galina is in dire need of additional capital to keep operating and to bring several promising products to final development, testing and production. Jim, as owner of 51°f of the outstanding stock, manages the company’s operations. He places heavy emphasis on research and development and on long term growth. The other principal stockholder is Jill Hutton, who, as a nonemployee investor, owns 40% of the stock. Jill would like to deemphasize the R&D functions and emphasize the marketing functions to maximize short-run sales and profits from existing products. She believes this strategy would raise the price of Galen’s stock.

All of Jim’s personal capital and borrowing power is tied up in his 51% stock ownership. He knows that any offering of additional shares of stock will dilute his controlling interest because he won’t be able to participate in such an issuance. But Jill has money and would likely buy enough shares to gain control of Galen. She would then dictate the company’s future direction, even if it meant replacing Jim as president and CEO.

The company already has considerable debt. Raising additional debt will be costly, will adversely affect Galena’s credit rating, and will increase the company’s losses due to the growth in interest expense. Jill and the other minority stockholders express opposition to the assumption of additional debt, fearing the company will be pushed to the brink of bankruptcy. Wanting to maintain his control and to preserve the direction of “his" company, Jim is doing everything to avoid a stock issuance. He is contemplation a large issuance of bonds, even if it means the bonds are issued with a high effective interest rate.

Instructions:

1. Who are the stakeholders in this situation?
2. What are the ethical issues in this case?
3. What would you do if you were Jim?

The essay must be a minimum of three paragraphs.

These 3 questions are Essay 3 paragraphs (1 paragraph is for one question, Paragraph should contain from 5-6 sentences) Please do not answer with short answers. Minimum 5 sentences for each question.

Answer 1

1) Stakeholders in this case are:

Stakeholder in the company refers to any person having any financial interest in the company. Stakeholders in the company is the broader term than shareholders and stakeholders include in it the term shareholder. From the given information following are stakeholders in the company:

a) Jim Marks - Majority shareholder in the company with the additional responsibility of being the company's president.

b) Jill Huton and other minority shareholders - These are non employee stakeholders in the company.

c) Employees if any would also be considered as stakeholders in the company, if their dues are not paid in time.

d) Government would also be one of the stakeholders if the government dues are not timely paid off.

2) Ethical Issues in the case:

Major ethical issue in the case is consideration of personal interest above company's interest, its mission and vision.

The issue is discussed further as follows:

Jim Marks is the majority shareholder in the company and owns 51% shares in the company. All his personal savings and assets are invested in the company's common stock. Therefore, Jim Marks is willing to work the company as per his own norms and thinking.

He has shown reluctance at two places - 1. Advertising current product, rather than developing new product, 2. Issuance of new common stock.

Second issue is more prominent here. Just because, Jim Marks fears that issuance of new common stock will lead to dilution of control he is opposing the issue at the cost of company. If the company does not issue common stock, it will have to resort to more costly option of debt financing. Therefore, Jim Marks' stand is unethical in the given situation.

3) If I were in the position of Jim:

I would have considered marketing of the current products already manufactured as suggested by other stakeholder. As this would have led to immediate cash realisation of stock. Production lying idle in stock is adding to the cost of funds of the company.

I would have positively considered issuance of common stock although it might have diluted my holding percentage in the company. Reason for this decision is simple, if this decision leads to increase in productivity and more earnings of the company then automatically, value of my common stocks will go up and give more benefits.