The R&D; division of Piqua Chemical Corp. has just developed a chemical for ster
ID: 2432107 • Letter: T
Question
The R&D; division of Piqua Chemical Corp. has just developed a chemical for sterilizing the vicious Brazilian "killer bees" which are invading Mexico and the southern United States. The president of the company is anxious to get the chemical on the market to boost the company's profits. He believes his job is in jeopardy because of decreasing sales and profits. The company has an opportunity to sell this chemical in Central American countries, where the laws are much more relaxed than in the United States The director of Piqua's R&D; division strongly recommends further testing in the laboratory 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 establishing a separate wholly owned corporation to shield Piqua Corp. from such lawsuits. We can't lose any more than our investment in the new corporation, and we'll invest in just the patent covering this chemical. 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, Piqua creates a new wholly owned corporation called Finlay Inc, sells the chemical patent to it for $10, and watches the spraying begin. Instructions Who are the stakeholders in this situation? Are the president's motives and actions ethical? Can Piqua shield itself against losses of Finlay Inc.?Explanation / Answer
a. The primary stakeholders in this situation are the shareholders of the company, who have invested their money expecting it to be used for lawful objects as stated in the charter of the company. The secondary stakeholder could be the environment comprising of the flora, fauna and humans, as the spray can be a serious environment pollutant.
b. The president's motives and actions are not ethical at all. First, he wants to save his own job at the cost of polluting the environment, and possibly causing irreparable harm to plants, animals and even humans. Second, he does not want to share the contingent liabilities that may arise with the stockholders, that may lead to erosion of shareholder value. Third, in order to keep these liabilities off the balance sheet of Piqua Chemical Corp., he has set up a SPV for shouldering the losses from lawsuits. Therefore, there is no transparency at all, and he has committed breach of trust. The president of the company, as the agent of the company and its stockholders stands in a fiduciary relationship, and should avoid conflict of interest at all cost.
c. At the end of the day, it would be difficult for Piqua to shield itself from the losses of Finlay Inc. Since Finlay Inc. has no assets other than $ 10 in patent, how would it be possible to shoulder the huge losses should lawsuits be filed. In that event, there are going to be huge cash outflows from the books of Piqua, and the stockholders would want to know the reason.
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