The July 1998 issue of Inc. magazine includes an article by Jeffrey L. Seglin en

Question

The July 1998 issue of Inc. magazine includes an article by Jeffrey L. Seglin entitled "Would You Lie to Save Your Company?" It recounts the following true situation:

"A Chief Executive Officer (CEO) of a $20-million company that repairs aircraft engines received notice from a number of its customers that engines that it had recently repaired had failed, and that the company's parts were to blame. The CEO had not yet determined whether his company's parts were, in fact, the cause of the problem. The Federal Aviation Administration (FAA) had been notified and was investigating the matter.

What complicated the situation was that the company was in the midst of its year-end audit. As part of the audit, the CEO was required to sign a letter saying that he was not aware of any significant outstanding circumstances that could negatively impact the company - in accounting terms, of any contingent liabilities. The auditor was not aware of the customer complaints or the FAA investigation.

The company relied heavily on short-term loans from eight banks. The CEO feared that if these lenders learned of the situation, they would pull their loans. The loss of these loans would force the company into bankruptcy, leaving hundreds of people without jobs. Prior to this problem, the company had a stellar performance record."

a. Who are the stakeholders in this situation?

b. What are the CEO's possible courses of action, and what might the potential results be? (Take into account the two alternative outcomes of the FAA investigation: 1.) the company was at fault; and 2.) the company was not at fault.

c. What would you do if you were the CEO, and why?

Explanation / Answer

The stakeholders in this situation are

1. Management = CEO

2. Shareholder

3. Lenders

4. Govt. authorities (FAA)

B) If company was at fault

The CEO had not yet determined whether his company's parts were, in fact, the cause of the problem. if company was at fault then, CEO have to determine the financial effects of complaints that effect the financial position of the company.The result of this is would be

1. lenders pull their loans

2. costumers losses faith in companies product, that effect the company financially

2) if company was not at fault

If the company was not at fault then CEO must take reasonable steps to remove misunderstanding about product in the market and improve market conditions of companies product. The result of this situation was that company lender would not pull their loans and not force company to bankcrupcy. and no leaving hundreds of people. the company still survive and make growth in future

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