read the case and answer two question
Question Description
A Struggling Company Without Enough Cash
JoeWoodman bought a small,struggling computer company.After several difficult years, revenues started to grow, and it seemed that profits were growing as well, at least according to the financial statements. In reality, though, the business did not have enough cash to function.
The company’s key stakeholders, such as the bank, vendors, and inves- tors, were applying pressure on Joe to improve earnings and cash flow. They threatened to take over the business if major changes were not made. About the same time, making matters worse, Joe was notified that several contracts, constituting about 25% of his top-line revenues, would be lost to the competition.
Joe responded by laying off employees, freezing wages, and closing several marginal operations, but these efforts were not enough. Joe was still badly in need of more cash and professional management.To remain viable, he had three options:
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He could negotiate a “capital for control” type of exchange with the investor and the banks. If he did this, the banks could help recruit new talent and offer interim financing to support the company while restructuring occurred. On the downside, with this option his status in the organization would change significantly: Instead of being the owner, Joe would become more of a senior manager.
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Joe could maintain control and hire turnaround management, explaining to new managers that the company was in a critical turnaround phase and that the organization’s future depended on their ability to generate credibility and positive performance within a year. He would have to disclose the wage freezes of the past 2 years and explain that he could not initially offer competitive salaries or certain traditional benefits. If he took this option, Joe would have difficulty recruiting skilled managers because they would not want to come into a situation with failing operations, no operating cash, and the prospects of a dramatically dwindling rev- enue base. If it succeeded, this option would allow Joe to keep control and save his reputation.
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Joe could remain in control and hire turnaround management with- out fully explaining the serious situation. He might say that the company is one of the fastest-growing companies in the industry, and that it just completed an operational turnaround, had regained
Chapter 16 [img src="file:///page459image952" alt="page459image952" width="1.000000" height="9.000000">441
profitability, and was upgrading staff to take the company to the next level. He could support this positive picture by representing pro forma financial information as though it were actual.This approach probably would be successful initially in gaining new qualified staff, but the new managers might join only to leave soon afterward.They would probably not develop into loyal, long-term employees because of Joe’s dishonesty.This option would give Joe the oppor- tunity to maintain control and keep all his workers employed.
Questions
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How does egoism come into play in this case? In which of the three
options is altruism most apparent?
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Which option would provide the greatest good for the greatest num ber? From an ethical perspective, what is Joe’s duty in this situation?
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