Maximize Short Run Bond Issue

Donald Lennon is the president, founder, and majority owner of Wichita Medical Corporation, an emerging medical technology products company. Wichita is in dire need of additional capital to keep operating and to bring several promising products to final development, testing, and production. Donald, as owner of 51% of the outstanding stock, manages the company’s operations. He places heavy emphasis on research and development and long-term growth. The other principal stockholder is Nina Friendly who, as a nonemployee investor, owns 40% of the stock. Nina would like to deemphasize the R&D functions and emphasize the marketing function to maximize short–run sales and profits from existing products. She believes this strategy would raise the market price of Wichita’s stock.

All of Donald’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, Nina has money and would likely buy enough shares to gain control of Wichita. She then would dictate the company’s future direction, even if it meant replacing Donald as president and CEO.

The company already has considerable debt. Raising additional debt will be costly, will adversely affect Wichita’s credit rating, and will increase the company’s reported losses due to the growth in interest expense. Nina 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, Donald is doing everything to avoid a stock issuance and is contemplating a large issuance of bonds, even if it means the bonds are issued with a high effective–interest rate.

Instructions

Answer the following questions.

• Who are the stakeholders in this situation?
• What are the ethical issues in this case?
• What would you do if you were Donald?

Just do response each posted # 1 to 3 down below only.

Posted 1

The stakeholders in this situation includes everyone who has the largest piece of this company all the way down to the smallest. This would include Donald himself as president and founder, all stockholders, creditors that are waiting to be paid by Wichita and the company’s employees who could potentially lose their jobs and lively hoods if the company does go bankrupt.

The only real ethical issue I see being raised by this case is Donald and his irresponsibility in thinking of his company and it’s well being. He is obviously not a savvy businessman and should not be in his current position if the company already has considerable debt and he himself has tied up all his personal capital in the company as well. Instead of only thinking that Nina Friendly may gain a controlling interest in “his” company, he should be thinking of how to keep operations going in a financially responsible way, so the company does not go bankrupt.

It is my opinion that Donald should talk with Nina and the other shareholders as well as going ahead with the stock issuance. He may even talk to them about possibly regaining control in the R & D operations as a Vice President while allowing her to take over and initiate her ideas to begin an attempt to save the company, make it profitable and hopefully save it while enabling Donald to fulfill his dream of bringing his new products to production.

Posted 2

Hello Professor and class,

We have approached the halfway mark my how time flies here. The stakeholders in the situation is Donald Lennon , Nina Friendly and any other minority stockholders. The ethical issues in this situation ” Nina would like to deemphasize the R&D functions and emphasize the marketing function to maximize short–run sales and profits from existing products. She believes this strategy would raise the market price of Wichita’s stock. ” this is only for increase in stock without consideration for the performance on the company. If i were Donald i would in fact issue bonds to help him raise money by issuing a bond donald gets to keep his controled interest in the company while also getting the capital he needs to deliver products.

Posted 3

Hello Dr. Riley and class,

It seems that Donald is being selfish. He doesn’t appear to be concerned about the business, as much as he is worried about his personal control and position with his company. While I understand that it must be important to him, to maintain his roles as President and CEO of Wichita Medical Corporation, it is even more significant for Mr. Lemon to consider the current and future status of the business and the other stakeholders too, before issuing any bonds. Nina Friendly and the minority stockholders are apprehensive about acquiring more debt, as Mr. Lemon should be. If he is an ethical businessman, he will put his personal feelings aside and do what is most beneficial for his corporation, rather than his own benefit. “Ethical practices such as responsible accounting, staving off negative media attention, keeping the company and its leaders out of legal trouble and honoring contracts help build a genuine culture of risk aversion and moreover promote a socially responsible organization”, (Bradley, J., 2019).As a leader, Donald’s decisions can affect stakeholders such employees, customers and all the stockholders, especially if Wichita Medical Corporation goes bankrupt.