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Framing the Issues

Problem Exogen Inc. Part 1 Case: How should the board proceed? What interests, if any, besides those of shareholders may the board consider? What is the risk of personal liability for the directors if their decision results in harm to the corporation? 1. This company has a situation they have to consider. The OSHA is considering banning one of the chemicals used in the companys manufacturing prosess Durasol. Exogen is manufacturing components for the engines of automobiles and other vehicles. The Board can proceed in the following ways. In the use of Durosal, they can investigate the effects of using durosal further. They can consider a alternative to Durosal or move to Indonesia and stop using the chemical in USA. The company has to think about the shareholders value, their main goal is to increase the shareholders value and they will not do so because the costs will increase when they are using another material than Durosal. Thinking about value and stakeholders interest in short therm, they should therefore delay the banning of durasol for three years in order to move the production to Indonesia where the OSHA laws dont exists. On the other hand, they shoud not actively delay considering the harm to US employees for using a possible harmfull chemical. I long therm, this can also hurt the companys reputation. 2. What interests, if any, besides those of shareholders may the board consider? They should consider the ethical terms in this case. We should then look at the ethical models. When using the utilitarian model. The primary goal in this model is for the employees behavior to provide the greatest good for the greatest number of people. When making ethical decisions based on this model, the employee should focus on the needs of the stakeholders. These include customers, suppliers, employees, shareholders, and the community. Providing the greatest good for the greatest number of stakeholders should result in maximizing profits. According to this model, the employee should not have interests that conflict with the goals of the organization. When Exogen is making a ethical decision made by this term, they only need to focus on the shareholders. This means maximizing profits. This is the greatest good in maximizing profits. The have low production cost by using a possible

harmfull carcinogen. The employees should then not interfere with with the goals of the organizaion unless they use the whistle blower. I will come back to this term later in the case. By looking at the moral rights model, the company should reconsider in using lawfully meanings to maximize their profit. Moral Rights model The primary goal of this model is to keep an employees behavior consistent with the fundamental rights and privileges of individuals and groups. This includes such rights as the right to privacy (use of personal information), the right to a safe and healthy workplace, and the right to freedom of speech (whistleblowing). Whistleblowers are protected under the Sarbanes oxley act from 2002. The Sarbanes oxley act of 2002 legislates acceptable corporate conduct. It establishes new standards for corporate accountability and penalties for corporate wrongdoings. The board should here consider the rights of their employees. The employees have the right to a safe and healthy workplace. When using Durasol, wich is considered by the OSHA as a harmfull chemical, this can affect the workers at their workplace. If the board is only concerning about the shareholders interest, It is then a conflict of interest between the workers and the board of directors. Every employee has the freedom to speech using the whistle blowing. The employee can here report a organizational misconduct which is unethical (in this case) or illegal. The employee or the director can then tell about Exogens plan to still producing Durasol by using the daughter case of OSHA. The employee can take this case to a government organization or to the public and then finally in the court system.

The board must also consider their concepts of social responsibility, both stakeholder and contemporary. Exogen has a social responsibility to balance their commitments to groups and individuals in its enviroment, including customers, other businesses, employees and investors. Social responsibility is the attempt of an employee to balance his or her commitments to groups and individuals in its environment, including customers, other businesses, employees, and investors. Exogen in this case has to reconsider their contemporary social consciousness in regarding their responsibility towards the enviroment. Exogen has to take all this terms in consideration. The ethical terms of their decisions. They can possible delay the banning of Durasol and move the production to Indonesia. This is a risk regarding the companys reputation and the shareholders value, if the case is known for the public by using the Sarbanes oxley act. Ethical this case is not right, and they should reconsider their means in a long scale. If they already now start to produce without durasol, the production rate will eventually go down. If they continue the use of durasol for three years in USA, the competitors will may get ahead

by not using durasol. This is a great disadvantage for the shareholders and the company if they start tol lose money in the future. This is the risk of personal liability for the directors if they make this unethical decision for the company and their shareholders. More and more investors want to be affiliated with companies who has a social responsibility. This ethical ideology or theory that an entity has a obligation to act to benefit society at large. This responsibility of which Exogen has can be passive, by avoiding engaging in socially harmful acts to the society, and possibly avoiding whistle blowers or the legal system. This case also show that Exogen is a highly competitive business, and sometimes a competitive business calls for unethical decisions.

Section 2(b) of the Securities Act,179 Section 3(f) of the Exchange Act180 and Section 2(c) of the Investment Company Act181 require us, when engaging in rulemaking to consider or determine whether an action is necessary or appropriate in the public interest, and consider whether the action will promote efficiency, competition, and capital formation. The amendments related to Section 404 are designed to enhance the quality and accountability of the financial reporting process and may help increase investor confidence, which implies increased efficiency and competitiveness of the U.S. capital markets. Increased market efficiency and investor confidence also may encourage more efficient capital formation. We requested comments on the effect of these amendments on efficiency, competition and capital formation analyses in the proposing release addressing Section 404.

Dodge v. Ford Motor CO.


Facts Defendant corporation was the dominant manufacturer of cars when this case was initiated. At one point, the cars were sold for $900, but the price was slowly lowered to $440 and finally, Defendant lowered the price to $360. The head of Defendant corporation, Henry Ford, admitted that the price negatively impacted short-term profits, but Ford defends his decision altruistically, saying that his ambition is to spread the benefits of the industrialized society with as many people as possible. Further, he contends that he has paid out substantial dividends to the shareholders ensuring that they have made a considerable profit, and should be happy with whatever return they get from this point forward. Instead of using the money to pay dividends, Ford decided to put the money into expanding the corporation.

Judgment The Court held that a business corporation is organized primarily for the profit of the stockholders, as opposed to the community or its employees. The discretion of the directors is to be exercised in the choice of means to attain that end, and does not extend to the reduction of profits or the nondistribution of profits among stockholders in order to benefit the public, making the profits of the stockholders incidental thereto. Because this company was in business for profit, Ford could not turn it into a charity. This was compared to a spoilation of the company's assets. The court therefore upheld the order of the trial court requiring that directors declare an extra dividend of $39 million. Conclusion This case is frequently cited as support for the idea that "corporate law requires boards of directors to maximize shareholder wealth." The following articles attempt to refute that interpretation. "Among non-experts, conventional wisdom holds that corporate law requires boards of directors to maximize shareholder wealth. This common but mistaken belief is almost invariably supported by reference to the Michigan Supreme Court's 1919 opinion in Dodge v. Ford Motor Co."[1] "Dodge is often misread or mistaught as setting a legal rule of shareholder wealth maximization. This was not and is not the law. Shareholder wealth maximization is a standard of conduct for officers and directors, not a legal mandate. The business judgment rule [which was also upheld in this decision] protects many decisions that deviate from this standard. This is one reading of Dodge. If this is all the case is about, however, it isnt that interesting."[2] The contested actions of Henry Ford that led to this decision can also be viewed as a conscious attempt to squeeze out his minority shareholders, especially the Dodge brothers, whom he suspected (correctly) of using their Ford dividends to build a rival car company. By cutting off their dividends, Ford hoped to starve the Dodges of capital to fuel their growth. [3] In that context, the Dodge decision is viewed as a mixed result for both sides of the dispute. Ford was denied the ability to arbitrarily undermine the profitability of the firm, and thereby eliminate future dividends. Under the upheld business judgment rule, however, Ford was given considerable leeway via control of his board about what investments he could make. That left him with considerable influence over dividends, but not as complete control as he wished. As a result of this decision, Ford ended up resorting to threatening to set up a competing manufacturer as a way to finally compel his adversaries to sell back their shares to him. Subsequently, the money that the Dodge brothers received from the case would be used to expand the Dodge Brothers Company.