Andy Vicks is the president, founder, and majority owner of Custom Medical Corporation, an emerging medical technology products company. Custom Medical is in dire need of additional capital to keep operating and to bring several promising products to final development, testing, and production. Andy, 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 Jill Caterino who, as a nonemployee investor, owns \(40 \%\) of the stock. Jill 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 Custom Medical's stock.

All of Andy's personal capital and borrowing power are 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. Jill has money and would likely buy enough shares to gain control of Custom Medical. She then would dictate the company's future direction, even if it meant replacing Andy as president and CEO.

The company already has considerable debt. Raising additional debt will be costly, will adversely affect Custom Medical's credit rating, and will increase the company's reported losses due to the growth in interest expense. Jill 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, Andy 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.

\section*{Instructions}

(a) Who are the stakeholders in this situation?

(b) What are the ethical issues?

(c) What would you do if you were Andy?