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 companys 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 Wichitas stock. All of Donalds 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 wont 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 companys 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 Wichitas credit rating, and will increase the companys 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

a. Who are the stakeholders in this situation?

b. What are the ethical issues in this case?

c. What would you do if you were Donald?