The R&D division of Nanco Corp. has just developed a chemical for sterilizing the vicious Brazilian “killer bees” which are invading Mexico and the southern United States. The president of Nanco is anxious to get the chemical on the market because Nanco profits need a boost—and his job is in jeopardy because of decreasing sales and profits. Nanco has an opportunity to sell this chemical in Central American countries, where the laws are much more relaxed than in the United States.

The director of Nanco’s R&D division strongly recommends further research in the laboratory to test the side effects of this chemical on other insects, birds, animals, plants, and even humans. He cautions the president, “We could be sued from all sides if the chemical has tragic side effects that we didn’t even test for in the lab.” The president answers, “We can’t wait an additional year for your lab tests. We can avoid losses from such lawsuits by establishing a separate wholly owned corporation to shield Nanco Corp. from such lawsuits. We can’t lose any more than our investment in the new corporation, and we’ll invest just the patent covering this chemical. We’ll reap the benefits if the chemical works and is safe, and avoid the losses from lawsuits if it’s a disaster.” The following week Nanco creates a new wholly owned corporation called Zimmerman Inc., sells the chemical patent to it for $10, and watches the spraying begin.

Instructions

(a) Who are the stakeholders in this situation?

(b) Are the president’s motives and actions ethical?

(c) Can Nanco shield itself against losses of Zimmerman Inc.?