Question

Essay Jim Marks is the president, founder and majority owner of Galena Medical Corporation, an emerging medical technology products company. Galina is in dire need additional capital to keep operating and to bring several promising products 10 final development, testing and production. Jim, as owner of 51% of the outstanding stock, manages the company's operations. He places heavy emphasis on research and development and on long term growth. The other principal stockholder is Jill Hutton, who, as a nonemployee investor, owns 40% OT the stock. Jill would like to deemphasize the R&D functions and emphasize the marketing functions to maximize short-run sales and profits from existing products. She believes this strategy would raise the price of Galen's stock. All of Jim'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 Jill has money and would likely buy enough shares to gain control of Galen. She would then dictate the company's future direction, even if it meant replacing Jim as president and CEO. The company already has considerable debt. Raising additional debt will be costly, will adversely affect Galena's credit rating, and will increase the company's 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, Jim is doing everything to avoid a stock issuance. He is contemplation 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 Jim? (15 points) The essay must be a minimum of three paragraphs.

Answer 1

a) The stakeholders in this situation are Jim Marks(owner of galena corporation) holding 51% of the capital, Jill Hutton (holds 40% of the capital ,minority shareholders(9% shareholders). All these shareholders are the stakeholders in this situation .

b) The ethical issue at stake here is that of ownership control f the company is depending on the stakes holding of the shareholders,Jim and Jill are in the race for holding the majority of the shares for the sake of ownership and are lacking to think which way of raising money is better for the company. In this process both are trying to raise money in ways which are beneficial for personal purpose and not that of the company.

c)If was Jim,i would split the share value of each share into 10 each ,and try to hold all the shares already in my position . In this process Money can be raised in equity method only and not that of by creating more debt for the company.