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Case study: Blaine Kitchenware Inc

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Case study: Blaine Kitchenware Inc

A public limited company is owned by the shareholders. Shareholders of the company invest their resources in the company in hope that in the future they will be able to earn dividends when the company makes profits. They spend most of their life saving and finances in investing in the company and they are always optimistic that in the future the company will grow for them to earn some dividends from the company. The major interest of shareholders in the company is the dividends that they earn on the shares they have in the company.

The shareholders entrust management the role to ensure that they protect the interest of the shareholders of the company. It is the role of the management of the company to ensure that shareholders’ interests are protected. They are supposed to manage the company in a manner which the shareholders of the company want. As they pass the policies which guide the way the company is being run, they ensure policies favor the interests of the owners of the company. Blaine Kitchenware Inc is a company that has owners who have invested their resources in the company and therefore their interests have to be given priority in the running of the company. How the company wants to finance itself whether in form of debt or issuing out shares should be the concern of the owner of the company.

Blaine Kitchenware Inc faces ethical issues in terms of financing. Victor Dumbinski, the CEO of Blaine Kitchenware Inc is that the crossroad of making a decision which will affect the capital structure of Blaine Kitchenware Inc. The idea which has been proposed to him by the banker affects his thinking about the company. Banker brings new ideas which promise to be more beneficial as it will improve the performance of Blaine Kitchenware Inc when adopted. According to the banker who wants to acquire Blaine Kitchenware Inc when the method is completely adopted and the suggested method it promises success for the company. Will the CEO of Blaine Kitchenware Inc's action of adopting suggestions of a banker be an ethical practice toward shareholders of the company? What is the role of the CEO concerning the company? What does the ethical recommendations of the which need to be followed by the CEO of Blaine Kitchenware Inc.?

Ethical practice in the planning for the new capital structure of Blaine Kitchenware Inc needs to be carried out transparently. Shareholders need to gain a clear awareness of why the company wants to repurchase back the shares. As most of the members have entrusted the management with the advisory activities of the company, they need to be transparent to the shareholders to inform them of their intentions. The management should be transparent in advising the shareholders so that they make up informed decisions.

Issues that affect the company need to be discussed by the shareholders of the company. The ethical practices require that shareholders need to be required to discuss the suggestion and suggest what needs to be done. The CEO should implement the decision alone. It is unethical practice when the financing decision is taken by the CEO in isolation of the shareholders. Shareholders need to be aware of the decision which too is made by the CEO of the company. When the Shareholders Agrees with the recommendation it can then be implemented as per agreement which is acceptable. Failure of involving shareholders in deciding on the capital structure will be a form of unethical practice. The reason is that the financial structure which will be adopted by the decision affects shareholders who are the owners of the company.

It is also the unethical practice of the CEO of the company to sell Blaine Kitchenware Inc to a private investor. The company is owned by an investor in the company (Shareholders). Selling Blaine Kitchenware Inc to a private investor is an unethical practice as the CEO has no legal rights to sell the company. The company is the property of the owners who are the shareholders. The CEO's role in the company is the custodian. As the custodian of the company, he has no right to sell or even negotiating the sale of the company to investors. The role of the investor remains to safeguard the company's resources.

Selling Blaine Kitchenware Inc to a private investor means forcing the owners of the company out of their own company. When the private investor takes over the company, Company is run by the other management which denies investors the ability to raise any issues which affect them about the company. The company is transferred into the ownership of another person. The owners of the company will not have the ability to enjoy the future benefit of their company in the future as it will be under the control of another person who is different from them.

Changing the capital structure of the company without the consent of the owners of the company is an unethical practice. Blaine Kitchenware Inc has little debt in its structure which means that their little expenditure is made toward the payment of the interests. Company owners are the ones who are supposed to decide which type of capital structure they should have. The shareholders are supposed to decide whether they should have more debt in its structure or not. It will be unethical practice when the management of the company acquires debt into the company which will then become a burden to the shareholders in paying it back. The dividends which are distributable to shareholders reduces when profit which is generated by the company is used in payment of the debt that has been borrowed by the company. It is ethical therefore for to have a capital structure that allows shareholders to enjoy the dividends of the company through their shares.

The role of the management is to make a decision that will benefit all of the shareholders of the company in an equal measure. Every shareholder needs to benefit from the good management system of the CEO and the management of the company as a whole. It is therefore the role of the CEO and management to come up with measures to ensure that shareholders can get maximum benefits or their investment in the company. In ensuring the company's shareholders gets the maximum benefit, it should not involve devising methods in which shareholders' numbers are reduced in the company. It is unethical practice for the company to advise the shareholders to sell their shares when the company is about to pick up and generate profit. The current shareholders should be encouraged to retain their shares in the company so that when the company starts making a profit they are to benefit more from the company.

The capital structure of Blaine Kitchenware, Inc. which is supposed to be adopted in the financing of the company needs to the one which is beneficial to the current shareholders of the company to be considered ethical. Any financing decision which does not benefit shareholders of Blaine Kitchenware, Inc. is considered unethical practice by the CEO.

References

Bonn, I., & Fisher, J. (2005). Corporate governance and business ethics: Insights from the strategic planning experience. Corporate governance: An international review, 13(6), 730-738.

Felo, A. J. (2011). Corporate governance and business ethics. In Corporate governance and business ethics (pp. 281-296). Springer, Dordrecht.

Cullinan, C., Bline, D., Farrar, R., & Lowe, D. (2008). Organization-harm vs. organization-gain ethical issues: An exploratory examination of the effects of organizational commitment. Journal of Business Ethics, 80(2), 225-235.

Narayan, P. K., Phan, D. H. B., Liu, G., & Ibrahim, M. (2020). Ethical investing and capital structure. Emerging Markets Review, 100774.