You are the CFO of a company that is capitalized with 50% debt and 50% equity. T

Question

You are the CFO of a company that is capitalized with 50% debt and 50% equity. The debt is in the form of debenture bonds, which have relatively weak indentures. The President and COO, who is also a major stockholder has proposed issuing new secured bonds and using the cash raised to expand into a potentially profitable but very risky market outside the United States. The CEO has directed you to begin working on a plan to issue the bonds. Is there an ethical problem with the proposal? Why? Who is likely to gain at who

Explanation / Answer

Right now, in my eyes, one of the biggest dilemmas comes from listening to the COO. Being a large shareholder, the COO should have a say. At the same time though, the expansion of the risky market could work either of two ways. One, the market booms and the company makes a profit from it. In this case, the COO would probably try to take some of the credit, but the CFO would likely get some as well. The CEO will likely take most of the credit though, being the CEO and the one that interacts with the media. This would look great to the CEO. The other option is that the risky market never picks up and the company loses money, which may or may not be disastrous. Depending on how badly the company suffers, this could cause the resignation of all three positions, and the loss of jobs underneath all three of you. If it only turns out to be a bit of a loss, then you may just get your pride crushed or your job taken away. The COO may end up being safe in both situations because of his controlling share in the company. I hope this give you a bit of a jump start. Don't be afraid to continue discussion or ask some more questions!

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