Corporate ethics senario concerning risky investments
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 whose expense?
(Hint: How are the ratings of the existing debenture bonds
likely to change and how might this affect existing bondholders?)
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