About six months ago, Karen’s father commented that the management team of his employer, Recreation Products, Inc., was running the company into the ground. Recreation Products manufactures sporting equipment and employs nearly 40 percent of the work force of the community in which it is located. Karen’s father has worked for the company for more than 20 years. “If only someone could buy out Recreation Products and put in a good management team,” he mused.
After her conversation with her father, Karen investigated Recreation Products and found that demand for its products was high but productivity was down because of the present management. She also found that the stock was grossly undervalued. Karen decided to tell Don Jones about Recreation Products. He quickly met with the union representatives of the company’s workers, and together they worked out a plan to save the company and preserve thousands of jobs. Jones told the union, verbally, that the company would not be broken up. This pleased them and Karen, who had assured the union reps of Jones’s sincere wish to save Recreation Products. In return, the union verbally agreed to concessions that would keep the company financially solvent.
Several weeks later, Karen overheard a conversation that disturbed her greatly. She discovered that Jones planned to break up Recreation Products, despite his pledge to her and the company’s employees. This meant that thousands of employees would be laid off, just to increase the raider’s short-term gains. This change in tactics would, in effect, destroy Karen’s credibility with her coworkers, clients, and family.
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Recently Karen met Derk Banacek, who seems interested in purchasing Recreation Products to turn it around. Karen must now decide between two alternatives. She can do nothing and let thousands of workers get laid off, or she can inform the union and cut a deal with Banacek to purchase Recreation Products stock. If she chooses to give this information to the unions, however, Karen could be charged with a breach of confidentiality, similar to insider trading.
1.What are the ethical and legal issues?
2. What organizational and personal pressures have contributed to Karen’s dilemma?
3. What should Karen do?
