Reference no: EM131292437

COMMUNITY

You have just been named CEO of a small chemical refinery in the Northeast. Shortly after assuming your new position, you discover that your three predecessors have kept a horrifying secret. Your headquarters location sits atop thirty 5,000-gallon tanks that have held a variety of chemicals-from simple oil to highly toxic chemicals. Although the tanks were drained over 20 years ago, there's ample evidence that the tanks themselves have begun to rust and leach sludge from the various chemicals into the ground.

Because your company is located in an area that supplies water to a large city over 100 miles away, the leaching sludge could already be causing major problems. The costs involved in a cleanup are estimated to be astronomical. Because the tanks are under the four-story headquarters building, the structure will have to be demolished before cleanup can begin.

Then, all 30 tanks will have to be dug up and disposed of, and all of the soil around the area cleaned. You're frankly appalled that the last three CEOs didn't try to correct this situation when they were in charge. If the problem had been corrected 15 years ago before the building had been erected, the costs would be substantially less than they will be now. However, as frustrated as you are, you're also committed to rectifying the situation.

After lengthy discussions with your technical and financial people, you decide that a cleanup can begin in two years. Obviously, the longer you wait to begin a cleanup, the riskier it becomes to the water supply. Before you begin the cleanup, it's imperative that you raise capital, and a stock offering seems to be the best way to do it. However, if you disclose news of the dump problem now, the offering will likely be jeopardized. But the prospect of holding a news conference and explaining your role in keeping the dump a secret keeps you up at night. Who are the stakeholders in this situation?

What strategy would you develop for dealing with the dump and its disclosure? Are you morally obligated to disclose the dump right away? How will Wall Street react to this news? Does your desire to correct the situation justify keeping it a secret for another two years? Think about the due care theory presented earlier in this chapter.

Can we draw parallels between due care for the consumer and due care for the environment? What if the oil tank dump mentioned in the hypothetical case was located in a foreign subsidiary of a U.S. company, and the country where it was located had no laws against such a dump?

Would the CEO be under any obligation to clean it up? Should American companies uphold U.S. laws concerning the environment in non-U.S. locations? How much protection is enough?