CASE ABSTRACT ON CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITY AND ETHICS

Mr. James Elliott, CEO and Chairman of Byte Products, Inc., presents his recommendation to the Board of Directors to purchase an existing plant in Plainville as a temporary plant until the new one is on line in three years. All on the Board except one (10–1) seem to favor the proposal. What ensues is the discussion between Elliott and Kevin Williams, board member, over the proposal to purchase a plant with the intention of closing it in three years.

Byte Products has three existing plants operating at full capacity (24 hours a day and 7 days a week).  The new plant proposed to be built in the southwestern United States will require three years before it is fully on line.  This means that Byte cannot meet the anticipated demand for its products.  Alternative courses have been explored - (1) license Byte products and technology to other U.S. manufacturers, and (2) overseas facilities and licensing.  Top management found an existing plant in Plainville, New England that would meet the company’s immediate production needs until the new plant will be online in three years.  The Plainville facility had been closed for the last eight years.  It would take about three months to get the Plainville plant online.

The discussion between Elliott and Williams focuses on the impact on the town and on the potential 1,200 employees of opening this temporary plant.  The town and the townspeople had gone through a catastrophic closing eight years ago when the plant in question was closed.  After a lengthy discussion between Elliot and Williams, a recess in the meeting is called.  When the board meeting is reconvened, a major shift has taken place.  The vote could be 7–4, or 6—5 for the proposal, but Elliott desires a unanimous vote.  As the case ends, Williams is asked if a compromise can be reached.  He responds, respectively, "I have to say no."

Decision Date: No Date          Sales:   $265,000,000

  CASE OBJECTIVES

1. To discuss the social responsibilities of a corporation regarding the opening of a temporary plant and it is closing on (a) town, and (b) potential employees.

2. To illustrate the role of board members in strategic decisions.

3. To discuss the ethical issues: Should the company executives inform the town and potential employees that this is a temporary plant?

4. To illustrate corporate governance in action.

5. To illustrate the power of the board of directors.

6. To show how one vote of dissent can sway a vote of the board after a long discussion of the pros and cons of a proposal.  Point: The initial tentative vote was 10—1, and after the discussion the vote was likely to be 7—4 or 6—5.

7.  To discuss how a compromise may be negotiated on a strategic issue so as to satisfy all affected stakeholders.

    DISCUSSION QUESTIONS

1. If you were one of the board members, how would you have initially voted for the proposal?  What would your vote be after the recess in the meeting?  Why?

2. Is there a symptom of bad corporate governance based on the information provided in this case?

3. What impact does a plant closing have on a small town like Plainville?  What impact does the closing have on the employees?