Jackson’s Untenable Solution, Essay Example

Given the extreme circumstances surrounding the Earth Systems, Inc., dilemma, Terry Jackson’s suggestion that the company itself purchase stock is not unsound.  Certainly, Jackson’s proposal is also not entirely unethical in terms of its clear ambition to serve the company’s interests and promote its survival.  It seems that Jackson is reacting to a “bottom line” crisis and is motivated to urge these measures to save the business.  Nonetheless, what is occurring here is that Jackson is not only manipulating ethics in a way difficult to defend, he is making a classic error often made in a business crisis: he is ignoring the long-term damage likely to follow from the immediate solution, and this all the more emphasizes the questionable ethics.

On a basic level, Jackson’s scheme is not in accord with business ethics because it relies on duplicity.  The idea is that the investors will assume the increased purchasing activity is generated by external parties such as themselves, and this is a dangerous ruse.  Legalities of disclosure aside, it is not unreasonable to foresee disaster in the probable event that someone, somewhere, will leak the information.  At such a point, it is doubtful that the investors would appreciate the company’s motives in protecting itself.  Instead, they would likely take legal action, or at the very least completely distance themselves from the company.  Moreover, such an eventuality exists apart from the actual ethics of the situation. Investing, in plain terms, is a process based on good faith and mutual interest; the investor perceives that funding the company will create potentials for profit and expansion.  The company that is capable of investing in itself, and to any degree, is violating this good faith understanding.  It is unlikely that the extreme circumstances prompting the Jackson scheme, then, would be meaningful when disclosure occurred, because the investors could no longer legitimately trust the company’s policies.

The ethics surrounding the actual payment of the cash dividends no longer possible under Jackson’s plan reveal further difficulties.  It is interesting, in fact, that the plan, clearly based on a covert operation in order to help the company, is so risky.  The company cannot pay the accustomed dividends if it buys its own shares, so it appears that Jackson is weighing a potential lesser evil against a greater.  More exactly, he is gambling that the “health” of the business will serve to retain investors disappointed by no returns.  The questionable ethics even here aside, this is pragmatically unreasonable.  The paying of cash dividends in these matters is typically not a “bonus” that appeases investors; when any business stops paying dividends, the likely result is the departure of its investors (Koslowski, 2011,  p. 145).  That Earth Systems has so consistently paid returns in the past will then only amplify this failure.  Then, and returning to ethics, the action is unconscionable.  In simple terms, the company is choosing to not pay out dividends that have been earned by the investors.  What is actually happening is that Jackson is unethically seeking to secure the company’s longevity at the cost of unscrupulous practice.

Given these issues and the severity of the crisis, it seems that the company’s most rational approach should be one that completely relies on ethics: honesty.  Earth Systems has several elements going to its advantage here, in that revealing to all concerned the scenario of Remington’s poor decision, along with the favorable reports on the new system, would serve to increase investor confidence.  It is full disclosure, and not an intricate plan to move funds around, that can best help the company.  Then, the media would likely support this degree of revelation; Remington’s health problems would generate sympathy or understanding; and the company would gain respect publicly and commercially for acknowledging one executive’s unfortunate decision.  It today’s climate of extreme suspicion regarding corporate fiscal practices, Jackson and the Earth Systems management is more than ever obligated to address the strict realities of what occurred, as they must take responsibility for the manageable damage.  To adopt Jackson’s plan would be to perhaps gain a brief respite, but at the likely potential cost of undermining the entire business itself.  Consequently, both ethics and sound financial reasoning demand that Jackson’s strategy not be adopted.

References

Koslowski, P. (2011).  The Ethics of Banking: Conclusions from the Financial Crisis.  New York: Springer.