Ethical Leadership

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7918 EHR
Case Study Analysis 9
Ethical Leadership
A Struggling Company with Not Enough Cash

Joe Woodman bought a small, struggling computer company. After difficult years, revenues started to grow, and according to the financial statements it seemed that profits were growing as well. But in reality, the business did not have enough cash to operate.

The company’s key stakeholders, such as the bank, vendors, and investors, were applying pressure on Joe to improve earnings and cash flow. They threatened to take over the business if major changes were not made and successful. About the same time, making matters worse, Joe was notified that several contracts, constituting about 25% of his top-line revenues, would be lost to the competition.

Joe responded by laying off employees, freezing wages, and closing several marginal operations, but these efforts were not enough. Joe was still badly in need of more cash and processional management to run the business. To remain viable, he had three options:

1) He could negotiate a “capital for control” type exchange with the investor and the banks. If he did this, the banks could help recruit new talent and offer interim financing臨時融資 to support the company while restructuring occurred. On the downside, with this option his status in the organization would change significantly; instead of being the owner, Joe would become more of a senior manager.

2) Joe could maintain control and hire turn-around management, explaining to them that the company was in a critical turn-around phase and that the organization’s future dependent on the new managers’ ability to generate creditability and positive performance within a year. He would have to disclose the wage freezes of the past 2 years and explain that he could not initially offer competitive salaries or certain traditional benefits. If he took this option, Joe would have difficulty recruiting skilled managers because they would not want...
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