Desperate Air
Desperate Air Corporation (DAC) flies routes along the U.S. East Coast. DAC acquired a number of hotels and undeveloped properties five years ago as part of a short-lived diversification strategy. DAC has recently experienced substantial losses, has a negative cash flow, and bankruptcy looms as a possibility unless high labor costs can be reduced and consumer confidence restored.
Benton Williams has just been brought in as CEO to revitalize DAC. Williams began by cutting back on middle management and by placing a one-year moratorium on hiring new business graduates. Middle managers terminated by DAC and other airlines are having a tough time finding equivalent jobs.
DAC owns a large, undeveloped ocean front property on the east coast of Florida. Williams directs George Nash, DAC's Vice President of Real Estate, to find a buyer for the property to generate badly needed cash. After some effort, Nash identifies Fledgling Industries, a relatively new developer of retirement villas, as a good prospect. Fledgling is interested in finding a property on which it could build a complex of high rise retirement condos featuring elaborate walking trails and outside recreational facilities.
DAC had conducted a full environmental audit of the property six months earlier and had discovered no problems. A copy of this report was given to the Fledgling representative, who also walked over the property and discovered no problems. The representative asked, "Anything I should know about?" Nash replied, "No problems."
As the negotiations progressed with Fledgling, Nash was approached by a long time friend at DAC, Laura Devitt, who told him that there was now some highly toxic waste on the property. She said she heard this might be true through the rumor mill at the firm and that she had been curious enough to check things out. Walking around on the property one day, she had found several partially buried metal containers marked DANGER/BIOHAZARD. RADIOACTIVE MEDICAL WASTE. The containers were rusted where they were exposed; two were cracked and their liquid contents was seeping onto the ground. Laura told Nash she wanted him to know about this because she was worried that innocent people could be hurt if the sale went through.
Nash contacted Williams, but before he could mention the containers to him, Williams interrupted and told him it was vital that the sale closed and that it be done as soon as possible. Nash consulted with a DAC lawyer who told him that under Florida law it is not necessary to disclose the existence of hazardous waste on commercial property as long as there hasn't been a fraudulent misstatement about the condition of the property.
Nash was troubled. Should he mention the hazardous materials to the Fledgling representative before he closed the sale? He knew Fledgling had been considering some other similar properties and Nash thought that if he mentioned the toxic spill problem Fledgling would probably not go through with the sale. At the least, disclosure could delay the sale for months while the spill was investigated and potential liability problems considered. Nash figured that he would be unlikely ever to deal with Fledgling again regarding future real estate deals because DAC did not own any other properties that fit Fledgling's business needs.
The question of whether to close the sale immediately bothered Nash enough that he talked to his wife about it, and then prayed about what to do.
What was your decision in "Desperate Air?" Sell? Not sell? Why?
Instructions: Please answer the questions below. The length of your written case assignment form responses should be approximately one to one and a half pages, single spaced. This form will be graded on a pass/fail basis. To pass, you need to provide reasonably detailed and insightful answers to the questions below.
You have a decision to make as Nash. To simplify things, assume that you can either (A.) sell the property to Fledgling (you won't face legal repercussions), or (B.) not sell the property (delaying the sale while you investigate the toxic waste will likely kill the sale).
1. What/who are the main stakeholders to your decision? List them with a brief explanation.
2. What would you do? Sell it or not sell it? Why?
3. Please indicate whether your decision in 2. is more consistent with utilitarianism, profit maximization, or universalism, and explain why.