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Underwater Stock Options

In: Business and Management

Submitted By lwaltke
Words 4842
Pages 20
The Case of the Underwater Options Evaluation

Professor Coleman

EMIS 3375

15 April 2014

Leanne Gallagher took a job as the senior software engineer at the start-up corporation MoniMed that was expected to go public within the following year. She was offered a salary of $85,000 with the option to buy 30,000 shares of stock in the company for 30 cents a share. She knew the risks of taking a pay decrease of $20,000 and that the stocks might not increase in price. Gallagher also wanted more information on the company’s financial standing before she accepted the job, but after one phone call she gave up her search. She saw that the typical target price for medical start ups was $10 during the initial offering. She would lose $20,000 from her salary decrease, but make $262,000 from 30,000 shares in the company. This was not guaranteed and no one at the company could promise these results, but she took the risk anyways. Grantz, the founder and CEO of the company, sold MoniMed to CV Diagnostix just prior to the IPO causing the price of shares to drop to 27 cents per share. Gallagher and the other employees suffered while Grantz made $2.5 million on the acquisition. Was Grantz ethically wrong to withhold the financial status of the company from his employees and shareholders because it prevented them from making an informed decision?
By analyzing this case according to the Act Utilitarian theory, it was immoral for the CEO and founder Barry Grantz to withhold the financial records of his company from Leanne Gallagher. When Gallagher interviewed for her position in Grantz’ organization, she was seeking not only a paid salary position, but also the stock offer of 30,000 options at 30 cents a share. By accepting the job it put Gallagher in the role of both an employee and a stockholder.
Act Utilitarian theory says that an action is good if it benefits someone,…...

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