The case of the Million-Dollar Decision

Significant Facts:

Pegasus International Inc. is considering expanding their business to

China. China allocates frequencies and makes franchise decisions city-

by-city, district-by-district and a payoff is usually required to get

licenses.

Pegasus International Inc. has strong values such as integrity and

intellectual honesty, respect for the individual, teamwork and trust,

delight the customers. The corporate culture is characterized by

integrity, honesty, teamwork, and respect for the individual.

The CEO Tom Oswald models ethical leadership. The company also

enjoys its excellent reputation among its customers and suppliers, high

employee morale and ethics is a priority at the company.

The United States law requires the CEO to sign the disclosure

statement required by law saying that they know of no instance where

they bribed for their business.

Interested Parties:

The shareholders value can maximize if Pegasus International Inc.

expands business to China. Shareholders have a stake in the outcome;

shareholders are interested increasing their investment in the

company.

Pegasus International Inc. has an interest in expanding market share

and growing their business. Pegasus International Inc. has a positive

reputation among its customers, suppliers, and employees. If Pegasus

International sign the disclosure and get prosecuted for payoffs in

China, they risk their reputation.

Decision Maker:

The independent decision maker is the CEO, Tom Oswald.

Issues:

Tom Oswald models ethical leadership. It will go against his values and

Pegasus International Inc. values if he signs the disclosure and

proceeds with payoffs. The value at stake is Tom’s honesty, trust, and

respect. The principles at stake for Tom are his duty to maximize

shareholders value and maintaining his ethical leadership. This

decision risks the security of his job.

Options:

Approve the expansion project to China. Use the third party company

to proceed with payoffs to obtain license, which keeps Pegasus

International Inc. out of knowledge of illegal activities, bribes.

Do not approve the expansions project. Look for another way to enter
the China market with out payoffs. Might be a slower process but

keeps company values.

Have a conference with board members to discuss company values v.s

maximizing shareholders value.

Do more research and development on expanding Pegasus

International Inc. to China.

Recommendation and Justification:

Tom Oswald should create a special committee to conduct more

research and development in regards to barrier entries in doing

business in China. As a large successful company it is not worth

creating a possible risk, signing the disclosure statement that no bribe

was given or received, of unethical practices, the third party who

would be hired to obtain licenses in China.

Chief Drawback:

The company may loose market share in foreign markets. They have a

risk of competitors having an edge in the Chinese market. Spending

more time on R&D may lead to the same outcome of payoffs are

necessary. The opportunity cost of $100million of business per year in

China is forgone to maintain company values. Shareholders may

strongly disagree and Tom may looser his job because he decided to

truly remain a model ethical leader.