Lecture on

Dayton Hudson Corporation: Conscience

and Control
Dayton Hudson Corporation
 A growth company focusing exclusively on retailing
 475 stores in 34 states
 4 operating companies-
 Target
 Marvyn’s
 DHDSC
 Lechmere’s
 All take autonomous decisions.
 Headquarter - Minneapolis
Ethical Issues
 100 years old flagship store closed, citizen’s right denied

 4 operating companies consolidated into one, 1000 job losses

 Attempt of hostile takeover by Dart Company

 Dart’s profit making by throwing others at loss

 Secret purchase of Dayton’s stocks by Dart Company

 Dart’s falsified identity as an organization

First Issue: Citizen’s Right Denied
 Unethical in light of :

* Kurt’s Moral point of view

• Virtue theory

• Mill & Bentham’s Utilitarianism

 Management’s point of view: As per Friedman’s view, the main responsibility of a business is to make profit. Thus
management’s decision was right because of -

• Old and inefficient store

• Unsupportive business climate in downtown Detroit.

 Outsider’s view: DHC’s lack of responsibility towards Detroit despite growing and operating there for almost 100 years.

 Alternative actions by management:

• Restructuring old and inefficient store

• Improving unsupportive business climate by seeking assistance of state government.

Second Issue: Job Losses by Consolidation
 Unethical in light of

• Hobbes’s 2nd natural law that says –

“ We should keep promises and perform contracts to which we have agreed”

• Virtue theory’s implication in business

• Ethics of duty (Kantian view)

 Management’s point of view:

• Consolidation was a cost reduction strategy of management.

• “The whole purpose was to do things better”, says DHC’s vice president.

 Outsider’s view:

• DHC violated the rights of the employees

 Alternative actions by management:

• DHC could arrange for shorter shifts ensuring more jobs for more people.
Third Issue: Hostile Takeover Attempt of the Dart
Corporation
 Unethical in light of :
• Hobbes’s 8th natural law that says –

“We should not do to others what we don’t want them to do to us”

• Kurt’s Moral point of view

 Management’s point of view:

For Dart Corp., the attempt was for profit maximization. Such attempt benefits Dart by

• Increasing stock value

• Reducing competitors.

Moreover, As Haft (President of Dart) said they planned to operate the targeted companies rather than selling off.
 Outsider’s view:

• DGC intended to weaken target companies by selling off their major assets.

• In every unsuccessful acquisition attempt, DGC made unnatural profit.

 Alternative actions by management: Alternative actions in this case could be applicable for
DHC management in the following way –

• Decreasing attractiveness by increasing debt ratio

PS:
Debt Ratio :
The debt ratio measures the amount of leverage used by a company in terms of total debt to total assets.
• A debt ratio greater than 1.0 (100%) tells you that a company has more debt than assets.
• A debt ratio less than 100% indicates that a company has more assets than debt.
• Debt ratios vary widely across industries, with capital-intensive businesses such as utilities and
pipelines having much higher debt ratios than other industries such as the technology or services sector. 
 The Formula for the Debt Ratio Is
Debt Ratio = Total Debt
Total Assets
Fourth Issue: Dart’s Profit Making

 Overview About Dart Corporation

A ruthless profit maximizing organization with no care for their CUSTOMERS
 Focuses more on their Operations and Finances than the stockholders.

 Operates Discount Retails Shops

 Portray its Chairman and Presidents to the public media rather company or customers!
 Fourth Issue: Dart’s Profit Making

 Strategies of Dart Corporation for Profit Maximization

 Acquisition attempt to rise their in house stock price.
 Relying on JUNK BONDS to show others as their financial components.

 Target Companies operate with low profit margin

 Acquire>>>Sell of Assets>>> Break UP companies>>> Rule over Market

 Letting the target companies facing difficult times by initiating hostile Takeover ( i.e., unfriendly
merger);
i.e. Safeway had to sale their British and Australian Holdings, closed 251 stores in USA
 PS : Acquisition
 [ In a stock acquisition, a buyer acquires a target company's stock. When one company acquires another, the stock
price of the acquiring company tends to dip temporarily, while the stock price of the target company tends to spike. Over
the long haul, an acquisition tends to boost the acquiring company's share price.]
 [ In other words, when the company is bought, it usually has an increase in its share price. An investor can sell shares on the stock
exchange for the current market price at any time.]
JUNK BONDS
 [Junk bonds are bonds that carry a higher risk of default than most bonds issued by corporations and governments. A bond is a debt or
promise to pay investors interest payments along with the return of invested principal in exchange for buying the bond. Junk bonds
represent bonds issued by companies that are financially struggling and have a high risk of defaulting or not paying their interest
payments or repaying the principal to investors. Because of the higher risk, investors are compensated with higher interest rates, which
is why junk bonds are also called high-yield bonds.
 Currently notable businesses with credit ratings that give them "junk" status include: Ford (NYSE:F): Ford has been rated
as investment-grade in the past, but the company lost its investment-grade ratings in 2020 due to the coronavirus
pandemic and global economic collapse.
Fifth Issue: Secret Stock Purchase
 Unethical in the light of :

• Hobbes’s 4th and 8th natural law

• “Good ethics is also good business” (Solomon & Hanson)

 Management’s point of view:

• Stock purchase would make the acquisition process easier.

 Outsider’s view:

• Dart’s intention was not in good faith.

 Alternative actions by management:

They could have taken appropriate steps. For example:

• Expanding into new markets

Sixth Issue: Dart’s Falsified Identity
 Legal offense:

• Registered as a financial business organization, but operated as an investment company

 Management’s point of view: there’s an implication of Freidman’s view of maximizing profit.

 Outsider’s view:

• Dart took advantage of playing as an investment company in spite of violating investment company rules.

 Alternative actions by management:

• Could have registered as an investment company.

Critical Decisions Points

 Whether DHC should’ve closed their flagship store or not.

 Whether they should’ve consolidated their four units into one or not

 Whether they should’ve accepted or rejected Dart’s offer

 Whether they should’ve asked for assistance from the state or not.
General Approach Developed from This Case

 Takeover Standard:

A performance standard should be set for every companies which will provide a
definite and detailed guideline following which it can be determined whether a company can be
approached for takeover or not.

 Government’s role:

The Government should play an active role in these cases ensuring equality for all.
Any Question?
THANK YOU 