VALUES ANALYSIS The Values Analysis is based in values ethics. For the purpose of business ethics, students look to evidence of the company's values to determine if the alternatives are in line with those values. That evidence typically comes in the form of Mission Statement and company culture. The values of EEI are stated in the text of the case: decision-making at EEI tends to reflect a protective stance toward existing management. There is no mission statement or strategic plan. A. Write the Check This option will allow Simon to move past the issue and put some closure to it. Lack of attention to continued litigation may protect his position. From Meyers' perspective, this option Enlightened entertainment, Page 7 Journal of Business Cases and Applications is uncomfortable based on his personal ethics and it may be reason to evaluate the person/organization fit. B. Board Approval Tell the CEO that you need to run something like this past the Board or the Stockholders. Simon won't like this option as he is more likely to feel his position is at risk. In addition, the Board may buy into the culture of protecting the CEO and so will automatically approve his actions. On the personal side, this may allow Meyers to feel like he has done all he can do. C. Refusal Resignation Refuse to write the check and resign. This won't have negative consequences for Simon. He will find someone to replace Meyers who will write the check. From Meyers' point of view, this may allow him to walk away feeling guilt free. D. Buy-Back Meacham's Stock Propose that the corporation offer to buy Meacham's stock at market value if Simon's purpose is to provide cash to Meacham. Simon may be willing to do this as it makes the settlement look like a legitimate business transaction while protecting his position as CEO. At the same time, there are significant business risks (as they would have to make the same offer to all shareholders or risk SEC censure). BCA E. Convince Simon Try to convince Simon that it is not in the best interest of the company to settle with Meacham by looking at the public relations aspects of the settlement point out how bad it might look. Simon will have to weigh the negative publicity associated with "cronyism" with the negative publicity of ongoing litigation. If Meyers can be persuasive, this would be in line with the company culture of protecting the CEO. Values Analysis: Conclusion The result of this analysis will depend in part on the class's vision of the company values and any discussion of person/organization fit. To stay true to the company's values and yet be true to his own values, Meyers should first try to persuade Simon not to issue the check. A second option to discuss seriously with the class is the issue of Meyer's resignation. Journal of Business Cases and Applications INTRODUCTION: THE CASE Enlightened Entertainment, Inc. (EEI) is a publicly traded company that engages in the production and distribution of motion picture entertainment products online and through traditional delivery arrangements. Ira Simon founded the company in southern California some twenty-five years ago and, after later taking the company public, remains as chairman of the board of directors and Chief Executive Officer (CEO). Even though the total capitalization of EEI is only $200 million, there is a full complement of executives including president, chief operating officer, chief financial officer, chief information officer, and general counsel. EEI decision-making appears to be based on perceived benefit of executive management. There is no mission statement or strategic plan for the company. Strategic decisions are made with the stated intention of maximizing stock value although it appears many such decisions are also made with the intent of ensuring that the CEO maintains his position in the company. The compensation level of executive management is approximately 25% above the norm for companies of comparable size. Neither the company nor its management participates in any civic or philanthropic activities. Ira Simon met Billy Meacham when Ira was struggling to get on his feet financially with his new company (EEI). Since that time they have remained fast friends and have belonged to the same social circles for decades. They occasionally get together for dinner, drinks and discussions about various topics. Meacham owns several automobile dealerships in the Los Angeles area. Meacham was one of the early investors in EEI and still owns 1,000,000 shares (<2%) of EEI stock. Boyd Ashcroft has been a very successful business man, owning several local franchise restaurants. Ashcroft and Meacham, in addition to their respective individual businesses, had formed a partnership, B & B Partners, to facilitate other investments. Fifteen years ago B & B Partners loaned $2,000,000 to EEI when EEI was experiencing a cash crunch. Twelve years ago EEI repaid the $2,000,000 plus interest to Ashcroft as instructed by B & Partners as payment in full. Unfortunately, Ashcroft was experiencing financial difficulties and did not remit to Meacham as agreed. Meacham sued Ashcroft, but was unsuccessful in collecting any award. Meacham then sued EEI for one-half of the amount, $1,000,000 plus interest, and litigation has been on-going for the last 10 years. EEI's general counsel, Rick Turner, indicated on multiple occasions that there was a high probability that EEI would win the case based on his assessment and that of outside counsel. In the last quarter of 2008 the U.S. economy was under severe stress with record unemployment, massive financial institution failures, and near trillion dollar federal "bailouts". The domestic auto industry was on the verge of bankruptcy due in no small part to sales declines of forty percent or more. As a result, Billy Meacham was experiencing financial setbacks unimagined just months prior and stood to lose virtually all the personal wealth he had amassed over his lifetime. At the beginning of December 2008, Simon called Chris Meyers, a Certified Public Accountant (CPA) and the CFO (Chief Financial Officer) of EEI, and Rick Turner, the general counsel, into his office on a Monday morning. Simon provided the two with a brief overview of the history of B & B Partners' dealings with EEI, including recent settlement discussions between Simon and Meacham. Then he directed Turner to write up an agreement between EEI and Meacham effectively ending the ongoing litigation in return for a $50,000 cash payment from EEI to Meacham. Meyers was concurrently directed to issue a check for $50,000 to Billy Meacham. Turner and Meyers expressed severe reservations to Simon since all indications were Enlightened entertainment, Page 2 Journal of Business Cases and Applications that the litigation may well have been near final resolution in the judicial process. Simon ended the exchange by saying it was a business decision he made to end the litigation and put an end to the ongoing legal costs. Legal costs to date were approximately $20,000 an amount which EEI stood to recover if the judicial outcome was favorable to EEI. After a lengthy discussion Meyers and Turner scheduled another meeting with Simon on Tuesday morning to discuss the proposed Meacham settlement. Meyers and Turner presented what they believed were well reasoned arguments as to why the proposed settlement was not advisable. Simon was unmoved and reiterated his position that he was making a business decision that, in his opinion as CEO, was best for all concerned. Meyers is very uncomfortable with the decision made by Simon and is considering taking the issue to the board of directors. However, the board members were all handpicked by Simon and are unlikely to risk opposing their benefactor. Each board member receives $25,000 for each of the four one-day board meetings they attend annually. Additionally, only one of the nine board members (an attorney) is sophisticated enough in business dealings to understand the potential ramifications of Simon's actions.