Accounting Discussion

The R&D division of Pele Corp. has just developed a chemical for sterilizing the vicious Brazilian “killer bees” that are invading Mexico and the southern United States. The president of Pele is anxious to get the chemical on the market because Pele profits need a boost — and his job is in jeopardy because of decreasing sales and profits. Pele has an opportunity to sell this chemical in Central American countries, where the laws are much more relaxed than in the United States.

The director of Pele’s R&D division strongly recommends further research in the laboratory to test the side effects of this chemical on other insects, birds, animals, plants, and even humans. He cautions the president, “We could be sued from all sides if the chemical has side effects that we didn’t even test for in the lab.” The president answers, “We can’t wait an additional year for your lab tests. We can avoid losses from such lawsuits by establishing a separate wholly owned corporation to shield Pele Corp. from such lawsuits. We cannot lose any more than our investment in the new corporation, and we will invest just the patent covering this chemical. We’ll reap the benefits if the chemical works and is safe and avoid the losses from lawsuits if it’s a disaster.” The following week, Pele creates a new wholly owned corporation called Cabo Inc., sells the chemical patent to it for $10, and watches the spraying begin.

Who are the stakeholders in this situation? Are the president’s motives and actions ethical?