DIFFICULT MORAL QUESTIONS

Question 107: May a company’s president discharge a colleague to obtain his stock?

Until three years ago, I worked for a large consulting firm that had fallen on hard times. Four co-workers and I became convinced that its days were numbered. We also were dissatisfied with its practices, which had become increasingly questionable from an ethical point of view. (As it happened, the firm survived and rebounded, but that is another story.) I took the initiative in finding venture capitalists and forming a new company. My four co-workers joined me, and we have been providing consulting service, specializing in marketing problems.

Initially, my colleagues and I each invested fifty thousand dollars, and five venture capitalists each invested three hundred and fifty thousand dollars, for a total of two million. We incorporated and divided the stock. Each of the venture capitalists received eleven percent; as president, I received fifteen percent, and each of my colleagues received seven-and-one-half percent. The ten of us constituted the board of directors, with me as chairman. My four colleagues and I each drew a salary of ten thousand per month. Our employment contracts provide that, if any of us withdraws or is terminated, the firm has the right to buy back his stock at current market value.

Since it would have been unethical to try to take our former employer’s clients with us, we made no attempt to do that and got off to a slow start. However, a few old clients sought us out, and we slowly have picked up new ones. At the same time, our overhead is substantial, since we have ten employees—junior associates and staff—and our office is in downtown Chicago. Also, cash flow is difficult, since we often must pay suppliers for work done on a project three months or so before receiving the client’s payment. Consequently, we have yet to show a profit, and my colleagues and I sometimes have had to treat part of the salary due us as a loan to the firm.

Early in the second year, I found that one of my colleagues was defrauding the firm by receiving part of a client’s payments on the side. He admitted it, agreed to forgo what we otherwise would have owed him in back salary and severance pay, and left quietly. At that point, his stock had no market value, and so we got it back for nothing. However, one of our venture capitalists loaned us two hundred thousand dollars at no interest in exchange for that stock, thus providing desperately needed cash. Six months later, another colleague accepted a major corporation’s vice-presidency for marketing, and he also surrendered his stock, which we used to obtain a similar loan, netting around one hundred thousand dollars after settling his severance.

I am now considering discharging another member of the original group, Brian. During the first year, his contribution was substantial; in fact, we would not have survived without him. Since then, however, he has not produced enough to cover his salary. All the other directors and a senior member of the staff have talked the matter over with me informally and favor letting him go, both to reduce the payroll and to obtain his stock, which, as in the other cases, would be exchanged for a loan sufficient to settle his severance and provide needed cash.

Three things argue against discharging Brian. First, he was with me from the beginning, has done nothing wrong, and has done his best. Second, he needs the job, probably will not easily get another, and so will not go willingly. Third, to some extent his poor performance has been due to circumstances beyond his control: family problems, including his wife’s ill health, and his lengthy commute, which he would have reduced by relocating if the business had been more successful.

This is the most difficult dilemma of my life. I feel I have to discharge Brian for the good of the business. But he has been a good friend, and if our positions were reversed, I would consider him disloyal, especially insofar as the discharge was meant to obtain my stock. My wife, who knows Brian’s wife well, thinks discharging him would be outrageous.

Analysis:

This question concerns a conflict of responsibilities. The questioner must distinguish between his responsibilities as company president and as the col~league’s friend, and fulfill both sets of responsibilities. Even the business relationship calls for loyalty. If the business were flourishing, it would be wrong to discharge the colleague without first trying to help him deal with his problems. But if the common good of the business requires that he be discharged, the questioner, as president, should discharge him, at the same time making a reasonable effort to help him during transition and, as friend, offering appropriate assistance.

The reply could be along the following lines:

The last paragraph of your letter, in which you speak of the tension between your roles as the company’s president and as Brian’s friend, points to your need to distinguish carefully between your responsibilities in each role.

As the company’s president, you are responsible for its common good: the efficient cooperation of all concerned—suppliers, employees, clients, investors, your associates, and yourself—and a fair distribution among them of the burdens involved in that cooperation and the benefits accruing from it. In fulfilling that role, you should exclude from consideration your personal friendship with Brian, which existed before you formed the company and which, no doubt, you have carried on by communications and activities that contributed nothing to the business. You also should exclude your wife’s strong views. To compromise or even slightly risk the common good of the business by giving Brian special consideration on these bases would be an injustice to all the other participants.

Still, as Brian’s friend, you owe him the same sorts of advice, encouragement, and help you owe other, similar friends. Yet whatever you owe him as your friend must be supplied from your personal resources, not those of the business. Consequently, after judging what the common good of the business requires you to do about Brian, you will also have to decide how much of your own time and money you should devote to his needs.

First among the things you owe him as a friend is a clear statement of your conscientious distinction between your two relationships with him, together with an earnest request that he, too, keep this distinction in mind. Then your friendship may be preserved even if your business relationship must be changed or ended.

While you must not make the business decision on the basis of personal friendship, you must not exclude considerations of loyalty proper to the business relationship itself. Setting the friendship aside, I think you have indicated some legitimate business considerations that argue against discharging Brian. He stands to lose both his job and his investment of time and money as one of the original associates in the business; his contribution at the beginning was substantial and vital, and even now the good will he enjoys with some clients may make his contribution greater than it appears. Family problems and a lengthy commute partly account for deficiencies in his recent performance, so that you have reason to expect his performance to improve if he can relocate and/or his wife’s health improves. If the business were flourishing, considerations like these, quite apart from friendship, would oblige you to keep Brian on, at least another year or so, while making a reasonable effort to help him deal with his problems. Therefore, though you must identify your motivations as his friend and set them aside, your loyalty to him as a business associate surely precludes discharging him at this time unless the common good of the business requires it.

Does it? You say: “I feel I have to discharge Brian for the good of the business.” But if the very survival of the business immediately required that he be discharged, I imagine the venture capitalists, who hold the controlling interest in the business and have much to lose, would insist that you act at once. Thus far, however, the other directors have done no more than tell you informally that they favor letting him go. Therefore, before discharging him, you ought to look for possible alternatives and consider each carefully. In doing this, you almost certainly should tell him frankly what is on your mind and ask him to contribute to your deliberation by both making the best possible case against discharging him and trying to find a mutually acceptable alternative.

Perhaps Brian could be retained at a salary reduced in proportion to his current contribution. Could the business afford that? Could he make do? Could you, Brian, and your other colleague each give up some of your stock, perhaps in different proportions, to obtain the cash the business needs? Could Brian increase his contribution by assuming enough of the duties of the least able of the junior associates to allow you to lay off that person?

If no such solution can be found and you become convinced that the good of the business requires discharging Brian, fairness to him may well demand that the business do more than just pay his back salary and severance pay. In view of his contribution to the business and his loyal service, the company very likely owes him help in finding another job and perhaps should provide other forms of assistance during the transition, such as office space and secretarial services, continued health coverage, and so on.

If you do discharge Brian, your friendship with him will require that you personally help him in any way you reasonably can. If he needs help with the work of packing up and moving, you might offer to pitch in. If your personal wealth and financial situation permit, you might offer some money as a gift or, perhaps, a larger amount as a loan.

Though you say the stock you wish to get back from him has no current market value, it plainly is not entirely worthless. The venture capitalist is willing to risk another large, interest-free loan to the company in order to get it. Moreover, though the stock originally owned by you and your four colleagues was contractually linked to your and their employment status, it represented a substantial financial contribution to setting up the company. I suppose the associate who was defrauding the firm was willing to give up all his claims on it in order to settle its claim against him, and the colleague who resigned to take another job fully understood his options and was under no constraints in agreeing to the settlement he received. But since you say Brian will not go willingly, it is clear that, if you discharge him, he will have no choice but to accept the terms of his separation. Therefore, it seems to me, his stock morally may not be taken back unless the company makes some sort of commitment to compensate him for it. It could take different forms—for example, a guarantee of a certain amount of money if the company ever becomes profitable or a promise of some portion of future profits, if any, for a certain number of years.

Unfortunately, even if you treat Brian fairly as company president and are kind and generous as his friend, he may well be angry and bitter toward you, and respond by saying and doing inappropriate things. Be prepared to suffer that meekly, to continue to treat him gently, to forgive him any hurt he does you, and to fulfill all of the company’s and your personal responsibilities toward him, not least to pray for him and his wife. Then, even if your long-standing relationship is destroyed, you may hope to find it again, one day, in heaven, not only restored but perfected, so that it will be fit to continue forever.