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Ethics and Insider Trading: Mebel Doran & Co. Case Study

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Updated: Jun 28th, 2022

Introduction

The world of business is a rather complicated matter of study. This world is filled with complex processes among which insider trading and information leakage are notable. The case of Mebel, Doran & Company is one of the examples of insider trading situation and the measures that companies can take to overcome its consequences. The current paper will focus on the consideration of the vitally important facts of the case and their critical analysis.

Main body

To begin with, the essence of the case under consideration consists in the fact that the Mebel Doran Company was accused by its partner the Knox Corporation of revealing the plans of the latter for bidding for the Power-Tie Corporation. The issue was complicated by the fact that the Power-Tie Corporation had claimed numerous times that any attempt of any company to take control over it and limit its independence will be hostilely taken by them. Having found out the source of the information dropping, Mr. Hegarty, the Mebel Doran CEO, decided to inform the Knox Corporation about the issue, but the outcome of the situation differed from any of the scenarios he could envision – the Knox Corporation sold its share to the Power-Tie Corporation back and refused from the idea of bidding for this company.

Thus, the first major issue raised in the case of Mebel, Doran & Company is the issue of insider trading. It is a rather serious point as far as it threatens both the company’s organizational structure and culture, and the reputation of the company in the domestic and international market. Firstly, the trend of information leakage from the company is a dangerous sign as far as an ambitious company should have a firm and strong organizational culture in which all the employees understand their direction to the uniform joint aim. If this in not present, the process of goal achievement becomes rather complicated. The company has to focus on the external matters, and it is a problem if an internal issue does not allow the company to do it. In respect of the case of Mebel, Doran & Company, insider trading proved that the organizational culture of the firm was not properly developed and the HRM did not select the most reliable people for the positions demanding huge responsibility and loyalty to the company’s goals – for example, the position of an arbitrageur in the arbitrage group of the Mebel Doran.

Moreover, the news about the Mebel Doran being an unreliable partner from whom the confidential information might easily leak and spoil the plans of other organization would at first shock the business world and then turn it against the Mebel Doran Company. Not speaking of acquiring new customers and enlarging its client base, the Mebel Doran would start losing the already present ones who would prefer looking for new partners to being in the situation in which the Knox Corporation found itself. This issue might be followed by another, more serious, one – the criminal responsibility for the illegal transactions of the company.

As far as the plan by the Knox Corporation to bid for and take control over the Power-Tie Corporation was a confidential one there was no need of its conformance to the state legislation. However, after the leakage of information from the Mebel Doran, the situation on the market changed and the prices for the Power-Tie Corporation stocks and securities grew drastically. It became evident that the market knew about the Knox Corporation plan, and the Mebel Doran faced the necessity to reveal the details of this plan known to it within ten days from the moment of the Power-Tie Corporation stocks and securities rise. If it did not, it would be accused of carrying out illegal transactions and assisting another company in plotting an illegal deal in the stock market.

The way out that Mr. Hegarty found, i.e. to explain the situation to the Knox Corporation CEO and shape their further activities jointly, turned out to be inefficient due to several reasons. Firstly, the CEO of the Knox Corporation was reluctant to connect the name of his firm with the illegal bidding plan and the insider trading issues. Secondly, the cost of the Power-Tie Corporation bidding was about to grow more in case if the plan under consideration was made public. Thirdly, the reputation of the Knox Corporation would be seriously damaged by their participation in such a scandal. The decision that the Knox Corporation CEO found was to sell the Power-Tie Corporation stocks back to this company and settle the dispute in a peaceful way.

Conclusion

As a result, the issues considered in the case Mebel, Doran & Company demonstrate the complicatedness of the processes that shape the world of business. Insider trading and information leakage, according to the case, can be viewed as the major threats to the reputation and further development of a business company. The ways in which the Mebel Doran and the Knox Corporation chose to fight these threats are different but their positive results prove them both to be effective.

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"Ethics and Insider Trading: Mebel Doran & Co." IvyPanda, 28 June 2022, ivypanda.com/essays/mebel-doran-case-ethics-case-posibility-of-insider-trading/.

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IvyPanda. "Ethics and Insider Trading: Mebel Doran & Co." June 28, 2022. https://ivypanda.com/essays/mebel-doran-case-ethics-case-posibility-of-insider-trading/.

References

IvyPanda. 2022. "Ethics and Insider Trading: Mebel Doran & Co." June 28, 2022. https://ivypanda.com/essays/mebel-doran-case-ethics-case-posibility-of-insider-trading/.

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IvyPanda. (2022) 'Ethics and Insider Trading: Mebel Doran & Co'. 28 June.

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