Oh Seas!, Co. is a cruise line company that deals exclusively in world travel, s

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Oh Seas!, Co. is a cruise line company that deals exclusively in world travel, s

Oh Seas!, Co. is a cruise line company that deals exclusively in world travel, specifically to Mexico and South America. The board of directors meet on the first Tuesday of every month. As a result of becoming a publicly traded company, the firm needed to meet various rules and regulations, one of which was the reorganization of their board of directors to include several independent members. Independent directors are people who come from outside the company and have no existing relationship with the company. The CEO of Oh Seas!, Co., James Collins, is also the chairman of the board. He is mainly concerned with shareholders, and, in addition, he owns 5 percent of the company. Dr. Wego Green is an independent board member and is a CEO of Green Products Corp. He is the chair of the social responsibility committee, and he believes strongly in doing what’s best for the environment.
At today’s committee meeting, Green starts off the meeting by sharing an article about another cruise company that was fined $40 million for dumping raw sewage and other pollutants off the coast of Peru.
“I hope this is not something Oh Seas!, Co. is doing.” Green eyes Collins.
“We only dump treated sewage,” Collins says. “But sometimes we dump it less than four nautical miles from the nearest shore,” he admits reluctantly.
“We have to stop immediately!” Green yells. “Waste discharge should only happen at more than four nautical miles from land, and the boat needs to travel at a speed of six knots or more.”
“It’s a matter of time and money. How would this impact our shareholders and their value?” asks Collins. “We don’t want to make decisions that negatively affect them.” Collins knows that cruise liners have razor-thin profit margins. “No one will know the difference.”
“It would only initially bring down profits by 10 percent, but we might potentially bring in more environmentally minded customers in the future,” replies Green.
An enraged Collins responds, “What do you mean it would bring profits down? Our shareholders would be negatively affected by this! We can’t decrease our profits by 10 percent for the possibility of new customers and good press. We have a duty of loyalty to make decisions based on what is best for the corporation and its stakeholders. To do anything else would be a breach of our fiduciary duty to act in the best interest of shareholders. We are responsible for our economic success and viability to shareholders.”
“I completely agree that is one of our fiduciary duties, but we also have a duty to the environment and ecosystem,” Green replies. “The Earth could die based on the decisions we make. Many companies are making decisions to go green, and we need to be ahead of the curve when it comes to social responsibility. That is the entire reason we created the committee in the first place. The board is also accountable for this because we could all be accused of making decisions in bad faith,” says Green.
“As a director, you have a loyalty to make the best decisions for the shareholders and to maximize value,” Green continues, “but more companies are moving toward a balanced approach for decision making. It has become more commonplace for companies to take social responsibility into account, as it creates a better relationship with stakeholders. We want to maintain a stakeholder form of corporate governance, maximizing benefits for investors, employees, and our consumers. In fact, I believe we will be more profitable with this approach!”
Questions
1. How do you think this situation should be handled?
2. What does fiduciary duty mean?
3. Who are the primary stakeholders in this scenario? Secondary stakeholders?

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