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Background: Country and Industry Crisis

Soon after the country decided to abolish its centrally-planned economy and move toward a market economy, the ship-building industry, the pride of the country’s post-war growth, faced serious challenges. Markets in other transitional economies were lost - at least for the foreseeable future. The high cost of production and the low quality of the ships that they produced made it nearly impossible for them to enter the markets of developed countries.
Privatization and Corporate Governance
in the midst of this crisis, the top management of the shipyard decided to take advantage of its country’s privatization program. The opportunity was unique, and, with very little personal capital investment, the shipyard’s top management was able to take control of the company. The fact that the workers also acquired part of the company’s shares did not bother the top managers. Control was now in the hands of the top managers and it was very easy for them to “manipulate” the minority shareholders, which included the employees.

Failed Restructuring
Soon the good feelings that came with company ownership subsided. It took less than a year before the managers sold all of the company’s assets that could be sold. The managers became increasingly nervous because they could not see any way to improve the company’s miserable situation.

Discouraging Foreign Investment
Consumed only by short-term profit, the managers never made any serious effort to restructure the company. Several offers from foreign strategic investors were immediately turned down.

Environmental Neglect
Vladimir, the company’s top manager and main shareholder, became increasingly insecure with the future of his company as the days wore on. He desperately waited for the day when the situation would finally turn around. One afternoon, as he stood by the windows of his office, the telephone rang. Vladimir was not sure how much time went by before he picked up. He was looking out the window overseeing not only the shipyard but also a good part of the heavily polluted city.

Great News
The ringing of the telephone brought Vladimir back to reality. It was Peter, one of the company’s representatives from a Western industrialized country. In an excited voice, Peter relayed the big news: There was a real possibility for the company to get a good job restoring an old ocean liner, the Sea Star.

Environmental Hazard: Asbestos
The only serious problem associated with this new project offer was that the majority of the insulation of the Sea Star was made with asbestos. At the time the Sea Star was built, asbestos was considered to be an excellent material; it wasn’t until much later that it was found to be extremely hazardous to human health when inhaled into the lungs.

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