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reserved. Your use of this work is subject
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© 2013 Flat World Knowledge, Inc.
Parnell, Strategic Management: Theory and
Practice. SAGE Publications, Inc. © 2013
Organizational &
Managerial Ethics
• This
Lesson:
https://youtu.be/0UZF-‐Zsg2S8?t=12s
• Milgram
Experiment
(set
to
start
38
seconds

in;
end
at
9
minutes)
https://youtu.be/Xxq4QtK3j0Y?t=38s
• Asch
Experiment:
https://youtu.be/NyDDyT1lDhA
Links within this
Lesson
• Organizational
Ethics
• Managerial
Ethics
• What
Ethics
is
not
• Perspectives
(Views)
on
Ethics
Organizational &

Managerial Ethics
Organizational Ethics
All refer to
“a process of
promoting moral
principles and
standards that
guide business
behavior.”
• Refers
to
“individual’s
responsibility
to
make
business
decisions
that
are
legal,
honest,

moral,
and
fair.”
Managerial Ethics
• Agreeing
on
what
is
“legal”
and
“honest”
may
not
be
difficult.
• Agreeing
on
what
is
“moral”
and
“fair”
can

be
a
difficult
task!
Managerial/Organizational Ethics
Our
Feelings Our
Religion
The
Law
Culturally
Accepted
Norms
Science
Ethics is not the same as…
• Ethics
is
not
the

same
as
feelings.
– Feelings
provide
important
information
for
our
ethical
choices.
– Some
people
have
highly
developed
habits
that
make
them
feel
bad
when
they
do
something,
but
many
people
feel
good
even

though
they
are
doing
the
same
thing.
– And
often
our
feelings
will
tell
us
it
is
uncomfortable
to
do
the
right
thing
if
it
is
hard.
• Ethics
is
not
religion.

– Many
people
are
not
religious,
but
ethics
applies
to
everyone.
What Ethics is not
• Ethics
is
not
following
the
law.
– A
good
system
of
law
does
incorporate
many
ethical
standards,
but
law

can
deviate
from
what
is
ethical.
– Law
may
have
a
difficult
time
designing
or
enforcing
standards
in
some
important
areas,
and
may
be
slow
to
address
new
problems.

What Ethics is not
Ethics
is
not
following
culturally
accepted
norms.
“But
Dad,
all
my
friends
are
going….”
What Ethics is not
“But, Prof. Williams,
as we become
adults, we no longer
act this way. We’re
not as easily
influenced by
people….”
Milgram

This is an illustration of the
setup of a Milgram experiment.
The experimenter (E) convinces
the subject ("Teacher" T) to
give what are believed to be
painful electric shocks to
another subject, who is actually
an actor ("Learner" L). Many
subjects continued to give
shocks despite pleas of mercy
from the actors.
Photo Source:
http://en.wikipedia.org/wiki/Image:Milgram_Experiment_v2.pn
g
Watch Youtube Video (link provided by Dr. Williams)
Asch
This is a sample item from the Asch study. Participants were
asked
one by one to say which of the lines on the right matched the
line
on the focal line on the left. While A is an exact match, many
participants conformed when others unanimously chose B or C.
Focal
Line A B C
these two examples

aren’t business--
related. This
wouldn’t happen in
an organization….”
Ethics
is
not
science.
– Social
and
natural
science
can
provide
important
data
to
help
us
make
better
ethical
choices.
But
science
alone
does

not
tell
us
what
we
ought
to
do.
– Science
may
provide
an
explanation
for
what
humans
are
like.
But
ethics
provides
reasons
for
how
humans
ought
to
act.
– And
just

because
something
is
scientifically
or
technologically
possible,
it
may
not
be
ethical
to
do
it.
What Ethics is not
Basic
Perspectives
(Views)
on
Managerial
Ethics
Utilitarian Self-‐Interest
Rights Justice

Deontological Integrative
(Social)
• The
Utilitarian
view:
– Anticipated
outcomes
and
consequences
should
be
the
only
considerations
when
evaluating
an
ethical
dilemma.
– Consequences
are
important;
tries
both
to
increase
the
good

done
and
to
reduce
the
harm
done.
– The
ethical
corporate
action,
then,
is
the
one
that
produces
the
greatest
good
and
does
the
least
harm
for
all
who
are
affected
-‐ customers,
employees,

shareholders,
the
community,
and
the
environment
Perspectives (Views) on
Managerial (Organizational) Ethics
• The
Self-‐Interest view:
– Benefits
of
the
decision-‐maker(s)
should
be
the
primary
considerations.
– The
ethical
corporate
action,
then,
is
the

one
that
produces
the
greatest
good
for
me
• The
Rights view:
– Humans
have
a
dignity
based
on
their
ability
to
choose
freely
what
they
do
with
their
lives
– The
ethical
corporate
action,

then,
is
the
one
that
protects
basic
individual
rights.
We the People….
When in doubt, do what’s
best for yourself
• Beginning Fall 2016, students can carry concealed
handguns into
classrooms, dormitories and other buildings:
http://www.tamus.edu/campus--carry--rules/
• Supporters say it will make college campuses safer by
allowing licensed gun owners
to defend themselves & others should a mass shooting
occur
• Opponents say the notion that armed students would make

a campus safer is an
illusion that will have a chilling effect on campus life
• The
Justice view:
– All
decisions
will
be
made
in
accordance
with
pre-‐
established
rules
or
guidelines.
– The
ethical
corporate
action,
then,
is
the
one
that
follows
the

rules/laws.
The
Integrative
Social
Contracts (Common
Good)
view:
– Decisions
should
be
based
on
existing
norms
of
behavior,
including
cultural,
community,
or
industry
factors.
– The
ethical
corporate

action,
then,
is
the
one
that
follows
accepted
practices.
The
Deontological
view:
– Decisions
should
be
based
on
personal
or
religious
convictions.
– The
ethical
corporate
action,
then,
is
the
one
that

aligns
with
your
belief
system.
UV5626
Rev. Oct. 9, 2015
This case was prepared by Eric Varney (MBA ’10) and
Assistant Professor of Business Administration Elena
Loutskina. It was written as a basis for
class discussion rather than to illustrate effective or ineffective
the University of Virginia
Darden School Foundation, Charlottesville, VA. All rights
reserved. To order copies, send an e-mail to [email protected]
No part of this
publication may be reproduced, stored in a retrieval system,
used in a spreadsheet, or transmitted in any form or by any
means—electronic, mechanical, photocopying, recording, or
otherwise—without the permission of the Darden School
Foundation.
Sun Microsystems

Oracle will be the only company that can engineer an integrated
system-application to disk—where all the
pieces fit together so the customers do not have to do it
themselves…Our customers benefit as their systems
integration costs go down while system performance, reliability
and security go up.
—Larry Ellison, CEO, Oracle Corporation1
It was the first time in the last two weeks that Margaret
Madison, a member of Oracle’s corporate
development team, had not stayed in the office until two in the
morning. At the close of business earlier that
day, Friday, April 17, 2009, Oracle had put in an offer of $7.38
billion, or $9.50 per share, to acquire Sun
Microsystems. Only nine months into her position, Madison, a
recent MBA graduate, had found herself to be
a member of Oracle’s valuation team, assessing a potential
merger with Sun. The journey, however, was not
over yet. Sun had a number of potential suitors, IBM standing
prominently among them, and Madison and
her colleagues expected IBM to counter Oracle’s offer.
Oracle, a California-based business software company, was one
of the world’s largest and most reputable
sellers of database management systems and other related
software. With $23.6 billion in annual revenue, the
company was a leviathan, led forward with lightning speed by
the only CEO Oracle had ever had, Larry
Ellison. Sun was nothing to scoff at either. Once the darling of
Silicon Valley, it had fallen on tough times but
was still competitive. Sun had started as a hardware and servers
producer, but over the years, it had
established a solid position in the software industry with its
Java programming language, Solaris operating

system, and MySQL database management software. Combining
these two companies had the potential to
create the Wal-Mart of the enterprise software industry. Ellison
“had a vision for creating an end-to-end
vendor [that] clients go to for all their technology” needs.2
Oracle’s bid of $9.50 per share was more than a 40% premium
over Sun’s $6.69 closing price that day.
But only a few weeks prior, IBM—Oracle’s chief rival in the
$15 billion database software business—had
offered $9.40 per share for Sun. The talks had stalled due to
antitrust concerns, employment contracts, and
the final price, which opened a window of opportunity for
Oracle to step in and ensure that Sun did not fall
into a competitor’s hands.
1 “Oracle Buys Sun,” Oracle Corporation press release, April
20, 2009.
2 Jerry Hirsch and Alex Pham, “With IBM Out, Oracle Jumps in
to Buy Sun for $7.4 Billion,” Los Angeles Times, April 21,
2009.
For the exclusive use of I. LUGO, 2020.
This document is authorized for use only by IRIS LUGO in
Mergers and Acquisitions: Spring I Online taught by EDWARD
HARDING, Johns Hopkins University from Jan 2020 to Apr
2020.
Page 2 UV5626

Oracle had been on a successful shopping spree over the past
several years. The ability to acquire 10%
margin companies and turn them into 40% margin companies
had distinguished Ellison and his team as
ruthless cost-cutters who planned ahead well before making
purchases. As a member of the corporate
development team, Madison knew that better than anyone else.
She had spent the last few weeks carefully
poring over every part of Sun’s financials, business lines, R&D
figures, and personnel expenditures. Today
was a break from the 20-hour work days, the sight of empty
Chinese food cartons, documents strewn across
the table, and weary-eyed bankers. Today had been a better day,
but only delivered brief respite to the team.
All the questions they had worked on so diligently still
remained. Had they considered everything? Was the
final offer appropriate? If competitors upped their bids, how
much more could Oracle offer?
Competitive Landscape
The technology industry had historically comprised three
sectors: hardware, software and services, and
storage and peripherals. In 2008, revenue generated by these
three segments was $411 billion,3 $2,239 billion,4
and $160 billion,5 respectively. In total, the value of the
industry was roughly $2.8 trillion, or about one-fifth
of U.S. GDP.
The computer hardware market consisted of personal computers
(PCs) (roughly half of sales), servers,
mainframes, and workstations (Exhibit 1). Although customer
loyalty was relatively low, brand awareness
was high, which somewhat restricted new entry into the market.
Business customers were typically tied to
specific hardware manufacturers through long-term contracts,

which led to significant switching costs.
Individuals were less fettered and had minimal switching costs,
but only represented a small percentage of the
market. Computer hardware was a necessity for individuals and
businesses alike, making demand strong and
consistent.6 With weak rivalry among players, the market had
enjoyed a healthy 4.8% growth over the
previous few years and was expected to grow at the same pace
until 2013.
The software and services segment was the largest part of the IT
industry. The industry was peppered
with thousands of competitors large and small, young and
mature, fun and serious. It offered a wide array of
products ranging from heavyweight software, such as Microsoft
Windows, to small applications; services also
ran the gamut, ranging from large-scale consulting products to
small projects, such as website development
and design for local businesses. Some competitors had a large
Internet presence (e.g., Google or YouTube),
whereas other niche players operated small tools, such as online
surveys (Exhibit 2). Only the heavyweights
enjoyed some customer loyalty. Major software and services
providers—Microsoft, IBM, HP, and Oracle—
had stable and rather predictable revenues and notable market
share (Exhibit 3). This software and services
segment outpaced the hardware and storage and peripherals
segments, growing at 12.2% annually between
2004 and 2008, and it was expected to maintain a healthy annual
growth rate of 10.4% until 2013.7
The smallest segment—computer storage and peripherals—
included data storage components, computer
processors, and other peripherals (e.g., printers). The market
was dominated by storage devices, such as hard

3 Datamonitor, “Global Computer Hardware: Industry Profile,”
December 2008.
4 Datamonitor, “Global Software & Services: Industry Profile,”
March 2009.
5 Datamonitor, “Global Computer Storage & Peripherals:
Industry Profile,” March 2009.
6 Major producers of computer hardware included Dell,
Hewlett-Packard (HP), Sun, IBM, and Apple. Some (e.g., Dell
and HP) were fairly
diversified and offered a swath of hardware products. Others
(e.g., Sun and IBM) marketed their products almost exclusively
to business customers.
Apple was unique because it dealt mainly with retail customers.
7 “Global Software & Services: Industry Profile,” March 2009.
2020.
Page 3 UV5626
drives. Combined, HP, Toshiba, and IBM commanded about half
of the market. Historic sales growth rates
of storage and peripherals mirrored that of the computer
hardware segment.

In the 1990s, the IT industry resembled a tiered cake, with one
or two heavyweights controlling each tier.
These tiers were essentially technology swim lanes with little
competition from other firms. For example,
Cisco controlled the networking hardware market; Sun and HP
were known for manufacturing servers. The
business software segment belonged to SAP, while Oracle led in
databases. IBM, a longtime hardware
company, had moved into consulting and services. Everyone
knew that HP laptops ran Windows operating
systems but used Toshiba hard drives. Commercial clients
bought Sun servers and ran Oracle database
management software. There was relatively little overlap
between these rival giants.8
At the dawn of the new millennium, the industry started to
change. Lines between segments were
becoming blurred; former allies encroached on each other’s turf,
and customers were forced to deal with
fewer suppliers. The success of Apple’s concept of a one-stop
shop for consumers to acquire hardware,
software, and even peripherals with a tightly controlled
distribution channel forced large technology
companies to reconsider their strategic approaches to business
development. “The maturing tech industry has
set giant companies on a collision course, as once-disparate
technologies take on new capabilities in a
‘convergence’ of computers, software and networking.”9
Companies such as Apple and Dell moved away
from PC manufacturing to other consumer devices, such as
mobile phones, printers, and cameras. By the end
of 2008, Apple, a long-standing competitor in the PC segment,
derived only one-third of its total revenue
from computers and laptops.10 But simple deviation from
historical products was a drop in the bucket. Battles
were breaking out all across the industry. In 2009, Cisco, a

manufacturer of networking hardware, announced
it would start building its own servers, thus stepping into the
territory of its longtime ally HP, which
dominated the server market. HP itself took aggressive steps to
compete with IBM in the technological
outsourcing segment by acquiring Electronic Data Systems in
2008. Microsoft attempted to take over Yahoo,
thereby eyeing Google’s domain. Dell was rumored to be in the
final stages of developing a “data-center
management software that [would] compete with existing
offerings by HP, IBM and others.”11 Oracle was on
a long-term shopping spree expanding from database
management software to an array of products. (See
Exhibit 4 for company descriptions and Exhibit 5 for sales
growth.)
“In the past, when big tech companies crossed over into others’
businesses, they often dismissed it as ‘co-
opetition,’ meaning they planned to compete in some areas and
cooperate in others.”12 With healthy growth
of the technology industry and consumer hunger for new
gadgets, there was plenty of revenue to go around.
But the financial crisis, beginning in 2007, changed the
landscape. The looming recession shrunk sales all
across the industry and forced technology companies to explore
every opportunity for extra revenue.
8 “Mr. Ellison Helps Himself,” Economist, April 23, 2009.
9 Ben Worthen and Justin Scheck, “As Growth Slows, Ex-Allies
Square Off in a Tech Turf War,” Wall Street Journal, March
16, 2009, A1
10 Apple, Inc., annual report, 2008.
11 Worthen and Scheck.
12 Worthen and Scheck.

2020.
Page 4 UV5626
Oracle
In 1977, Larry Ellison, Bob Miner, and Ed Oates, three
twentysomething software engineers, left Ampex
Inc. to start a new venture, Software Development
Laboratories.13 Ellison became the head of the fledgling
firm. Within a year, the team had designed the first relational
database management system (RDBMS) under
the code name “Oracle.” Early adopters of the technology
included government, military, and intelligence
entities (including the U.S. Central Intelligence Agency) and
innovative businesses, such as Bell Telephone
Laboratories. The original product and all the following
versions of Oracle capitalized heavily on the
revolution of electronic record keeping that hit U.S.
corporations in the 1970s. By 2009, all large U.S.
corporations without exception were using database
management products in every aspect of their business:
back office, front office, client relationships, Internet, and so
on. Every set of records that companies kept
required a database server and an application that would search
through data quickly and efficiently providing

managers with information on demand. Both the software for
keeping the data in an easily accessible format
and the tools to speedily search through that data were Oracle’s
bread and butter. Every heartbeat of a
corporation, every step it took involved a database management
system: payroll, sales, supply chain decisions,
and travel reimbursements, to name a few.
Oracle’s relationships with clients did not stop at merely
developing and distributing the RDBMS
software. The company provided continued support to its clients
through constant improvements in its
software, customized customer support and training, and on-site
installation and tune-up of the applications
to a particular client’s needs. Oracle targeted high-end
customers because it had a lot to offer them. Apart
from being the best among competitors in data access speed,
Oracle also provided best-in-class data security
protection. Its early versions could be installed and used on any
type of computer, running any operating
system. This was a revolutionary move that catapulted Oracle’s
sales early on.
Oracle went public in 1986 on the NASDAQ. Although its
journey had not been smooth at all times,
Ellison had always managed to turn the company around. He
had a vision to create a company that would
dominate the “desktop of business users” market. As early as
the 1980s, Oracle had aimed to create
customized applications for business users built upon the core
product: Oracle RMDBS. Over time, the
company had gained significant presence in developing
applications for supply chain management,
manufacturing, financials, project systems, market management,
and human resources, which were highly
popular among Oracle’s customers.14

By 2000, Oracle sales had topped $10 billion. Despite a dip in
sales during the dot-com bubble, Oracle
had remained highly profitable. For a brief period, Ellison was
the wealthiest man in the world. Oracle’s
success continued into the new millennium. Between 2000 and
2005, the top line grew annually at 2.9%,
operating profit increased at 5.5%, and the margin improved by
nearly 400 basis points. These healthy profits
led to a significant accumulation of cash, which in turn allowed
Oracle, under Ellison’s leadership, to become
a serial acquirer.
Since 2005, Oracle had spent more than $30 billion on over 50
bolt-on acquisitions (see Exhibit 6 for
select transactions), only a few of which were intended to refine
and innovate Oracle’s core database product
line. Other acquisitions had allowed Oracle to aggressively
move into new areas that would complement its
13 Justin Rohrlich, “Rags to Riches CEOs: Larry Ellison,”
Minyanville.com, November 18, 2009,
http://www.minyanville.com/businessmarkets/articles/oracle-
ibm-ellison-ampex-sdl-billionaire/11/18/2009/id/25369
(accessed November 2, 2010).
14 Michael Abbey, Oracle 9i: A Beginner’s Guide, (Berkeley,
CA: McGraw-Hill, 2002).
2020.

UV5626
current offerings and allow it to compete in the middleware,
applications, and industry-specific software
arenas. The most transformational move was in the applications
space, where Oracle had snapped up
PeopleSoft, Siebel, and Hyperion, all of which provided
enterprise management solutions.15 Oracle’s 2008
acquisition of BEA Systems, a middleware company that
utilized service-oriented architecture infrastructure
to better link databases and software applications, was notable
because it provided Oracle with additional
flexibility to link all the products in its portfolio.16 By early
2009, Oracle had become the biggest supplier of
commercial software.
Sun Microsystems
Sun Microsystems, Inc., established in 1982 by three Stanford
graduate students, built desktop computers
and workstations. Sun entered the market at a time when pairing
proprietary hardware, operating systems,
and software was the norm. Sun broke new ground with its
UNIX-based Solaris, which made its computers
compatible with many other software and hardware products
available on the market.17 Sun’s success, similar
to Oracle, was attributed to rapid computerization of the
companies’ records where new workstations rapidly
replaced the behemoth “minicomputers.” From 1985 to 1989,
Sun grew at average annual rate of 145%,
reaching the status of fastest-growing company in America. The

next step in Sun’s stardom was due to its
development, in 1989, of a new chipset based on scalable
performance architecture (SPARC). Sun’s SPARCs
enhanced existing products by allowing it to create the smallest
and fastest workstations on the market at the
time. Combining the high-quality hardware with excellent on-
and off-site customer service was a recipe for
success.
Alongside the best-in-its-class workstations, Sun had been the
proud owner of the Solaris operating
system, which successfully competed with Microsoft Windows
in the corporate world and was treasured by
many in the industry. In 1995, the company had also developed
the Java programming language, which
customers universally loved and had become an industry
standard for developing software for web
applications. Virtually all PCs and eventually mobile phones
required Java, which Sun licensed for a small fee.
In 1997, Oracle converted to Sun’s Java programming language,
thus allowing its applications to be easily
used by web developers. Oracle had also adopted the Linux
operating system.
Sun went public in 1986 with a solid product offering
dominated by its hardware sales. It had thrived
until the turn of the century, when competition and market
trends had turned against the company. After an
altercation with Microsoft in the late 1990s, Sun was forced to
make Java and Solaris available to users gratis.
The burst of the dot-com bubble had hit Sun hard by almost
annihilating its high-end hardware sales to the
financial sector. The economic downturn following the dot-com
bust had forced financial conglomerates to
cut costs and move to lower-end hardware offered by Sun’s
competitors.18 Companies had also started to shy

away from the SPARC proprietary chip line favoring more
widely used chips from Intel and Advanced Micro
15 Oracle Corporation, “Oracle Corporate Timeline,”
http://www.oracle.com/timeline/index.html (accessed November
2, 2010).
16 “Oracle to Acquire BEA Systems,” Oracle Corporation press
release, January 16, 2008.
17 “Sun Microsystems, Inc., Company History,”
http://www.fundinguniverse.com/company-histories/Sun-
Microsystems-Inc-Company-
History.html (accessed November 2, 2010).
18 Matthew Karnitschnig, “IBM in Talks to Buy Sun in Bid to
Add to Web Heft,” Wall Street Journal, March 18, 2009.
2020.
Page 6 UV5626
Devices. Sun’s product mix had begun to move from
predominantly hardware to a mix of hardware,
software, and services, but waning hardware sales were not
offset by gains in other offerings.19
Sun tried to leverage its acclaimed software systems to boost

hardware sales by making Java (and later
Solaris) an open-source platform in 2007. Open-source software
allowed developers to adjust the platform to
their specifications and thus provided a greater ability to adapt
systems to a variety of tasks. The rationale for
changing was to compete with Symbian and Microsoft in the
mobile phone market and to increase the
number of users. Sun had also expected this move would lead to
greater adoption of the Solaris platform in
the corporate world and drive hardware sales in uncaptured
markets.20 In reality, these moves failed to garner
the sales Sun had anticipated. Sun was losing consumers on the
high end to IBM and on the low end to Dell
and HP, and nothing seemed to be able to change the trend.21 In
January 2008, Sun decided to move in yet
another direction by announcing it would acquire MySQL AB
for $1 billion. The company’s core product was
open-source database management software, touted as the
world’s most popular. MySQL was widely used by
companies, such as Facebook, that ran websites on thousands of
servers. By adding MySQL, Sun had hoped
to find new outlets for its existing product lines and also to
distribute MySQL through current channels.22
All the efforts to revive the once-glorious company were
undermined by the financial crisis in 2007. In
2008, facing a banking industry on the brink of collapse and
finding themselves unable to borrow to finance
their immediate needs, companies reined in capital
expenditures; naturally, computer and software updates
were put on the back burner. In November 2008, well into the
swing of the crisis, Sun announced plans to
reduce its work force by approximately 15%.23 Sales in 2009
were expected to drop by 17.5% from
$13.9 billion to about $11.4 billion. Sun was expected to record
a charge of $1.5 billion for goodwill

impairment. The company that once had a reputation for turning
laboratory successes into profits was headed
into a tailspin. At that point, company management started to
look for a potential suitor.
Oracle Eyes Sun
Ellison was one of those suitors who believed in the future of
Sun as a part of Oracle. In his opinion,
many smaller companies were doomed due to slowing revenue
growth and the desire by clients to work with
fewer suppliers. Armed with a respected management team and
a war chest of more than $8 billion in cash,24
Oracle aggressively pursued acquisition. Oracle had followed
Sun for some time, hoping to capitalize on
Sun’s misfortunes by getting specific assets or the entire
company at a deflated price (Exhibit 7). On March
12, 2009, Oracle contacted Sun about acquiring some assets.
Within a week, while Sun was mulling Oracle’s
offer, a rumor surfaced that IBM was considering taking over
Sun. On April 6, 2009, news broke that IBM
and Sun had been in serious merger talks for more than a month.
But the negotiations did not end in a deal,
and Oracle did not wait long to step in. After all, the
combination of Oracle’s databases and Sun’s servers had
driven both companies’ sales for much of 1990s. Both
companies formed a united front against Microsoft,
exploiting Solaris and Java as foundations for business
software.
19 Sun Microsystems, Inc., Form 10-K, September 27, 1999. In
1999, Sun generated $9.6 billion in revenue from its hardware
segment, while
software and services added $1.6 billion. Ten years later, in

2009, Sun’s business mix had changed dramatically; the
Systems and Services segments
were expected to generate $6.7 and $4.7 billion in revenue,
respectively.
20 Connie Guglielmo, “Sun Makes Java Free, Expands Mobile-
Phone Software,” Bloomberg Online, Bloomberg, May 8, 2007.
21 Morningstar, “Sun Microsystems, Inc.,” Morningstar,
October 31, 2008.
22 “Sun to Acquire MySQL.” Sun Microsystems, Inc., press
release, January 16, 2008.
23 “What’s Next after IBM-Sun Merger Talks Fizzle?,” EE
Times Asia, April 8, 2009.
24 Oracle Corporation, Form 10-Q, February 28, 2009.
2020.
Page 7 UV5626
Ellison’s stated vision was to transform Oracle into the Apple
for the business customer by delivering
high-quality, seamlessly integrated consumer products where
software and hardware components were
developed in conjunction, thus minimizing the customer setup
process.
Strategically, the merger would combine Oracle’s dominant

position in the software space with Sun’s
expertise in hardware and networking (Exhibit 8). The move
also added the prized Java, MySQL, and Solaris
platforms to Oracle’s portfolio. The cannibalization of software
products, though possible, was expected to
be minimal. Although core Oracle products and MySQL were
both database management systems, they
appealed to different customers and were not in competition:
Oracle could sell its software to the high-end
clients while effectively serving smaller clients well. The
corporate development team was sure that Oracle
could capitalize on Sun’s customer base and service contracts.
The move made perfect sense strategically; the
only matter to be determined was the price. That’s where
Madison and her valuation team stepped in.
Fortunately, Madison had already collected plenty of
information needed to put a price on Sun; she had
gathered it when Oracle had first showed interest. She had
market data for comparable companies (Exhibit
9), the appropriate yields (Exhibit 10), balance sheets for both
Sun and Oracle (Exhibits 11 and 12,
respectively), and historic financials for Oracle (Exhibit 13).
With Oracle entering into a confidentiality
agreement with Sun, she had also received access to proprietary
information. Madison and her team had
spent a great deal of time looking at Sun’s historical record and
carefully developed projections for its future
performance as a standalone company (Exhibit 14), which she
knew would be the cornerstone of crafting a
firm valuation.
The next step was to determine how much extra value Oracle
could generate by making Sun’s operations
more efficient, cutting outdated and inefficient products and
departments, streamlining remaining product

lines, and introducing new synergistic systems. Knowing that a
significant percentage of anticipated merger
synergies were never realized historically, Madison and her
team were fairly conservative with their estimates.
Cost cutting was the easy part. Having restructured and
implemented lean operations in a line of past
acquisitions, Madison and her colleagues were pros at trimming
the fat. They knew Oracle could reduce Sun’s
staff by 20% to 25%, slash SG&A expenses by 22% to 32%, and
allocate a significant amount for other
restructuring costs. Estimating sales forecasts, potential new
product lines, and software licensing was a
completely different story, which necessitated bringing the
marketing, sales, and R&D people on board.
First of all, Oracle team members expected Sun to initially lose
some customers as a result of the merger.
They knew that uncertainty of product offerings would push
some customers to delay purchases and some to
switch to competitors. After all, nobody wanted to buy an
expensive piece of computer equipment only to
find later that it would not be supported by the new owners of
the company. Another issue was the lower-
end customers that Oracle had never dealt with before. The
marketing team expected these customers to
hesitate to buy from Oracle for fear of being pushed into buying
more expensive products. Marketing
specialists knew that rivals would use similar arguments in
aggressively pursuing Sun’s clients. The only thing
Oracle could do on this front was to minimize the extent of
customer attrition. Oracle’s marketing
department was already working on a plan to reassure low- and
high-end customers alike of continued
service.

The second order of business was Sun’s precious software.
Although the open-source software could be
downloaded free of charge, customers could elect to pay for
product support and updates. The software had
been particularly attractive during the recession. Market
surveys, which Oracle had quietly conducted,
suggested that customers might be open to paying a small fee
for software downloads. The quality of Sun’s
software was so well known and appreciated by the market that
the Oracle team was certain to increase its
2020.
Page 8 UV5626
revenue stream from software licensing. The bigger source of
revenue, however, was in the potential new
products at the intersection of Sun and Oracle technologies.
After all, most of Oracle’s systems were built
using Java and ran on the Solaris operating system.
The R&D team brainstormed on combining Oracle’s products
and Sun’s hardware and software. Oracle
had a long-standing plan to build Exadata machines that could
handle both online transactions and data
warehousing. Initially, the company had planned to use HP’s
hardware, but the opportunities Sun offered

were too good to miss. Oracle engineers were positive that
combining Oracle software with FlashWire
technology, which Sun possessed, and then putting it on Sun
hardware, could create a transaction-processing
database machine. This machine would be twice as fast as its
predecessor and, with high probability, much
faster than machines produced by its closest rival, IBM.
When Madison put a bottom line to the dollar value of all the
potential synergies the merger could
generate, the numbers were rather impressive. But the merger
would also be costly. The team’s calculations
suggested that integration charges would be close to $1.1 billion
in aggregate, with most (about $750 million)
incurred in 2010. It also anticipated an initial loss in operating
income of about $45 million, due to loss of
customers and/or delayed purchases. Cost cutting, licensing
income, new products, and the addition of the
“integrated application-to-disk” service had the potential to
boost operating profit by as much as $900 million
per year. Preferring to remain conservative, Madison assumed
that such synergies would kick in gradually
over a three-year time horizon starting in 2011.
The Decision
As Madison drove from San Francisco to her Redwood City,
California, office the following morning,
she wondered if her teammates had accounted for everything.
She knew they were conservative in most of
the financial projections, but they remained merely estimates. If
rivals such as IBM placed a competitive bid
for Sun over the weekend, Madison’s team and manager would
go over the estimates yet again, evaluating
every aspect of the due diligence Oracle conducted in its effort
to acquire Sun.

2020.
Page 9 UV5626
Exhibit 1
Sun Microsystems
Global Computer Hardware Sales
Data source: Datamonitor, “Global Computer Hardware:
Industry Profile,” December 2008.
Global Computer Hardware Sales by Product: 2008
Global Computer Hardware Sales: 2004–08
PCs
48.4%
Servers and
Networking
29.2%

Printers
10.4%
Monitors
8.0%
Other
4.1%
0.0%
2.0%
4.0%
6.0%
8.0%
0
100
200
300
400
500
2004 2005 2006 2007 2008
G
row

th
(%
)
S
al
es
(
$
b
il
li
on
s)
Sales Growth
2020.
Page 10 UV5626

Exhibit 2
Sun Microsystems
Global Software & Services Sales
Data source: Datamonitor, “Global Software & Services:
Global Software & Services Sales by Product: 2008
Global Software & Services Sales: 2004–08
Software
48.4%
Internet
Software &
Services
29.2%
IT Services
10.4%
0.0%
3.0%
6.0%
9.0%
12.0%

15.0%
0
500
1,000
1,500
2,000
2,500
2004 2005 2006 2007 2008
G
row
th
(%
)
S
al
es
(
$
b
il
li

on
s)
Sales Growth
2020.
Page 11 UV5626
Exhibit 3
Sun Microsystems
Global Software & Services Sales by Share, 2008
Data source: Datamonitor, “Global Software & Services:
1
EDS was acquired by HP in 2008.
Other
91.5%
IBM

3.6%
MSFT
2.7%
EDS1
1.1% ORCL
1.0%
2020.
Page 12 UV5626
Exhibit 4
Sun Microsystems
IT Industry Companies
Sources: Industry reports and Bloomberg.
Primarily Hardware Description Key Products Notable
Acquisitions
Advanced Micro
Devices

Develops and manufactures semiconductors and
microprocessors
x86 microprocessors, microprocessors for
computers and servers
*ATI Technologies (2006)
Apple Designs, manufactures, and markets personal
computers, related software and mobile
communication and entertainment devices
Macintosh computers, iPhones, iPods, music-
related products
Dell Offers a wide range of computers and related
products
Desktop and laptop computers, software and
peripherals, servers
*EqualLogic (2008)
EMC Provides enterprise storage systems, software,
networks, and services
Information storage, VMware
Hewlett-Packard Provides imaging and printing systems,
computing
systems, and information technology for business
and home
Consulting services, enterprise storage and
servers, personal computers, digital cameras,

printers and ink
*Compaq (2002)
*EDS (2008)
Intel Designs and manufactures computing and
communications components and platforms
Microprocessors, chipsets, motherboards,
platforms
International Business
Machines
Offers computer solutions through the use of
advanced information technology
Consulting services, middleware, servers,
laptops
NetApp Provides storage and data management solutions Filers
Sun Microsystems Provides products, services, and support for
building and maintaining network computing
environments
Enterprise systems and services; storage and
software platforms Java, Solaris, and MySQL
*MySQL (2008)
Primarily Software
Adobe Systems Develops, markets and supports computer
software products and technology
Creative solutions, Acrobat

Microsoft Develops, manufactures, licenses, sells and
supports software products
Windows, business and server software, gaming
and handheld devices
Novell Provides network and Internet directory software
and services
Enterprise networking software
Oracle Supplies software for enterprise information
management
Relational databases, middleware software,
applications, related services
*PeopleSoft (2005)
*Siebel Systems (2006)
*Hyperion
Solution
s (2007)
*BEA Systems (2008)
Red Hat Develops and provides open source software and
services
Linux

2020.
Page 13 UV5626
Exhibit 5
Sun Microsystems
Relative Sales Growth, 2000–08
Data source: Compustat.
Primarily Software Companie s

Primarily Hardware Companie s
-100.0%
0.0%
100.0%
200.0%
300.0%
400.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008
-150.0%
0.0%
150.0%
300.0%
450.0%

600.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008
Apple
NetApp
HP
Dell
EMC
IBM
Sun
Red Hat
Adobe
Microsoft
Oracle
Novell

Intel
AMD
2020.
P
ag
e
14
U
V
56
26

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xh
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it
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2020.
Page 15 UV5626
Exhibit 7
Sun Microsystems
Relative Stock Performance, January 3, 2006 to April 16, 2009
Data sources: Yahoo! Finance and Wharton Research Database
Service.
-100.0%

-75.0%
-50.0%
-25.0%
0.0%
25.0%
50.0%
75.0%
100.0%
Sun Oracle S&P 500
200820072006 2009
51.3%
-31.5%

-61.3%
9/14/08: Collap se of
Lehman Brothers
3/16/09: Rumors of
IBM acquisition of
Sun surface
3/14/08: Fed bails out
Bear Stearns
2020.
P
ag
e

16
U
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56
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2020.

P
ag
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17
U
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56
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2020.
Page 18 UV5626
Exhibit 10
Sun Microsystems
Relevant Security Yields, April 2009
Data sources: Mergent Bond Record, U.S. Treasury, and
Ibbotson Associates.
Corporate Bond Yields
AAA 5.50%
AA 5.77%

A+ 6.27%
A 6.35%
A- 6.50%
BBB+ 7.54%
BBB 7.62%
BBB- 8.64%
BB+ 11.42%
BB 11.49%
BB- 11.70%
B+ 13.28%
B 14.70%
B- 15.46%
U.S. Treasury Yields
180-Day 0.34%
1-Year 0.54%
3-Year 1.22%
5-Year 1.71%
10-Year 2.82%
30-Year 3.66%

2020.
Page 19 UV5626
Exhibit 11
Sun Microsystems
Sun Microsystems Historical and Projected Balance Sheet (in
millions of U.S. dollars)
(1) (Sun Microsystems’) long-term strategy is to maintain a
minimum amount of cash and cash equivalents in subsidiaries
for operational purposes and to invest the remaining amount of
our cash in interest-bearing and highly liquid cash
equivalents and marketable debt securities.
(2) Deferred taxes and related accounts are not expected to vary
with sales or continue to accumulate as a company
growth.

(3) Includes deferred settlement income from Microsoft as of
June 30, 2009, 2008, 2007, and 2006, long-term tax liabilities
as of June 30, 2009, 2008, 2007, and 2006, and long-term
restructuring liabilities.
Data sources: Company filings and case writer estimates.
2007 2008 2009E
As s ets
Current As sets
Cash
(1)
3,620 2,272 1,876
Marketable Debt Securities 2,322 1,038 1,185
Net Receivables 2,964 3,019 2,258
Inventory 524 680 566
Deferred Prepaid Taxes
(2)
200 216 188
Other Current As sets 1,058 1,218 995

Total Current Ass ets 10,688 8,443 7,068
Property, Plant, & Equipment, Net 1,504 1,611
1,616
Goodwill 2,514 3,215 1,743
Intangible Ass ets 633 565 269
Other Noncurrent Ass ets 499 506 536
Total Ass ets 15,838 14,340 11,232
Liabilities & Equity
Current Liabilities
Accounts Payable Including Accrued Payroll 2,222 2,121
1,600
Short/Current Long-Term Debt 1 - 554
Deferred Taxes
(2)
2,047 2,236 2,341
Other Current Liabilities Including Warranty Res erve 1,182
1,311 1,126
Total Current Liabilities 5,451 5,668 5,621
Long-Term Debt 1,264 1,265 695

Deferred Long-Term Charges
(2)
659 683 635
Other Noncurrent Liabilities
(3) 1,285 1,136 976
Total Liabilities 8,659 8,752 7,927
Stockholders ’ Equity
Common Stock 6,987 7,391 7,582
Treas ury Stock (311) (2,726) (2,569)
Retained Earnings 189 430 (2,055)
Other Stockholders ’ Equity 314 493 347
Total Stockholders’ Equity 7,179 5,588 3,305
Total Liabilities & Equity 15,838 14,340 11,232
Fis cal Year-End June 30

2020.
Page 20 UV5626
Exhibit 12
Sun Microsystems
Oracle Historical and Projected Balance Sheet
(in millions of U.S. dollars)
2007 2008 2009E
As s e ts
Current Assets

Cash & Cash Equivalents 7,020 11,043 12,624
Net Receivables 4,589 5,799 4,430
Inventory - - -
Other Current Assets 1,274 1,261 1,527
Total Current Assets 12,883 18,103 18,581
Property, Plant, & Equipment, Net 1,603 1,688 1,922
Goodwill 13,479 17,991 18,842
Intangible Assets 5,964 8,395 7,269
Other Noncurrent Assets 643 1,091 802
Total As s e ts 34,572 47,268 47,416
Liabilitie s & Equity
Current Liabilities
Accounts Payable 315 383 271
Short/Current Long-Term Debt 1,358 1,001 1,001
Other Current Liabilities 7,714 8,645 7,877
Total Current Liabilities 9,387 10,029 9,149
Long-Term Debt 6,235 10,235 9,237
Deferred Long-Term Charges 1,121 1,218 480
Other Noncurrent Liabilities 910 2,761 3,460

Total Liabilities 17,653 24,243 22,326
Stockholders’ Equity
Common Stock 10,293 12,446 12,980
Treasury Stock - - -
Retained Earnings 6,223 9,961 11,894
Other Stockholders’ Equity 403 618 216
Total Stockholders’ Equity 16,919 23,025 25,090
Total Liabilitie s & Equity 34,572 47,268 47,416
Fis cal Ye ar-End May 31
2020.
Page 21 UV5626

Exhibit 13
Sun Microsystems
Oracle Historical and Projected Income Statement
(in millions of U.S. dollars)
Fiscal Year-End May 31
2007 2008 2009E
Software Revenues 14,211 17,843 18,877
Services Revenues 3,785 4,587 4,375
Net Revenue 17,996 22,430 23,252
Selling, General, & Administrative 8,790 10,468 10,217
Research & Development 2,195 2,741 2,767
Amortization of Intangible Assets 878 1,212 1,713
Other Operating Expense 159 165 234

Total Operating Expense 12,022 14,586 14,931
Operating Income 5,974 7,844 8,321
Income Tax on Operations 1,709 2,316 2,380
Net Operating Profit After Tax 4,265 5,528 5,941
Effective Corporate Tax Rate 28.6% 29.5% 28.6%
2020.
P
ag
e
22

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in any form or by any means
except as expressly permitted under the License
Agreement.
© 2013 Flat World Knowledge, Inc.
Organizational &
Managerial Ethics
• This
Lesson:
https://youtu.be/0UZF-‐Zsg2S8?t=12s
• Milgram
Experiment
(set
to
start
38

seconds
in;
end
at
9
minutes)
https://youtu.be/Xxq4QtK3j0Y?t=38s
• Asch
Experiment:
https://youtu.be/NyDDyT1lDhA
Links within this
Lesson
• Organizational
Ethics
• Managerial
Ethics

• What
Ethics
is
not
• Perspectives
(Views)
on
Ethics
Organizational &
Managerial Ethics
Organizational Ethics
All refer to
“a process of

promoting moral
principles and
standards that
guide business
behavior.”
• Refers
to
“individual’s
responsibility
to
make
business
decisions
that
are
legal,
honest,

moral,
and
fair.”
Managerial Ethics
• Agreeing
on
what
is
“legal”
and
“honest”
may
not
be
difficult.

• Agreeing
on
what
is
“moral”
and
“fair”
can
be
a
difficult
task!
Managerial/Organizational Ethics
Our
Feelings Our
Religion

The
Law
Culturally
Accepted
Norms
Science
Ethics is not the same as…
• Ethics
is
not
the
same
as
feelings.

– Feelings
provide
important
information
for
our
ethical
choices.
– Some
people
have
highly
developed
habits
that
make
them
feel
bad
when
they
do

something,
but
many
people
feel
good
even
though
they
are
doing
the
same
thing.
– And
often
our
feelings
will
tell
us
it

is
uncomfortable
to
do
the
right
thing
if
it
is
hard.
• Ethics
is
not
religion.
– Many
people
are
not
religious,
but
ethics

applies
to
everyone.
What Ethics is not
• Ethics
is
not
following
the
law.
– A
good
system
of
law
does
incorporate
many

ethical
standards,
but
law
can
deviate
from
what
is
ethical.
– Law
may
have
a
difficult
time
designing
or
enforcing
standards
in
some

important
areas,
and
may
be
slow
to
address
new
problems.
What Ethics is not
Ethics
is
not
following
culturally

accepted
norms.
“But
Dad,
all
my
friends
are
going….”
What Ethics is not
as we become
adults, we no longer
act this way. We’re
not as easily
influenced by
people….”
Milgram

This is an illustration of the
setup of a Milgram experiment.
The experimenter (E) convinces
the subject ("Teacher" T) to
give what are believed to be
painful electric shocks to
another subject, who is actually
an actor ("Learner" L). Many
subjects continued to give
shocks despite pleas of mercy
from the actors.
Photo Source:
http://en.wikipedia.org/wiki/Image:Milgram_Experiment_v2.pn
g
Asch
This is a sample item from the Asch study. Participants were
asked

one by one to say which of the lines on the right matched the
line
on the focal line on the left. While A is an exact match, many
participants conformed when others unanimously chose B or C.
Focal
Line A B C
these two examples
aren’t business--
related. This
wouldn’t happen in
an organization….”
Ethics
is
not
science.

– Social
and
natural
science
can
provide
important
data
to
help
us
make
better
ethical
choices.
But
science
alone
does
not
tell

us
what
we
ought
to
do.
– Science
may
provide
an
explanation
for
what
humans
are
like.
But
ethics
provides
reasons
for

how
humans
ought
to
act.
– And
just
because
something
is
scientifically
or
technologically
possible,
it
may
not
be
ethical
to
do

it.
What Ethics is not
Basic
Perspectives
(Views)
on
Managerial
Ethics
Utilitarian Self-‐Interest
Rights Justice
Deontological Integrative
(Social)

• The
Utilitarian
view:
– Anticipated
outcomes
and
consequences
should
be
the
only
considerations
when
evaluating
an
ethical
dilemma.
– Consequences
are
important;
tries

both
to
increase
the
good
done
and
to
reduce
the
harm
done.
– The
ethical
corporate
action,
then,
is
the
one
that

produces
the
greatest
good
and
does
the
least
harm
for
all
who
are
affected
-‐ customers,
employees,
shareholders,
the
community,
and
the
environment

• The
Self-‐Interest view:
– Benefits
of
the
decision-‐maker(s)
should
be
the
primary
considerations.
– The
ethical
corporate
action,

then,
is
the
one
that
produces
the
greatest
good
for
me
• The
Rights view:
– Humans
have
a
dignity
based
on
their
ability
to

choose
freely
what
they
do
with
their
lives
– The
ethical
corporate
action,
then,
is
the
one
that
protects
basic
individual
rights.

We the People….
When in doubt, do what’s
best for yourself
• Beginning Fall 2016, students can carry concealed
handguns into
classrooms, dormitories and other buildings:
http://www.tamus.edu/campus--carry--rules/
• Supporters say it will make college campuses safer by
allowing licensed gun owners
to defend themselves & others should a mass shooting
occur
• Opponents say the notion that armed students would make

a campus safer is an
illusion that will have a chilling effect on campus life
• The
Justice view:
– All
decisions
will
be
made
in
accordance
with
pre-‐
established
rules
or
guidelines.
– The
ethical

corporate
action,
then,
is
the
one
that
follows
the
rules/laws.
The
Integrative
Social
Contracts (Common

Good)
view:
– Decisions
should
be
based
on
existing
norms
of
behavior,
including
cultural,
community,
or
industry
factors.
– The
ethical
corporate
action,
then,
is

the
one
that
follows
accepted
practices.
The
Deontological
view:
– Decisions
should
be
based
on
personal
or
religious
convictions.
– The
ethical
corporate

action,
then,
is
the
one
that
aligns
with
your
belief
system.

Ethics Assignment
The purpose of this exercise is to explore ethics and decision-
making within organizations.
Assignment Guidelines
After reading the case:
1) Name this section ‘Identification of Dilemma’ and address
the following (1 page):
a. What is the overall ethical dilemma?
b. Who can be impacted by the dilemma (people and/or groups)?
2) Provide a brief overview of 2 Frameworks (Approaches) to
Managerial Ethics (1+ pages). Name this section ‘Ethical
Frameworks’. Name each sub-section after the ethical
frameworks you choose.
a. Choose from: Utilitarian, Self-Interest (Ego), Rights, Justice,
Religious/Deontological, or Social/Cultural.
b. The textbook, presentations (.pdf and video) and the Granitz

& Loewy (2007)
journal article (pdf) provide brief explanations for the
approaches above. Expand on these with external sources. Use
in-paper citations and list the additional references at the end of
your paper.
c. This is not copy/paste from the internet. Be sure to write this
in your own words based on your research.
d. This section of your paper should not reference the case.
Instead focus on
what you’ve learned (researched) regarding each ethical
approach.
3) Provide outcomes to this ethical dilemma (1+ pages). Name
this section ‘Evaluation of Ethical Dilemma’. Address the
following in this section:
a. Based on what you’ve learned about George from the case,
which framework
(from the two you’ve explained in the previous section) do you
believe will guide George in this situation? Why do you believe
he will go this direction?
b. What are the implications of this decision (who does it
benefit? What are the
positive implications? What are the negative implications?)
c. If George had been guided by the other framework addressed

in section 2, what would have been the positive and negative
implications?
d. There’s no right/wrong answer choice, so I won’t grade this
on your ability to
choose a particular ethical framework. Instead, I’m more
concerned with your
ability to describe why you chose the approach and what
happens next based on the approach. These will help me assess
whether or not you understand the concepts.
e. No need for additional outside resources in this section, as
you should refer to the case and the information provided from
section 2.

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