revenue streams to make interest payments

Pacific Lumber Company, founded in 1869, oversees the careful maintenance and logging of the world’s most productive timberland. Pacific Lumber holds the last private forest of old-growth Redwood. In addition to it’s unique hardwood, the Redwood forest hosts an ecosystem supporting virgin ground never logged, and the endangered Marbled Murrelet. After being purchased in 1985 by the Maxxam firm and it’s owner Mr. Hurwitz, Pacific Lumber tripled logging volume and looked to log the previously privately protected Redwood forest. Due to the use of junk-bonds for financial backing, Maxxam Inc. needed to dramatically increase revenue streams to make interest payments which resulted in the reprioritization of business values. The health of the environment became second to the survival of Pacific Lumber. Poor business ethics led the timber company from a once highly profitable firm conscious of both the environment and long-term business stability, to one focused on short-term profitability without valuing the long term impacts of environmental change. The Fight Over The Redwoods Background Pacific Lumber Company, founded in 1869, owned 220,000 acres of some of the world’s most productive timberland.

The family-run company incorporated the very best standards for environmental impact and business management. Through selective tree cutting and management of business structure, the Pacific Lumber Company maintained the worlds rarest old growth redwood forest. Due to deforestation through the end of the 1970’s, Pacific Lumber Company held the last Redwood resource thereby indirectly monopolizing the hardwood market. The company was debt free, treated their employees well, and managed a significant inventory to support their sustainment operations. (Shaw, 2014) In 1985, Maxxam Incorporated acquired Pacific Lumber for 900 million dollars. Through the use of junk-bond financing to purchase the company, Maxxam Inc. had to manage significant interest payments on their loan. To manage high interest, Maxxam increased wood cutting that would eventually lead to the deforestation of previously protected land. 16 different lawsuits filed by environmental organizations brought Pacific Lumber operations to a halt with foresting operations in specific areas of their land.

The legal reasoning was the protection of endangered species, and long-term impact to virgin ecosystems that existed nowhere else in the world. (Shaw, 2014) In 1999, Senator Diane Feinstein and Deputy Interior Secretary John Garamendi signed an agreement. The agreement brokered out land to the government through a 480 million dollar purchase, and banned logging in certain areas for fifty years in an effort to protect endangered species. The agreement also established an enforceable habitat protection plan to oversee Pacific Lumber operations for the foreseeable future.

Pacific Lumber considered the deal to be a true testament that increased regulations by federal government stymied business profitability. Pacific Lumber ended up declaring bankruptcy in 2008. The lumber company was acquired by a well known firm that had ties to the timber community, held environmental considerations high, and worked well with politics involved. (Shaw, 2014) Case Analysis Question 1: Ancient forests, to include those of Redwood trees, have a value that is greater than just the face value of the lumber planned for logging.

Considerations for a corporation’s growth and profitability is important. Employees depend on paychecks, healthcare, pensions, and other supporting programs such as scholarships and donations to the community. These benefits however, will never outweigh the value of untouched forest that supports threatened species. Addressing Redwood deforestation only encompasses a small portion of global concern. Ecosystems rely on one another to survive and operate in the environment they are found.

Removing the Redwood hardwood forest would be the precipice for large scale ecological failure. An employee for Pacific Lumber may need a paycheck to maintain an adequate standards of living, but first needs a place to survive. If the ecosystem supporting our way of life collapses, so does our way of life. Question 2: Although land ownership is an individual right, what takes place on that land is still a concern for governing agencies. In this case, the impact to ecosystems covers an area greater than just the area owned by one individual or firm.

Controlling the impacts of the landowners operation mitigates the impact to other landowners in the area. Owning land still requires a reasonable person to behave in a manner consistent with the law of the land. In this analysis, a gentlemen named Hurwitz backed Maxxam Inc. to purchase Pacific Lumber. Hungry for profits, he altered Pacific Lumber’s focus to the short term profitability of the firm, instead of long term sustainment of the business. Poor business practices put Maxxam Inc. in a position requiring a fixed amount of income to pay loan interest and fees.

Hurwitz never assessed whether or not he could sustain payment with current operations and was forced to increase operations to make profitability still viable. (The Terrestrial Environment, 1998) Question 3: Mainstream environmentalists were correct to stop Pacific Lumber from ravaging it’s timberland. Prior business practices provided ecosystem shelter for endangered species and protected virgin forest from being logged. Changes to federal regulations and societal values required that these areas be protected despite ownership change.

Behavior by radicalized environmentalists is often unacceptable because it results in damage to business property and potential injury to employees. They do, however, protect what would otherwise be destroyed with stale politics or businesses circumventing laws through unethical behavior. (Shaw, 2014) Question 4: We as a society have a moral obligation to protect rare environments such as the Redwood forest. Trees do not have inherent rights and must be represented by a governing body or entity with their environmental impact in mind if they are logged.

Old growth forest support more than just the production of hardwood, it supports endangered species, fragile ecosystems, and the long term health of the planet. Endangered species cannot be recreated; The death of a species effects of the impact of two or three other species’ ecosystems, resulting in fluctuations throughout the entire food chain. (The Terrestrial Environment, 1998) Question 5: Prior to being bought out, Pacific Lumber operated a very controlled logging operation that matched tree-growth rates.

Although this does not necessarily provide increased short term profitability, it does mean long term sustainment with predictability. Shareholders of Pacific Lumber knew they owned a dependable stock that would hold its value for years to come. Lumber produced from logging is a highly volatile market. Predictable operations gave employees stability and ensured the environmental interests of future generations to come. Pacific Lumber is an excellent example of how ethical business practices sustain the environment, or negate the importance of it in the interests of profitability.

Question 6: The argument can be made that protecting private land from deforestation is not necessary due to the amount of land already protected by parks and reserves. What cannot be predicted is the impact to endangered species, or the separation and destruction of niche ecosystems that support a larger environmental scale. Taking away localized areas of trees, or ecosystems supported by old growth, will ultimately compound the negative effects of our constantly shrinking native environment.

As human growth pushes into these areas, the result is an increase of a demand for a stable environment, despite destroying the very thing we need to exist. (Biological Issue, 2014) Question 7: The agreement made between the government and Pacific Lumber did cost the taxpayers more than what would be considered socially acceptable by a reasonable person. The argument equates the value of the land and it’s components to the cost of protecting it. By spending 480 million dollars, the land is federally protected against logging, forever.

Endangered species may remain in the same state, but the uncontrolled elimination of their habitat has now been mitigated. The impact of the agreement to Pacific Lumber was the eventual bankruptcy filed in 2008. The resulting reshaping of the firm required layoffs and the decommission of certain assets to created a viable business. Employees lost their jobs, communities felt the impact of business fluctuation, and the local economy suffered. Although difficult, this suffering is short-termed and does not compare to the long term negative effects of deforestation to future generations.

(Biological Issue, 2014) Conclusion Pacific Lumber is a perfect example of why ethical business practices must consider the environment along with other federal and state regulations within their operations. Focusing only on short term profitability is not indicative of long term sustainment and stability. Owners of large corporations must ensure that responsible values and core competencies are retained, despite being bought out. Controlling corporate growth helps maintain employee and shareholder interests, while simultaneously ensuring the health and welfare of the environment. References