It's one thing hiding corporate dysfunction during an interview. Regardless of legalities and ethics, however, she surely must have obtained some insight as an intern.

If this other (nightmare) Manager is going to be managing her, would it not be prudent for the intern to meet with them first, before deciding whether or not to accept the offer? If it were me, I would certainly want to meet my prospective new Manager first, to get a feel for what to expect and how good the 'personality fit' would be. Because, the relationship with your direct Manager is so important.

There's are two real problems with telling the candidate. Firstly they may not respect the absolute confidentiality of that information. Secondly they may think the OP is trying to put them off to e.g. get the position for a friend. The OP needs to be ready for potential big problems with doing this. It's the ethical thing to do, but it won't necessarily look that way to the candidate (and the OP's employer - or next employer (!) if word gets back to them).

I'd be careful about any prognosis about a company's future unless you know its financials are so dire it has to shutdown in a few months for sure. Even that can change. I've heard people say similar things about companies that went on to stay in business and prosper for years to come. Sometimes people that feel miserable (or totally happy) in their position also over-estimate the problems / good work they see and that impact on the company as a whole. Not saying you are definitely wrong, but it's hard to be right with such things.

@LaconicDroid not necessarily, many young unexperienced people don't realize those warning signs.

Do you think the job experience for working for a dysfunctional company is worse than no job experience? Or do you not want her to suffer and become disillusioned from a bad work environment?

@Time4Tea I don't think OP has given his notice yet. Suggesting someone else handle it could tip his own hand before hes ready to let them know he's leaving.

Just wondering why if you feel that she's not a good fit for the company - you would offer her the job. Either she's a good fit, in which case you make the offer, or not; in which case you dont.

@Steve-O the OP stated that this other Manager is going to be managing the candidate, if they take the position, not the OP. You think it's unreasonable/unusual for a job candidate to meet with the person who is going to be their Manager?

@Time4Tea there are 12 employees. The prospective manager was "kept at a distance," but it seems extremely unlikely that they haven't met.

I completely get the dilemma. As a manager, your duty is to the company. However, if you want to be an effective leader who people want to work with, you need to earn and protect trust, integrity, etc. which comes from treating people with respect. So my advice is, do what you feel is most ethical. I know what I feel I would do were I in your shoes. However, I am not in your shoes, so I won't comment any further.

Your opinion most certainly does not reflect those of your employer. I appreciate your empathy, but if your dissuasion ever got back to your manager (intern accepts offer despite your warning, then runs to your boss saying "he told me not to join!"), you would be in trouble. Do yourself a favor, and just do your job - assume the intern owns a pair of "big person pants" and will weather any possible outcome.

Why do you feel you have more responsibility to the intern than to other staff? It feels odd that you feel you have to help an intern but not support your colleagues.

Lots of companies are dysfunctional, why do you think alternatives are better? The candidate can make up their own mind.

As an intern of a small, dysfunctional company set to graduate soon, I cannot understate how appreciative I'd be to hear this. It's very likely that they've noticed some of the problems, but they probably interpret your "shielding" as reason to stay. I think that if they knew how you foresaw things, they'd prefer to spend their remaining months before loans start accruing interest finding another place to start. As another note, this situation you've described matches mine exactly, so either you managed to communicate this without talking to them at all, or you've helped someone else out.

@TylerS.Loeper Much worse. Someone's first real job is their opportunity to learn how to do a professional job and take pride in being part of a team that produces high quality results. If that doesn't happen, it can make it much more difficult for them to ever learn how to produce high quality output. Few things bother me more than companies that hire new graduates (because they're cheap, smart, and hardworking) and then fail to mentor them so they produce crappy work. They'll realize that and may not think they're capable of more.