Smith & Walter, Chapters 8 and 9

“Buynow Stores” by Bruce Buchanan

“Roger Berg” by Ronald M. Green

“The Spin Desk: Underwriters Save IPO Stock for Officers of Potential Clients” by Michael Siconolfi

1. Make a list of all the gift practices described in Buynow Stores. In your judgment, which of these, if any, are inappropriate?
2. Does the Roger Berg case differ materially from Buynow Stores?
3. Construct an argument that justifies the practice of “spinning.” Do not neglect the business realities of conducting an IPO.
4. What are the underlying economic causes of bribery? What are its principal effects?

Readings:

“Our Schizophrenic Conception of the Business Corporation” by William T. Allen

“Moral Hazard” by Robert Pindyck and Daniel L. Rubenfeld

"Quality Department Stores” by Lawrence Zicklin

“Plasma International” by T. W. Zimmer and P. L. Preston

“Dayton Hudson Corporation: Conscience and Control” by Kenneth Goodpaster and Robert C. Kennedy

1. Sketch out the relationships between parties described or implied in the “Quality Department Stores” case. Which of these can be called “fiduciary” relationships? Justify your answers. Given your analysis, how should the investment manager vote?
2. How does the situation in “Plasma International” reflect the “schizophrenic conception of the business corporation?”  How would you, as CEO of Plasma International, defend its actions in the press?
3. How does the situation in the “Dayton Hudson” case reflect a “schizophrenic conception of the business corporation.”?  How would you, as CEO of Dayton Hudson, defend its actions in the press?
4. How does the concept of moral hazard apply to senior management? Use the situations as described in Quality Department Stores, Plasma International, or Dayton Hudson to illustrate.

 5. 19 Oct -- Sales and Trading: Retail Clients

Readings:

Smith & Walter, Chapter 3

“Paternalism in the Marketplace: Should a Salesman Be His Buyer’s Keeper?” by James M. Ebejer and Michael J. Morden

“Commissions on Sales at Brock Mason” by Tom Beauchamp

“Derivative Dregs” by G. Bruce Knecht

“Losing Battles” by Margaret A. Jacobs and Michael Siconolfi

1. In the Brock Mason case, Mr. Tithe, the branch manager, describes the situation with the widow as “unfortunate” but not “unfair.” Do you agree? Justify your position.
2. In what ways was the structure of Brock Mason responsible for the outcome in the widow’s case? What moral hazard was present? How might you change the structure to get a better outcome? What costs would this entail?
3. What are the key issues raised in “Losing Battles”?

Readings:

Smith & Walter, Chapter 4

“West Virginia CIF” by Ingo Walter

1. In the West Virginia CIF case, did the Merrill Lynch salesman act properly in flagging the issue to Danny Napoli? What’s in it for him?
2. In the same case, what were the benefits and risks of Danny’s trip to Charleston?

Readings:

Smith & Walter, Chapter 7

“The Reeves Bankruptcy” by Ingo Walter
 
“J.P. Morgan and Banco Español de Crédito” by Ingo Walter

1. In the “Reeves Bankruptcy” case, what was the nature of the conflict of interest, and how did it materialize? What should Gene Smith do now? What should happen to Bill Bigelow?
2. In the “J.P. Morgan and Banco Español de Crédito” case, scope-out the matrix of potential conflicts of interest facing the bank? How did they materialize? Which ones are serious and which ones are not? What are the potential costs to Morgan’s shareholders? What should senior management do next?

Readings:

Smith & Walter, Chapters 5 and 6

 “What is Really Unethical About Insider Trading?” by Jennifer Moore

“An Accountant’s Small Time Insider Trading” by Tom. L. Beauchamp

“Raymond Dirks and Equity Funding of America” by Roy C.
Smith

 “The Tip” by Ted C. Fishman

1. Should the accountant, Donald Davidson, trade on the information he has obtained from Warner Wolff?
2. Is Ray Dirks’ behavior consistent with the concept of fiduciary duty? Why was he reprimanded by the SEC but ultimately exonerated by the Supreme Court?
3. Jennifer Moore considers the “fairness” of insider trading. What is her conclusion? Do you agree? What, according to Jennifer Moore, is “really unethical” about insider trading? Do you agree?
4. Do laws forbidding insider trading  make financial markets more or less efficient? Use ideas from both economics and ethics to justify your position.

Readings:

“Eighth Application - Product Liability” by A. Mitchell Polinsky

“The Coase Theorem” by A. Mitchell Polinsky

“A.H. Robins: Dalkon Shield” by A. R. Gini & Terry Sullivan

“In Breast Implants Scandal, Where was Dow Corning’s Concern for Women?” by Andrew W. Singer

“Implants: Courts Dispose While Science Unfolds” by Gina Kolata

“Will the Lawyers Kill Off Norplant?” by Gina Kolata

1. Should A.H. Robins have introduced the Dalkon Shield when it did? Why or why not?
2. Does the breast implant case differ materially from the Dalkon Shield case? Be as specific and complete as you can.
3. What sorts of moral hazard does strict product liability create?  Do these apply to the case of Norplant?
4. Consider three possible laws (i) no product liability (producer never liable for harm caused by products), (ii) producers liable when negligent (producer liable when product causes harm, and it can be shown that producer should have taken more care in the design of its product), (iii) strict producer liability (producer liable for harm caused by unreasonably dangerous product, even when it can be shown that the producer took all reasonable care).  (A) Which policy is most economically efficient, and how does this depend upon information asymmetry? (B) Which policy is most fair?

Readings:

“Moral Minimums for Multinationals” by Thomas Donaldson

“Union Carbide: Chemical Dangers” by Rogene Buchholz

“The Oil Rig” by Joanne B. Ciulla

1. Analyze to situation faced by Union Carbide in India. What social responsibility did Union Carbide have? Where and why did it go wrong? How about UCIL? How about the Indian authorities? What about the U.S. government?
2. Donaldson presents an approach to resolving home/host country conflicts. Apply this approach to the circumstances described in “The Oil Rig.” According to this approach, are all the distinctions in treatment between the Angolans and Expats justified? Do you agree? Justify your position.

Readings:

“EEOC Guidelines on Discrimination Because of Sex”
 
“Harassment of Workers by ‘Third Parties’ Can Lead Into
Maze of Legal, Moral Issues” by L. A. Winokur

“An Effective Employer Response to Complaints of
Sexual Harassment” by John L. Valentino

“Firm to Pay $10 Million in Settlement of Sex Case” by Kenneth Gilpin

“Foreign Assignment” by Thomas Dunfee and Diana Robertson

“Propmore Corporation” by Peter Madsen and John Fleming

1. In the “Foreign Assignment” case, how would you judge the actions of Bill Vitam?
2. In the “Foreign Assignment” case, how does the structure of the bank affect the outcome of the case? How might you change this structure to get better results?
3. How do you react to the issues raised in the “Propmore Corporation” case?

Readings:

Smith & Walter, Chapter 10

“Whistleblowing: Its Moral Justification” by Gene G. James

“Aircraft Brake Scandal”  by Kermit Vandivier

1. Consider the position of Searle Lawson in the “Aircraft Brake Scandal” case. At what point, if any, should he have blown the whistle to someone outside B.F. Goodrich?
2. According to the criteria, as described in “Whistleblowing: Its Moral Justification,” is whistleblowing permissible in the “Aircraft Brake Scandal” case? Is it obligatory? Do you agree?
3. What do you think about the Bear  Stearns approach to whistleblowing as described in Smith & Walter. Will it survive Ace Greenberg’s retirement from the firm?

Reading:

Smith & Walter, Chapter 11

"Salomon Brothers Inc. and the Treasury Bond Scandals” by Roy C. Smith

1. What went wrong at Salomon Brothers Inc.?
2. Why?
3. What were the consequences?

There are two options:

(A) A legal or ethical business situation with which you have first-hand familiarity. You may have been A major or minor actor in the situation, or may have merely witnessed it.  In either case event, the requirement is that the situation involved ethical or legal issues, and that you were there.

(B) A case that has been recently featured prominently in the news which raised important legal or ethical issues.

You can choose either Option A or Option B.

The paper should be as short as possible consistent with coverage of the following points:

I. Situation

Provide a description of the situation. This description must be detailed and rich enough to allow the reader to get a clear sense of the issues and circumstances (2-4 double-spaced pages).

II. Analysis

Apply a workable method of ethical reasoning to the situation, and examine the results of this application. Are the results logical, beneficial, counter-intuitive, or in any other way problematic?  Here you should apply, wherever appropriate, concepts discussed in this course and in the readings (2-4 double-spaced pages).

III. Resolution & Conclusion

Describe how the situation was actually resolved.  Discuss this resolution in light of the ethical analysis from section II (2-4 double-spaced pages).

NOTE: The paper is due at the beginning of class on 14 December 1998. No late papers will be accepted.