LEONARD N. STERN SCHOOL OF BUSINESS

NEW YORK UNIVERSITY

PROFESSIONAL RESPONSIBILITY:

MARKETS, ETHICS & LAW

Fall Term 2010 B02.3101.02

Dates: Tuesdays and Thursdays

Meeting Time: 9:00am - 10:20am

Classroom KMC3-120

PROFESSOR LARRY ZICKLIN

Office Hours: Noon-2PM Tuesdays and Thursdays Room 10-91

Phone: (212) 476-9200

Fax: (646) 834-4329

Email: lzicklin@nb.com

Teaching Assistant: John Lauria, john.lauria@stern.,nyu.edu Secretary: jbotwina@nb.com or 212 476 9201

COURSE OBJECTIVES

The purpose of this course is to introduce the student to a broad range of “non-market”

issues encountered by managers and business professionals, and to help the student

develop a set of analytical perspectives for making judgments when such issues arise. In

economics, many of these issues can be described as market failures. When that occurs, it

is further proof that in the business world not every decision can be modeled or reduced

to a mathematical equation. Judgment therefore becomes the key factor that separates

those executives who attain great success from those whose careers never quite reach

their potential. To sharpen the student‟s judgment, we will examine the role of ethical

norms and reasoning in resolving the “non-market” issues in managerial life, and in

establishing standards of professional responsibility. More directly, the student in this

course will exercise professional judgment through discussion and analysis of one or

more cases, as indicated on the attached schedule of class assignments. In addition, we

will study writings in the fields of ethical reasoning, professional responsibility, and the

law.

In this particular section of Professional Responsibility, there will be a slightly greater

emphasis on the FINANCIAL SERVICES industry, as this is where I have spent much of

my career, and where so many shameful and unethical events have taken place over the

past few years. As you might imagine, there will be some time spent discussing the

current economic crisis as well as analyzing some relevant readings and/or cases. We

will, however, do them in greater detail and spend the necessary time in attempting to

determine what happened and why. Finally, it is reasonable to expect that more lapses in

professional responsibility will occur during the semester and we will interrupt our

planned syllabus and take the time to investigate those that seem most pertinent. In

addition, we will be visited by one or two guests who will shed further light on some of

the subjects under discussion.

As indicated above, our semester will be centered on one of the most difficult of business

subjects: that is the matter of exercising good ethical judgments during difficult periods

when you lack complete information and the clock is ticking. No matter how many tools

you acquire, the application of good judgment will make all the difference in your career.

During these weeks we spend together, there will be an attempt to sensitize you to the

seductions that money, ambition and ego create. We will emphasize the “slippery slope”

and how it often overrides good judgment. If you doubt it, consider the following

comment in Business Week from Joseph Berardino, former CEO of Andersen

Worldwide, who reputedly earned an estimated $3 million a year: “I paid the price, I

lost my job. I lost my firm. I’ve got less money today than I had as the newly elected

CEO. I lost my partner capital. I lost my retirement. I don’t have any stock options.

I may never work again.”

In short, we are into serious subjects that poorly handled, can cost you a career and, as

some highly placed executives have recently learned, your freedom.

Preparation for Class

The student‟s primary obligation in this course is to prepare for class discussion by a

thorough reading and analysis of assigned materials. There will be many individual

readings but they are normally only a few pages in length. Case discussions and in-class

activities are an essential part of the course. Sessions #1 through #13 each have a number

of study questions. Students are responsible for mentally preparing answers to all these

questions before coming to class. As a basis for further discussion, I will occasionally call

on students to provide their answers orally, so be prepared as I never want to embarrass

anyone.

Written Study Question Analyses

Each student should perform a written analysis for 3 study questions over the course of

the term. That is, for 3 sessions (from 2 through 13, the first session is not included) the

student should write out an analysis for any one of the assigned study questions. These

analyses should be no more than 1000 words in length and be handed in before the

session dealing with the particular case.

Final Exam

There will be a final exam that will encompass some of the readings, class discussion,

and a case that you will analyze. We will talk more about the exam during the semester

but the case analysis should apply some methods of ethical or legal reasoning to the

situation and offer potential solutions that should then be analyzed using appropriate

concepts from our readings or class discussions. The student should also refer to the

relevant law if applicable.

.

Grading

The weights for the student‟s overall grade are:

Class Participation 20%;

Written Study Question Analysis 40%;

Final Exam 40%.

PROFESSIONAL RESPONSIBILITY COURSE PACK

Required Cases & Readings 2010-2011

All required cases and readings for this course are located on Your Professor’s

Blackboard Page under the “Documents” link. Most of the course readings are free

EXCEPT FOR 11 readings which the students need to purchase from Xanedu.

Placing an Online Order for the Xanedu material: Go to the NYU Book Store web site: http://www.bookstores.nyu.edu

Click on the "Search for a Book" link

In the "Search by ISBN" option

Enter ISBN 978200003072B to order the B02.3101 Professional Responsibility 2010-

2011Coursepack

Proceed to Checkout and complete your order.

Within one business day of completing your order you will receive an email with your

Key Code that will give you access to your digital course pack.

Tax and shipping charges will be removed before your credit card is charged.

Problems? Contact rkowal@stern.nyu.edu

BLACKBOARD

On your professor‟s Blackboard page, you will find some of the Professional

Responsibility Cases and Readings 2010-2011 posted under the Course Documents

linked together with a Table of Contents. Syllabus and Sessions are posted under

Assignment link.

How to access your Xanedu Course Pack

1. Open a Web browser and go to www.xanedu.com.

2. ALREADY A REGISTERED XANEDU USER?

Log in to go to your My Xanedu page. At the bottom of your My Xanedu page is a field

labeled „Do you have a key for a Course Pack or ReSearch Engine?‟ Enter the 16-digit

key shown below, including the hyphens, into this field and click „Go‟.

3. NOT A REGISTERED XANEDU USER?

You‟ll need to register and create a user name and password. Click the Register link

under the “Students” login area on www.xanedu.com. Click the button labeled „Student

Registration‟. Complete the online registration form. Enter the 16-digit key shown below,

including the hyphens, at the bottom of the form. Submit the form. Your My Xanedu

page is displayed.

4. Select your Course Pack from the My Course Packs list and click „Go‟.

Important things to know about the key and your digital Course Pack

• You can enter the numeric key shown above only one time. If you have a problem

or question, call Xanedu Customer Service at 800-218-5971, Option 3, or send email to

contact@xanedu.com.

• Access to your digital Course Pack cannot be resold. Once you enter the numeric

key, only you can access the Course Pack.

• You will have unlimited access to your digital Course Pack until whichever

comes first: six months after the date of purchase, Or two months after the last day of

your course (as specified by your instructor).

• To access your Course Pack at anytime:

1. Open a Web browser and go to www.xanedu.com.

2. Log in with your user name/password combination.

3. Select the Course Pack from the My Course Packs list on your My Xanedu page.

4. Click „Go‟.

Final Note

I will try to keep the course as relevant as I can by spending a few minutes at the

beginning of class talking about any current events that impact on the subject of

Professional Responsibility. This will occasionally involve a new reading that will

sensitize you to the issue. Please monitor Blackboard on a daily basis and become

familiar with what has been posted. And fear not, as in past years, some relevant events

will most certainly take place during the semester.

COURSE SCHEDULE TOPICS & ASSIGNMENTS

SESSION #1

DATE: 9/07

INTRODUCTION – COURSE CONCEPTS, ECONOMICS OF MARKET

FAILURES – ETHICAL THEORIES

CASES Coursepack

The Price of Lobster

Thermidor

The Economist http:/www.

suboceansafety.org

Moral Standards Across

Borders

READINGS

Our Schizophrenic

Conception of the

Business Corporation

William T. Allen

Course Concepts

Making an Ethical

Decision

Terry Halbert & Elaine

Ingulli

Course Concepts

(ethical theories)

The Hazard of Moral

Hazard

James K. Glassman Agency & Fiduciary Duty

(“Fiduciary Duty”)

STUDY QUESTIONS—NO PAPERS REQUIRED FOR FIRST LECTURE—

INFORMATION PURPOSES ONLY

1. Based on the Halbert & Ingulli reading, identify at least one market failure related

to one of your employment situations and apply the methods of ethical reasoning

to that failure.

2. How might the Glassman and/or Halbert readings help you to analyze and solve

the Lobster Thermidor case?

3. Does the William T. Allen reading accurately describe the plight of corporate

executives? Why or why not?

SESSION #2

DATE: 9/14

Subject: TRUTH & DISCLOSURE

CASES Course Pack

Bitter Pill Ralph T. King, Jr Truth & Disclosure

(“Truth”)

Medical Papers By

Ghostwriters Pushed

Therapy

Natasha Singer “Truth”

READINGS

Bluffing Jim T. Priest Course Concepts

(business bluffing)

When Do Exaggerations

and Misstatements Cross

the Line?

Stewart Friedman

Knowledge@Wharton.com

“Truth”

STUDY QUESTIONS:

1. Would Jim Priest voice any objections to the corporate actions of Boots

described in “Bitter Pill”? Why or why not? Do you agree with Priest? Why

or why not?

2. Is there anything ethically wrong with the actions of the pharmaceutical

companies in “Medical Papers By Ghostwriters Pushed Therapy?” What if all

drug companies behaved in similar ways? Would this make their actions more

justifiable as “business bluffing?”

3. Does exaggeration or embellishment constitute bluffing or, perish the thought,

lying? Explain why or why not, using any of our readings or your own

experiences as support.

SESSION #3

DATE: 9/16

Subject: GIFTS, SIDE DEALS & CONFLICTS OF INTEREST

CASES Course Pack

Roger Berg

Ronald M. Green

“Gifts”

Groups Seek to Block

Generic Heparin

Alicia Mundy

Blackboard

READING

Bribery & The Foreign

Corrupt Practices Act

http://www.usdoj.gov/criminal

/fraud/docs/dojdocb.html

STUDY QUESTIONS:

1. How should American executives respond when their foreign competitors are

bribing officials in developing countries? Should they refrain and risk losing

business, make the requested payments, or should they “outsource” the

problem to intermediaries?”

2. Put yourself in the position of Roger Berg and tell me what you would do and

why. Use ethical concepts and methods from the Halbert/Ingulli and Bribery

readings to support your position.

3. What do you think of Laurence Wellikson’s response in the Generic Heparin case, when he said “his letter "was based entirely on the best evidence-based medicine available and the collective experience of SHM's senior hospitalists and therefore it wasn't necessary to disclose that the group receives financial support from Sanofi.”

SESSION #4

DATE: 9/21

Subject: AGENCY & FIDUCIARY DUTY

Guest Ira Sorkin – Former Director of the SEC’s New

York Office

CASE Course Pack

SEC Complaint against

Goldman Sachs and

Fabrice Tourre

Blackboard

READINGS

Weighing the Trade-Offs

in the Goldman Settlement

Peter J. Henning and Steven

M. Davidoff

Blackboard

STUDY QUESTIONS:

1. Fabrice Tourre was an employee attempting to secure a partnership at

Goldman Sachs. Given this ambition, did he do anything wrong or was he

just careless with his emails? Do his personal views really matter? Can this

really be considered fraud? (I‟m not asking you to make a legal judgment,

rather an ethical one based on your experience and what we‟ve covered to

date.)

2. Many lawyers believe that Goldman Sachs had a very powerful defense that

would have prevailed had there been a trial. So why did they settle? Why did

the SEC settle?

3. The fine in the Goldman Case was equal to about 2 weeks of their earnings.

Was this enough? Should they have been forced to admit guilt? Why or why

not?

SESSION #5

DATE: 9/23

Subject: AGENCY & FIDUCIARY DUTY Second Lecture

CASES Course Pack

Old City Enterprises

Larry Zicklin Agency & Fiduciary Duty

(“Fiduciary Duty”)

“Good Charity Hospital Larry Zicklin* Blackboard

READINGS

Disloyal Agents David Cavers Fiduciary Duty

A Promise to be Ethical in

an Era of Immorality

Leslie Wayne Fiduciary Duty

STUDY QUESTIONS:

1. Discuss the fiduciary conflicts that Ed Stevens faces in the “Old City” case,

given the issues raised by William Allen in his “Schizophrenic Conception”

article as well as the Disloyal Agents reading.

2. Formidable was always acting in the best interest of its limited partners who

realized approximately 80% of the profits. What, if anything, have they done

that is illegal? Should they be forced to settle “merely” because they were a

step ahead of the crowd employing a practice which some deem to be

unethical?

3. Using either the material we have read or the discussions in class, please

respond to the Leslie Wayne, NY Times article regarding “A Promise to be

Ethical.” Is it realistic in view of the conflicts that each of us face or will face

as our careers evolve?

SESSION #6

DATE: 9/28

Subject: SALES AND MARKETING

CASES Course Pack

West Virginia Consolidated

Investment Fund

Ingo Walter Sales & Marketing

Responsibility Yes, But to

Whom?

Larry Zicklin Sales & Marketing

Buzz Kill? Critics Target

Alcohol-Caffeine Drinks

David Kesmodel Blackboard

READING

Investment Management:

Business or Profession…

John C. Bogle Sales & Marketing

STUDY QUESTIONS:

1. Analyze the “West Virginia CIF case using any of the past readings or class

discussions as a reference. What would you do in Harry Neven‟s position?

Why?

2. In his article, “Investment Management: Business or Profession,” John Bogle

implies that much of the mutual fund business is driven by moral hazards and

problems of fiduciary duty. Is this any different from other parts of the

financial world, or, for that matter, the economy in general? Doesn‟t Adam

Smith‟s writings ultimately solve the problem? Give me your view using class

readings and discussions to support your argument.

3. Argue the “Buzz Kill” article from both the regulator and regulated point of

view. What would you do if you were the CEO of the leading producer of the

drink? Why? What if you were a regulator who knew that young people were

the largest consumers of these drinks?

SESSION #7

DATE: 9/30

BOARDS OF DIRECTORS

CASES Course Pack

Boeing CEO Resigns Over

Affair With Subordinate

Renae Merle Directors

Hewlett Packard Still Can’t

Handle the Truth

James B. Stewart Blackboard

READINGS

Corporate Liability

Exposure and the Potential

Risk of Individual Director

Liability

Amy Onder and Adam J

Siegelheim

Directors

Excerpts from the Report

of a Special Committee

Investigating Enron

Blackboard

STUDY QUESTIONS:

1. Should an effective executive like Harry Stonecipher (Boeing case) have been

forced to resign since he was not responsible for supervising the unnamed

female executive nor were there any charges of sexual harassment? Why or

why not? Was the action taken by the board of directors justified by the

business judgment rule?

2. Apply the Business Judgment Rule (“Corporate Liability Exposure”) to the

actions (or lack of actions) of the board of directors (“Committee

Investigating Enron”) of Enron. What kind of grade would you give to the

Enron Board? Why?

3. Mark Hurd was arguably one of the most successful CEOs in the world of

technology. From both an ethical and shareholder point of view, discuss the

decision of the board to force his resignation.

SESSION #8

DATE: 10/05

CONTROL BY LAW

CASES

NASD Says Firm Gave

Improper Rewards

Morgan Stanley Official

Fined; Incentives

Used to Boost Sales of

Proprietary Mutual Fund”

Tom Lauricella *

Blackboard

Deals and Consequences Landon Thomas Jr. Control By Law

READINGS

The Capital Gained From

Culture

Bernard Simon

Blackboard

Living With the Organizational Sentencing Guidelines

Jeffrey Kaplan, Linda S.

Dakin, Melinda R. Smolin

Control By Law

In Justice Shift, Corporate

Deals Replace Trials

Eric Lichtblau Control By Law

1. What are the implications of the Corporate Sentencing Guidelines and The Revised

Guidelines with regard to Corporate Behavior? Will any of it change corporate behavior?

Are the compliance costs that the U.S. sentencing guidelines imply justified? What are

the implications of the Corporate Sentencing Guidelines for individual employees?

2. Do you agree with the current trend towards the deferred prosecution of white-collar

crime (“In Justice Shift”)? Would this policy have made any difference in any of the

cases that we have discussed thus far?

3. Morgan Stanley earns more from its proprietary funds than from selling outside funds.

Given its responsibility to shareholders, why shouldn‟t it promote them? Where is the

ethical problem?

SESSION #9

DATE: 10/07

INSIDER TRADING

CASES Course Pack

Martha Stewart Roy C. Smith Insider Trading

Market Stress and Rare

Opportunities

Larry Zicklin Insider Trading

Trading Room Ethics Larry Zicklin Insider Trading

READING

What is Insider Trading? Insider Trading

The Case for Insider

Trading

Henry G. Manne

Insider Trading

STUDY QUESTIONS:

1. Outline the procedures Teri Forman employs to move large blocks of stock in

“Trading Room Ethics.” Is this insider trading? Why or why not? In Teri’s

position, would you act any differently? Consider the fact that her competitors

may be doing the same thing? Use any of the readings or class discussions to

support your arguments.

2. Do Laws forbidding insider trading make financial markets more or less

efficient? Use ideas from both economics and ethics to justify your position as

well as the reading on “Insider Trading.”

3. Discuss the ethical issues in the “Market Stress” case. Are we dealing with a

cabal to destabilize a market? Why or why not?

SESSION #10

DATE: 10/12

SOCIAL RESPONSIBILITY TO STAKEHOLDERS

CASES Course Pack

Curem Pharmaceutical Larry Zicklin * Blackboard

What Price Safety?” A Motorola Case* Blackboard

READING

The Social Responsibility

of Business is to Increase

Its Profits

Milton Friedman Social Responsibility

STUDY QUESTIONS:

1. What advice would Milton Friedman give to the CEO of Curem? Would you

agree with him? If you were their CEO, how would you engage the board in

this problem? Or would you simply ignore them as this is simply part of your

management responsibility? Why or why not?

2. Analyze the “What Price Safety” case using readings and discussions as

background. Remember, this event does not take place in the U.S.

SESSION #11

DATE: 10/14

PRODUCT LIABILITY

CASES Course Pack

A.H. Robins: Dalkon Shield A. R. Gina & Terry Sullivan Product Liability

Legal Myths: The McDonald’s

Hot Coffee Case” The Public Citizen Product Liability

Repeated Defect in Heart

Devices Exposes a History of

Problems

Barry Meier Product Liability

READINGS

In BP’s Record, a History

of Boldness and Costly

Blunders

Sarah Lyall Product Liability

Let‟s Restore Balance to

Product Liability Law

Robert H. Malott

Product Liability

STUDY QUESTIONS:

1. Should A.H. Robins have introduced the Dalkon Shield when it did

(“A.H.Robins”)? Which legal theories of product liability (Malott and Manley

readings) may apply to A.H. Robins and what is their potential legal

exposure? Does Robins have any defenses? What method of ethical reasoning

seems most appropriate to this problem?

2. Was McDonald‟s “negligent” and/or strictly liable for selling “unreasonably

dangerous” coffee in the “hot coffee” case? Was this just a lawyer‟s pay day,

or are there substantive issues here?

3. When all the “dust settles,” how should society judge BP‟s prior record for

safety as it affects their ability to defend the myriad of lawsuits that are certain

to plague them for years to come. How about their ability to secure future

leases for exploration?

4. Have any fiduciary duties been breached in the Guidant heart device case

(“Repeated Defect in Heart Devices Exposes a History of Problems”)? Can

you identify any market failures?

SESSION #12

DATE: 10/19

MORAL STANDARDS ACROSS BORDERS

CASES Course Pack

Philip Morris‟ Global Race Nanette Byrnes and Frederik

Balfour

Moral Standards Across

Borders

Google‟s China Problem

(and China‟s Google

Problem)

Clive Thompson * Blackboard

China Kowtows To

Nobody, Especially

Google

Gary Epstein

Moral Standards Across

Borders

READINGS

In Praise of Cheap Labor:

Bad Jobs at Bad Wages

Are Better Than No Jobs

At All

Paul Krugman Moral Standards Across

Borders

Values in Tension: Ethics

Away from Home

Thomas Donaldson* Blackboard

Universal Declaration of

Human Rights

http://www.un.org Moral Standards Across

Borders

STUDY QUESTIONS:

1. Using the writings of Paul Krugman (“Praise of Cheap Labor”) and Tom

Donaldson (“Values in Tension”) as background, analyze the Google/China

cases.

2. With the “Universal Declaration of Human Rights” as background, how

should a corporate executive respond to the issues raised in the Phillip Morris

situation? How do you reconcile the business opportunity with the ethical

issues?

3. What might Paul Krugman and Tom Donaldson think about the Phillip Morris

case? Why?

SESSION #13

DATE: 10/21

WHISTLE BLOWING & LOYALTY

CASES Course Pack

Moment of Truth: A

Whistleblower‟s Dilemma

in the Financial Services

Industry

Donald Schepers &

Harry Rosen

Whistle Blowing

READINGS

New Financial Reform

Legislation Provides

Whistleblowers with

Expansive Protection

Debevoise & Plimpton, LLP Whistleblowing

Daisha Rodriquez at Mega

Bank

Larry Zicklin Discrimination

STUDY QUESTIONS:

1. Consider the position of Joel Steiner in the "Moment of Truth” case. Did he

handle the situation correctly? Did he have alternatives? Would you have done

anything different, and, if so, why? Use readings and ethical concepts to support

your position.

2. If the New Whistleblower Protection laws had been in effect during the Moment

of Truth case, would Joel Steiner‟s dilemma have been any simpler? Why?

3. Are the financial incentives that are part of the new Whistleblower Protection

reform necessarily good? From both an ethical and business perspective, are

there any negative implications and, if so, how serious are they?

4. Using your own experiences and the readings and case discussions to date, how

would you respond to the situation of Daisha Rodriguez at Mega Bank?