Mid Term Studies

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York University *

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ADMS 3660

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Management

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Apr 3, 2024

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DuPont Case Certainly, let's delve deeper into each of the 15 points, providing more detailed explanations and incorporating the theories of Roy Shapira and Luigi Zingales, along with relevant examples: 1. Time Lag and Time-Value of Money:  Explanation: DuPont's decision-making reflects temporal discounting, a concept in Shapira and Zingales' theories. The executives anticipated delayed consequences, allowing them to prioritize short-term gains over long-term environmental impact.  Example: DuPont's executives counted on the "eventually" to come several decades later, allowing them to maximize short- term profits. 2. Ineffectiveness of Ex-Post Fines:  Explanation: Shapira and Zingales argue against raising sanctions, highlighting that even substantial fines imposed on DuPont were insufficient to deter pollution. This aligns with the notion that increased fines might not guarantee effective deterrence.  Example: Despite significant fines, DuPont's pollution practices continued, showcasing the limitations of ex-post fines in deterring environmental misconduct. 3. Juror Focus on Defendants' Ability to Pay:  Explanation: Shapira and Zingales' theory of enforcement ambiguity resonates with the jurors' emphasis on the defendant's ability to pay. This showcases how legal penalties might be influenced by practical considerations rather than optimal deterrence.  Example: Jurors focused on DuPont's financial capacity to pay punitive damages, rather than determining the amount required for optimal deterrence. 4. Path Dependency and Past Liability:  Explanation: The decision in 1984 and the acknowledgment of past liability highlight path dependency. Shapira and Zingales' theory of sunk costs explains how past actions influenced future decisions, even when the liability was considered sunk.  Example: DuPont's decision in 1984 was influenced by past environmental liabilities, illustrating the path-dependent nature of corporate decision-making. 5. Regulatory Framework and Information Extraction Difficulties:  Explanation: The Toxic Substances Control Act's limitations and soft capture illustrate Shapira and Zingales' concept of

regulatory challenges. Companies, including DuPont, can resist enforcement and influence regulations to their advantage.  Example: TSCA's limitations allowed DuPont to under-report information, contributing to difficulties in detecting and regulating C8 issues. 6. Bad Enforcement and Soft Capture:  Explanation: Shapira and Zingales' theory of asymmetric monitoring helps understand DuPont's ability to erode regulatory enforcement without explicit bribery. This reflects the challenges regulators face when dealing with opaque chemicals.  Example: DuPont's influence in regulatory agencies, including instances of personnel transitioning between the company and regulatory bodies, showcases the concept of soft capture. 7. Reputation Concerns of Individual Managers:  Explanation: The time lag between decisions and public revelation diminishes reputational concerns. Shapira and Zingales' settling-up processes theory explains how delayed consequences may reduce the impact on individual managers' reputations.  Example: DuPont's executives, making decisions in 1984, faced reduced reputational concerns due to the extended time lag before public scrutiny intensified. 8. Board Dynamics and Individual Reputations:  Explanation: Shapira and Zingales' theory on board dynamics helps understand how board members, given the time lag, might not prioritize reputational concerns. Individual reputations may be less at stake due to retirement or death.  Example: DuPont's board dynamics in 1984 were influenced by members who, over time, retired or passed away, reducing the personal reputational stakes in subsequent legal actions. 9. Diffusion, Certification, and Attribution of Information:  Explanation: Shapira and Zingales' concept of information subsidies is evident in legal actions providing credible information to national media. This facilitated diffusion, certification, and attribution, making stakeholders more aware of the pollution issue.  Example: Litigation provided credible information to national media, substantiating claims against DuPont and leading to increased public awareness and scrutiny. 10. Certification Challenges in Academic Research:  Explanation: Shapira and Zingales' idea of academic conflicts of interest explains challenges in certifying academic research. DuPont's influence or potential pressures might have affected the timing and publication of studies on the adverse effects of C8.

 Example: Academic studies critical of C8 faced challenges in publication, with instances of retractions and pressure allegedly exerted by DuPont, showcasing certification challenges in academic research. 11. Reputation Management through CSR:  Explanation: DuPont's heavy investment in CSR aligns with Shapira and Zingales' theory of strategic image projection. CSR serves as a tool for reputation management, projecting a positive image to stakeholders.  Example: DuPont's "Open Science" PR campaign post-legal actions and fines reflects strategic efforts to manage its reputation through CSR initiatives. 12. Media Attention and Information Subsidies:  Explanation: Shapira and Zingales' information subsidies theory is evident in the role of litigation providing credible information to the media. Legal actions subsidized reporters with credible and shielded-from-liability quotes and documents.  Example: Litigation provided the media with credible and substantiated information, acting as a subsidy that fueled increased media attention and coverage of the C8 issue. 13. Certification Challenges in Academic Research:  Explanation: The concept of academic conflicts of interest from Shapira and Zingales explains challenges in certifying academic research. DuPont's potential influence may have contributed to delays in certifying damning information on corporate behavior.  Example: Academic studies critical of C8 faced challenges in publication, with instances of retractions and pressure allegedly exerted by DuPont, showcasing certification challenges in academic research. 14. Spinoff Impact on Reputational Liability:  Explanation: Shapira and Zingales' theory on regulatory risk mitigation can be applied to assess how the spinoff of liabilities to Chemours affects DuPont's reputational liability. The spinoff raises questions about DuPont's accountability and reputational repercussions.  Example: The spinoff to Chemours raised concerns about DuPont's accountability, and DuPont's media strategy post- spinoff reflects efforts to disassociate from the C8 debacle. 15. Investment in CSR vs. Abatement Measures:  Explanation: Shapira and Zingales' theory on CSR as an insurance mechanism is relevant here. DuPont's emphasis on CSR, even after legal actions and fines, suggests a strategic choice to invest in CSR as a form of reputational insurance rather than prioritizing direct abatement measures.

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 Example: DuPont's continued investment in CSR initiatives post- legal actions indicates a strategic preference for managing reputational risk through positive public image projection rather than direct abatement measures. These detailed explanations provide a comprehensive understanding of how Shapira and Zingales' theories can be applied to the various aspects of the DuPont case. The incorporation of examples enhances the illustration of each point in the context of corporate decision-making and environmental impact. Bowie’s neoclassical model 7 Principles of Kantian Business Ethics (Module 2) (45-49)  Act based upon moral duty, not based upon concern (emotions) or consequence (end goals)  The categorical imperative determines moral duty: o Universalizability : If everyone did it, would it become self-defeating? o Reversibility : Put yourself in the other person’s shoes (i.e., the person most directly affected) o Respect : Don't treat people merely as a ‘ means ’ to an end (i.e., do not exploit people)  7 Principles of Kantian Business Ethics: 1. Consider interests of all stakeholders in any decision 2. Have stakeholders participate in determining policies that affect them. 3. Interests of one stakeholder group don’t always take priority. 4. If humanity of one group must be sacrificed for the humanity of another, the decision cannot be made just on the basis of which group is bigger. 5. Adopt no principle that is inconsistent [not universalizable] or that fails to respect any persons as ends in themselves. 6. Be beneficent [imperfect duty] 7. Establish procedures to ensure relations among stakeholders are based on justice and consistent with principles 1-6  Bowie examples: o Incurring debt intending not to pay [4-5] o Theft [5] o “Renegotiating” contracts [5] o Not paying bills [6] o Bribery [14] o Layoffs—coercive or deceptive? [8] o Open-book management. [9] o Note: making profit may be a duty, if done morally

DesJardins on law and ethics (Module 3)  Shareholder primacy model (76, 77, 85, 102, 104, 119) o Introduction:  DesJardins “economic model”  Shareholders conceived as “owners” of the corporation  Managers are agents (employees) of shareholders (owners)  Fiduciary duty to maximize profit  shareholder value  Basic duty to respect other stakeholder rights but not to advance their interests  Critical of much CSR, ESG, “stakeholder capitalism” o Instrumental vs Normative Stakeholder Theories  Instrumental  Strategic stakeholder management/CSR as a means (“instrument”) for maximizing profit  Does not contradict shareholder primacy theory of corporate purpose  Friedman, Jensen supports, but against implying altruistic motive  Normative  Stakeholder interests as end in itself  Contradicts shareholder primacy theory of corporate purpose  Like shareholder primacy, supported by utilitarian and rights arguments  Friedman, Jensen opposes  Examples of Normative Stakeholder Statements 1. The purpose of the corporation is to harness private interests to serve the public interest. 2. Corporations shall accrue fair returns for shareholders, but not at the expense of the legitimate interests of other stakeholders. 3. Corporations shall operate sustainably, meeting the needs of the present generation without compromising the ability of future generations to meet their needs. 4. Corporations shall distribute their wealth equitably among those who contribute to wealth creation. 5. Corporations shall be governed in a manner that is participatory, transparent, ethical, and accountable. 6. Corporations shall not infringe on the right of natural persons to govern themselves, nor infringe on other universal human rights.” Health’s 5 rules: o Rule 1: Don’t exploit market failure

 Don’t cut costs by displacing them on to others rather than through genuine efficiency gains  Question :  Is letting go half the staff and making the rest work twice as hard for the same pay a “genuine efficiency” or exploiting market failure? o Rule 2: Don’t cheat  Don’t take advantage of the fact that laws and regulations are hard to enforce, and firms can often get away with non-compliance  E.g. don’t do a VW (BP, etc. etc.)  Friedman would agree o Rule 3: Don’t game the rules  Don’t seek loopholes or seek to comply only with the technical letter of the law in ways that violate the spirit of the law and contribute to market failures the law tries to correct o Rule 4: Take the high road  Follow rules 1-3 even if competitors do not and this puts you in a competitive disadvantage  The hardest to follow! o Rule 5: Don’t lobby against laws that correct market failure  E.g., against environmental and health & safety regulations that impose costs, green taxes, etc.  The most significant difference between Heath and neoliberals (who emphasize social costs of government action to reduce social costs)  What about trade-offs among market failures?  E.g., patent laws, designed to solve one market failure (public goods problem) by deliberately creating another (monopoly)? o Heath opinion on Market Failure:  Heath agrees with the main premises of the efficiency (utilitarian) defense of shareholder primacy, and its critique of stakeholder theory  Heath disagrees with the conclusions of the efficiency (utilitarian) defense of shareholder primacy  Heath supports much broader CSR than shareholder primacy does, especially where CSR is not profitable for the firm.  Heath’s reasoning is much more important than the “5 rules Adam Smith:  Adam Smith's Ethical System: Virtue Ethics  Based on moral sympathy and approval: Smith's ethical system emphasizes the importance of individuals considering

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moral virtues and societal norms, with moral sympathy and approval playing a central role in ethical judgments.  Weighing moral virtues against social norms: The system requires individuals to balance moral virtues with prevailing social norms, recognizing the dynamic nature of morality in different contexts.  Considering taste, aesthetics, and moral sensibility: Smith's approach highlights the significance of subjective factors such as taste, aesthetics, and moral sensibility in making ethical decisions.  Components of Smith's Moral Theory  Natural sympathy among people: Smith's theory acknowledges an inherent sympathy among individuals, exploring how people naturally connect with each other on a moral level.  "Man within the breast" and the impartial spectator: Individuals, when assessing the rightness of an action, consult an internal moral guide ("man within the breast") and consider how an impartial spectator would perceive the situation.  Emphasis on virtue, especially commutative justice: Smith places importance on virtue, with a special focus on commutative justice, which he views as precise and indispensable.  Propriety and Sympathy in Ethics  Basis for judgments of praiseworthy or blameworthy behavior: Smith's system relies on individuals' judgments of propriety and sympathy to determine whether behavior is praiseworthy or blameworthy.  Recognizes gray areas and ambiguity: Unlike rigid ethical systems, Smith's approach acknowledges the existence of gray areas and ambiguity in moral situations, where actions may fall within a range of acceptable behavior.  Attractiveness to Libertarians  Private mechanisms of enforcement and development: Libertarians may find Smith's ethical system appealing as it avoids state intervention. Enforcement and development of morality occur privately through praise and blame from individuals rather than government interference.  Variation and experimentation in social norms: The system allows for variation and experimentation in how different communities apply moral principles to social norms, promoting flexibility in a diverse society.  Enforcement without Violence  Persuasion and censure, not violence: Smith's system advocates for the enforcement of moral behavior through

persuasion and censure rather than resorting to violence or physical coercion.  Community experimentation with norms: Communities have the freedom to experiment with and adopt different norms, and outsiders may face disapproval for violating those norms without resorting to force.  Multicultural Society Considerations  Compelling for a multicultural society: Smith's ethical system is particularly compelling for a multicultural society like the United States, as it accommodates diverse norms while maintaining underlying moral principles.  Underlying moral principles allow for judgment: While communal norms may vary, there are underlying moral principles that provide a basis for outsiders to judge the norms of different communities.  Gray Areas and Vagueness  Smith's approach addresses gray areas and vagueness: Unlike more rigid ethical frameworks, Smith's approach actively engages with moral ambiguity and the complexity of ethical decision-making.  Emphasis on debate, judgment, and censure: Smith encourages ongoing dialogue and judgment regarding virtuous behavior, promoting the evolution and improvement of social norms through conversation and mutual censure. Zingales:  Ethical Economy Moving Forward:  Necessity of Change: Zingales emphasizes Pope Francis's writings as essential for building a more ethical economy, especially in the aftermath of the subprime mortgage crisis.  Legal Indictments: Cites the lack of legal consequences for business leaders in finance post-crisis as a motivation for change.  Implementing Change:  Shareholder Responsibility: Zingales urges shareholders to "invest and engage," using their votes to push corporations toward ethical decision-making.  Activist Investor Example: Mentions the Northwest Coalition for Responsible Investment, an investor group pressuring firearm manufacturers to address gun violence, with BlackRock eventually joining their cause after the Parkland school shooting.

 MBA Students' Responsibility:  Role of MBA Students: Zingales asserts that MBA students have a responsibility to follow the example of activist investors in prioritizing ethics over profits.  Moral Choice: Choosing not to actively invest or engage is considered a moral choice endorsing the status quo.  Challenges and Questions from Booth Students:  Obstacle 1 - Lack of Transparency: Concerns raised about corporations' transparency. Zingales advocates for better whistleblower protections to unveil unethical practices.  Obstacle 2 - Tolerance for Controversial Decisions: Challenge of tolerance for companies making controversial ethical decisions. Zingales argues for Americans to be more accepting of diverse ethical systems.  Pluralistic Society and Ethical Preferences:  Tolerance and Pluralism: Zingales highlights the importance of tolerance in a pluralistic society, referencing the Hobby Lobby case as an example.  Corporate Ethical Principles: Argues that businesses should be allowed to operate according to their ethical principles, even if they differ from individual preferences. In summary, Zingales urges a shift in corporate priorities from pure profit maximization to a more holistic view of ethics and human flourishing. He calls on shareholders, particularly MBA students, to actively engage in promoting ethical decision-making by corporations. The discussion also addresses challenges such as transparency and the need for tolerance in a diverse society.

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