LEONARD N. STERN SCHOOL OF BUSINESS
NEW YORK UNIVERSITY
PROFESSIONAL RESPONSIBILITY:
MARKETS, ETHICS & LAW (B02.3101.W3)
SPRING 2006
DATES:
January 16,18,23,25; AND 1/21 Sunday 9-4 P.M.
TIME:
6:00 P.M.-9:00P.M.
ROOM:
KMC
PROFESSOR Barbara Holt
 Office: 305 Tisch Hall
 Office Hours: before & after class, & by appointment.
 Phone: 212-998-0049
 Fax: 212-995-4230
 E-Mail: bholt@stern.nyu.edu

Secretary: icoleman@stern.nyu.edu or 212 998-0048
 Teaching Assistant:
COURSE OBJECTIVES
The purpose of this course is to introduce you to a broad range of “non-market” issues
encountered by managers and business professionals, and to help you 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. To a limited extent, we will illustrate
how the legal system is used to redress such failures of the market economy. We will also
examine the role of ethical norms and reasoning in resolving issues in managerial life,
and in establishing standards of professional responsibility.
More directly, in this course you will exercise professional judgment through discussion
and analysis. Most such exercises will require the 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. We
will also look at recent examples in the news and try to understand what happened and
why.
There is no formula or easy answer to some of the situations you will encounter. There
are many pressures you may feel in certain aspects of your work and the objective of this
course is to sensitize you to this and emphasize the role good judgment will play in
making tough decisions throughout your career. We will have a number of guests
throughout the course who will share their experiences and perspectives with the class.
1. TEXTBOOK
Professional Responsibility: Markets, Ethics & Law: Case Readings for 2006-07
(13th Edition). All cases and readings for this course are found in this textbook which is
now available in digital form only.
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The digital coursepack is available only through the NYU Professional Bookstore.
Note that the edition for the current academic year, 2005-06, is different from prior
editions. Make sure you have the current edition.
BLACKBOARD PAGE: Additional outlines and class notes can be found on Professor
Holt’s Blackboard page. There will be postings here as well as materials courtesy of
Professor Rachel Kowal and Professor Ingo Walter.
2. PREPARATION FOR CLASS
Each class session consists of several study modules labeled A, B, C, etc., respectively.
Each study module contains readings and study questions. Your primary obligation in
this course is to prepare for class discussion by thorough reading and analysis of assigned
materials. Class discussions are an essential part of the course. All students are
responsible for mentally preparing answers to all of the study questions before coming to
class. You should expect to be called upon during class to provide answers to these study
questions.
3. COURSE REQUIREMENTS
1. Attend all 5 scheduled class sessions.
2. Homework: 3 Written Study Questions (2 - 3 pages each). Pick ONE study
Question out of the assigned readings for three of the six classes.
3. Homework assignments due prior to the class meeting. Hand in hardcopy
at the beginning of each class.
4. Term Paper Description (1 page).
5. Term Paper (6-10 pages).
4. ATTENDANCE
There are only 5 sessions for this course. Therefore, you are required to attend all
sessions in their entirety including all day Sunday January 21st.. Attendance will be
taken. If you do not attend all classes, you will not receive credit for the course. If, due
to work or personal circumstances, you doubt your capacity to attend all6 classes then
you should drop this section and register for another.
5. GRADING
Your homework assignments and term paper will be primarily evaluated upon how well
you integrate the course concepts- ethical, legal and economic -into your written analysis.
Even if the study question that you choose does not ask for an application of course
concepts to the situation, it should always be a part of your written work for this course.
Breakdown of the student’s overall grade:
Class Participation
20%
Homework Papers
40%
Term Paper Project
40%
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6. HOMEWORK: 3 Written Study Question Analyses (2-3) pages typed, doublespaced): Due January 18, 21, and 23
Each student is responsible for handing in a total of 3 written homework
assignments . Each homework assignment consists of a 2 to 3 page written analysis of
ONE study question of your choice from one of the study module(s) we will be
discussing that day in class.
7. TERM PAPER DESCRIPTION: (1 page typed): Due January 21st
A one-page description of your term paper project as described below.
TERM PAPER PROJECT: (6-10 pages typed & double-spaced)
Due February 1
You are responsible for a term paper. The purpose of this paper is to apply principles of
professional responsibility to an actual, specific business situation. You will describe a
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 the situation. The
requirements are that the situation raise ethical or legal issues and that you were there. It
would not be appropriate to analyze a situation if you were not in a position to observe it
directly.
All term papers should follow this format:
I. Situation
Provide a description of the situation or practice; this description must be detailed enough
to allow the reader to get a clear sense of the issues & circumstances (2-4 pages).
II. Analysis
Apply some method or methods of ethical (or perhaps legal) reasoning to the situation
and examine the results of this application. Here the student should apply, wherever
appropriate, concepts from the course and its readings as well as cite relevant law
concepts where appropriate (2-4 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 pages).
Term Paper Grading:
This assignment is graded based upon how systematically and thoroughly you apply
relevant concepts and methods from the course to the situation, and in testing the worth
of those concepts and methods in resolving the ethical issues it presents. Papers should be
well edited and spell-checked.
Confidentiality of Term Paper Projects:
The contents of the term paper projects that you submit are held strictly confidential. The
term papers are not read by anyone other than the professor and are not disseminated in
any fashion to other person(s) except with your prior permission.
Handing In Term Paper Projects:
Term papers are due on or before February 1.Term Papers should be submittted in class
or to Iantha Coleman, Tisch 300.
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9. DUE DATES
Homework Papers (2-3 pages):
Project Descriptions (1 page):
Term Project (6-10 pages):
Due
Due
Due
1/18,1/21,1/23
1/21
2/1
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COURSE SCHEDULE
DRAFT-Some Readings may change
DAY #1
January 16th 6:00-9:00 P.M.
TOPICS & ASSIGNMENTS
A. INTRODUCTION: MARKET FAILURES & PROFESSIONAL DILEMMAS
READINGS
Economic Theories of
Regulation: Normative vs.
Positive
Making An Ethical
Decision
Peter Drucker Article
Our Schizophrenic
Conception of the Business
Corporation
The Price of Lobster
Thermidor
Pollution Case Highlights
Trend to Let Employees
Take the Rap.”
Linda N. Edwards & Franklin
R. Edwards
p. 5
Terry Halbert & Elaine Ingulli p. 15
Posted on Blackboard
William T. Allen
p.35
The Economist
p. 365
Dean Starkman
p. 312
STUDY QUESTIONS
1.What relevance does the Peter Drucker article have for this class? (Note: This is not a
study question to be written up.)
2.Why do market failures tend to bring about law or regulation to counter their effects?
3. Based on the Edwards article which market failures or imperfections are present in the
“Lobster Thermidor” case? In the “Pollution” case?
4. Based on the Halbert & Ingulli reading, identify at least one market failure related to
your employment situation and apply the methods of ethical reasoning to this market
failure.
5.How might ethical methodology help an executive or legislator make more effective
decisions in the presence of market imperfection?
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B. TRUTH & DISCLOSURE
READINGS
Is Business Bluffing
Ethical?
Neutral Omni-Partial Rule
Making
The Numbers Game
Bitter Pill
Today’s Analyst Often
Wears Two Hats
Albert Carr
p. 73
Ronald M. Green
P. 22
Arthur Levitt
Ralph T. King, Jr
Roger Lowenstein
P.67
p. 53
p. 65
STUDY QUESTIONS
1.Would Albert Carr voice any objections to the (1) corporate actions of Boots described
in “Bitter Pill”; 2) to the financial analysts Lowenstein mentions; or 3) the rest of the
financial industry described by Levitt? Do you agree with Carr? Can you identify any
market failures in “Bitter Pill” and from the actions described by Lowenstein and Levitt?
2. How would you assess the long-tem affects of bluffing as applied to the job of an
equity analyst. Would Carr agree? In what ways does the Carr piece apply to your job?
January 18th 6:00P.M-9:00P.M.
First Homework Due
TOPICS & ASSIGNMENTS
A. GIFTS, SIDE DEALS & CONFLICTS OF INTEREST
READINGS
The Social Responsibility
of Business is to Increase
Its Profits
Bribery & The Foreign
Corrupt Practices Act
Milton Friedman
p.358
Kenneth W. Clarkson, et al.
Visit: www.transparency.org
p.94
Buynow Stores
Roger Berg
Wall Street and the
Nursery School
A Bribe By Any Other
Name
Bruce Buchanan
Ronald M. Green
Gretchen Morgenson & Pat
McGeehan
Neil Weinberg
p. 85
p. 88
p. 99
p.96
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STUDY QUESTIONS
1. Make a list of all the gift practices described in Buynow Stores. In your judgment,
which of these, if any, are inappropriate? Use ethical concepts from the Green and
Halbert/Ingulli readings to support your position.
2. Do the Roger Berg and Wall Street Nursery School cases differ materially from
Buynow Stores? Use ethical concepts from the Green and Halbert/Ingulli readings to
support your position. Would you consider any of these actions to be a bribe (“Bribery &
Foreign Corrupt Practices Act”)?
3.How should American executives respond when their foreign competitors are bribing
officials in developing countries? Should they refrain and lose business? Should they
make payments through a third party?
4.What’s wrong with Pay to Play from the Weinberg Reading? What might Friedman
think?
B. INSIDER TRADING
READINGS
Insider Trading Notes
An Accountant’s Small
Time Insider Trading
Raymond Dirks and Equity
Funding of America
Trading Room Ethics
Martha Stewart
The Case for Insider
Trading
The Cost of Inequity
Constance E. Bagley
Tom L. Beauchamp
P. 290
p. 271
Roy C. Smith
p. 287
Lawrence Zicklin
Roy C. Smith
Henry G. Manne
p. 278
p. 281
p. 284
The Economist
p.276
STUDY QUESTIONS
1. Should the accountant, Davidson, (“An Accountant’s Small Time”) trade on the
information he has obtained from Wolff? Use legal theories of insider trading (“Insider
trading Notes”) and ethical concepts to support your position.
2. Compare the behavior of Dirks (“Raymond Dirks”) with that of Stewart (“Martha
Stewart”) in relationship to the concept of fiduciary duty. Why was Dirks reprimanded by
the SEC but ultimately exonerated by the Supreme Court? Use legal and ethical concepts
to support your position.
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3. Read “Trading Room Ethics” carefully and outline the exact procedure Teri Forman
employs to move large blocks of stock. Is this insider trading? Why or why not?
4. 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 including
Manne’s thesis (”The Case for Insider Trading”) on insider trading and “The Cost of
Inequity”.
January 21st 9:00A.M.-4:00 P.M. SUNDAY. TOPICS & ASSIGNMENTS
2nd Homework Due and Term Paper Description Due
9:00-12:00 P.M.
A. AGENCY & FIDUCIARY DUTY
READINGS
Duties of Principals and
Agents
Moral Hazard
Quality Department Stores
Old City Enterprises
The Business Judgment
Rule
My Patients Are Dying
Kenneth Clarkson et al.
P. 124
Robert Pindyck & Daniel
Rubenfeld
Lawrence Zicklin
Lawrence Zicklin
Jane P. Mallor, et al.
p. 10
Lawrence Zicklin
p. 126
p. 109
p. 110
p. 233
STUDY QUESTIONS
1. Sketch out the relationships between parties described or implied in the case
“Quality Department Stores.” Which of these can be called “fiduciary” relationships?
Given your analysis, how should the investment manager vote?
2. Which fiduciary duties might be at issue in “Old City Enterprises”? Is Stevens in Old
City Enterprises acting properly in terms of the Business Judgment Rule? Are there any
moral hazards present here?
3. Describe the various fiduciary relationships in “My Patients Are Dying." Are any
fiduciary responsibilities owed to the patients who are dying? Have any fiduciary duties
been breached in this case?
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B. CORPORATE GOVERNANCE
READINGS
The Business Judgment
Rule
Testing the Limits of the
Business Judgment Rule
The Director’s New
Clothes
Crisis of Corporate Ethics
Jane Mallor et al.
p. 233
Roger LeRoy Miller and
Gaylord A. Jentz
Robert Monks and Neil
Minow
Roy Smith
p.244
p. 236
p.263
STUDY QUESTIONS
1. Do you have any problems with the court’s decision in the Testing the Limits case?
Why/Why not? Should the Business Rule be changed?
2.Based on the thesis set forth by Monks/Minow, do the actions of the Bd of Directors
generally follow the business judgment rule? Why/why not?
3.Should an Executive like Harry Stonecipher have been forced to resign since he was
not responsible for supervising the unnamed female executive nor were there any charges
of sexual harassment or misuse of company funds-travel expenses and the like. Why/why
not?
C. CONTROL BY LAW
READINGS
Living with the
Organizational Sentencing
Guidelines
The Revised Corporate
Sentencing Guidelines
Strong Law Enforcement
Is Good for the Economy
The Case of Hank
Greenberg
Prosecutors’ Tough New
Tactics Turn Firms Against
Employees
Jeffrey Kaplan, Linda S.
Dakin, Melinda R. Smolin
p. 324
Jeffrey M. Kaplan
p. 332
Eliot Spitzer
p. 299
David Boies
p. 302
Laurie P. Cohen
p. 304
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STUDY QUESTIONS
1. How do you think the U.S. Sentencing Guidelines, as well as the “revised” guidelines,
will change corporate behavior? Consider this from the perspective of the government
(Eliot Spitzer) in “Strong Law Enforcement” and the corporation (employer) in the
“Prosecutors’ Tough Tactics” (KPMG) readings.
2. Do you agree with the US sentencing guideline’s approach to white-collar crime and
are the compliance costs justified? What are the implications of the Corporate
Sentencing Guidelines for the individual employee? Consider the situations of Hank
Greenberg (“Hank Greenberg Case”) and KPMG employees (“Prosecutor’s Tough
Tactics”).
1:00P.M-4:00P.M. TOPICS & ASSIGNMENTS
A. WHISTLE BLOWING & LOYALTY
READINGS
The Return of Qui Tam
States Passing
Whistleblower Statutes
Aircraft Brake Scandal
He Told. He Suffered.
A Whistle-Blower Rocks
an Industry
How Ex-Accountant
Added Up To Trouble for
Humbled Xerox
Priscilla R. Budeiri
Steve Seidenberg
P. 167
p. 158
Kermit Vandivier
Kurt Eichenwald
Charles Haddad, with Amy
Barrett
James Bandler & Mark
Maremont
p. 133
p. 143
p. 152
p. 160
STUDY QUESTIONS
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?
Use ethical concepts and reasoning to support your position.
2. Compare the situations in “A Whistle-Blower Rocks an Industry” to “Aircraft Brake
Scandal” and assess the role that qui tam laws play in resolving such situations. Should
private corporations also offer rewards to employees who blow the whistle on their
colleagues?
3. Mark Jorgeson (“He Told He Suffered” - Prudential) and James Bingham (“How ExAccountant” - Xerox) both worked at major corporations where they tried to bring
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truthful accounting numbers to the attention of top management and investors. What
personal risks did they run? How did the outcomes of their cases reflect their different
approaches to whistleblowing?
B. SALES AND MARKETING ETHICS
READINGS
Excerpts from Investment
Management: Business...
or Profession…
The Selling of Breast
Cancer
Commissions on Sales at
Brock Mason
Disorders made to Order
John C. Bogle
P. 200
Susan Orenstein
p. 175
Tom L. Beauchamp
p. 183
Brendan I. Koerner
p. 193
STUDY QUESTIONS
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? In his article, “Investment
Management: Business . . . or Profession,” John Bogle implies that much of the mutual
fund business is driven by moral hazards and fiduciary duty problems. Do you agree?
2. In what ways, if any, could we determine that pharmaceutical companies (“Disorders
Made to Order”) are ethically responsible for promoting new mental illnesses in order to
boost their profits from drug sales? Or, companies that support causes such as breast
cancer (“Selling of Breast Cancer”) to market their brand?
C. PRODUCT LIABILITY
READINGS
Strict Liability & Product
Liability
A.H. Robins: Dalkon
Shield
The Class-Action
Quandary: Cash Payment,
No Apology
In Breast Implants Scandal,
Where Was Dow
Corning’s Concern…?
Will the Lawyers Kill Off
Norplant?
Kenneth Clarkson, et al
P. 422
A. R. Gina & Terry Sullivan
p. 398
Meryl Gordon
p. 406
Andrew W. Singer
p. 408
Gina Kolata
p. 413
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Legal Myths: The
McDonald’s Hot Coffee
Case
Good Pill, Bad Pill:
Science Makes It Hard…
The Public Citizen
p. 418
Gina Kolata
p. 395
STUDY QUESTIONS
1. Should A.H. Robins have introduced the Dalkon Shield when it did (“A.H.Robins”)?
Which legal theories of product liability (Clarkson, et al) may apply to A.H. Robins? Do
they have any defenses?
2. Was McDonald’s “negligent” and/or strictly liable, i.e. “strict product liability”
(Clarkson, et al) for selling “unreasonably dangerous” coffee in the “hot coffee” case
(“McDonald’s Hot Coffee Case”)? Does McDonald’s have any legal defenses?
3. Can you draw any distinctions between the Vioxx (“Good Pill, Bad Pill”), Norplant
(“Will Lawyers Kill Off Norplant?”) and breast implant (Dow Corning’s Concern) cases?
Have any fiduciary duties been breached?
January 23rd 6:00pm - 9:00pm
Third Homework Due
TOPICS & ASSIGNMENTS
A. SOCIAL RESPONSIBILITY TO STAKEHOLDERS
READINGS
Our Schizophrenic
Conception of the Business
Corporation
Toy Maker Faces Dilemma
as Water Gun Spurs
Violence
Plasma International
Bally’s Grand Casino, For
Elaine Cohen, Is Her One
True Home
Cut Loose
William T. Allen
p. 35
Joseph Pereira
p. 341
TW Zimmer & PL Preston
Heidi Evans
p. 115
p. 343
Anne-Marie Cusac
p. 352
STUDY QUESTIONS
1. Is Plasma International acting properly according to Friedman (“Increase Profits”-May
25th reading) and Allen (“Schizophrenic Conception”)? Would Friedman and Allen give
similar advice to the CEO of Larami Corp., manufacturer of the Super Soaker
(“Toymaker Faces Dilemma”)? Do you agree with Friedman and/or Allen?
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2. If you were the manager of Bally’s Grand Casino, would you do anything differently
with respect to Elaine Cohen? Does IBM owe any duty to Asbeck (“Cut Loose”)
regarding his health care benefits upon retirement? What would Friedman (“Increase
Profits”) and Allen (“Schizophrenic Conception”) advise these companies to do?
B. DISCRIMINATION
READINGS
EEOC Guidelines
Sexual-Orientation
Protection Added to New
York Law
Foreign Assignment
Now Look Who’s
Taunting. Now Look
Who’s Suing
Is this the Right Time to
Come Out?
Too Old to Work
EEOC
Casey J. Dickinson
p. 439
p. 450
Thomas Dunfee and Diana
Robertson
Jane Gross
p. 429
Alistair D. Williamson
p. 436
Adam Cohen
p. 443
p. 431
STUDY QUESTIONS
1. In the “Foreign Assignment” case, how would you judge the actions of Bill Vitam?
Use ethical concepts and methods, as well as the law, to justify your position. According
to the EEOC, can the bank (employer) be held liable for sexual harassment created by its
employees? Does the bank have any affirmative defenses as provided by the EEOC?
2. Is sexual harassment against men a legitimate concern? Is the situation at Jenny Craig
(“Look Who’s Taunting”) comparable to that in the “Foreign Assignment”?
3. Is discrimination because of sexual orientation different from discrimination because
of sex (Williamson)? What about discrimination based upon age (“Too Old To Work”)?
Should similar laws and regulations be applied to all of these classes?
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January 25th 6:00pm - 9:00pm
TOPICS & ASSIGNMENTS
A. PRIVACY
READINGS
Monday 9:01 A.M.
Open Secrets
Prying Times
Monitoring of Employees
Still Growing
TGB Insurance Services
Corp v. Superior Court
Ronald Smithies
Ellen Schlutz
Ann Carrns
Allison Michael & Scott M.
Lidman
McGraw-Hill
P. 455
p. 456
p. 460
p. 464
p. 469
STUDY QUESTIONS
1. In “Monday 9:01 A.M.” have any privacy rights been violated?
2. In terms of privacy rights do you think that the employer’s actions are justified in the
EAP programs (Open Secrets), the TG Insurance Services Corp case and the New York
Times situation (Prying Times)? Are these three situations distinguishable?
B. TRADE SECRETS
READINGS
Trade Secrets, Patents, and
Morality
Protecting Trade Secrets:
Using ‘Inevitable
Misappropriation’…
Stockbroker’s Story
Fare Game
Corporate Spies: The Pizza
Plot
Robert E. Frederick & Milton
Snoeyenbos
Michael B. Carlinsky & Lara
Kreiger
P. 215
Bruce Buchanan
William M. Carley
Adam Penenberg & Marc
Barry
p. 205
p. 206
p. 210
p. 221
STUDY QUESTIONS
1. Are customer records, such as those described in “Stockbroker’s Story”, trade secrets
or do they belong to the departing broker? How does the situation in “Fare Game” differ
from the “Stockbroker’s Story” with respect to the concept of a trade secret?
2. Which practices in “The Pizza Plot” do you judge to be inappropriate? Does any of the
information acquired in “The Pizza Plot” meet the definition of a trade secret? What are
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your criteria for saying so?
C. MORAL STANDARDS ACROSS BORDERS
READINGS
US Bill of Rights
In Praise of Cheap Labor:
Bad Jobs at Bad Wages…
Human Rights on the Eve
of the 21st Century
Universal Declaration of
Human Rights
The Oil Rig
For Cruise Workers, Life
is No “Love Boat”
Stretching Federal Labor
Law into the South Pacific
Lives Held Cheap in
Bangladesh Sweatshops
Low-Wage Costa Ricans
Make Baseballs for
Millionaires
Nobodies: Does Slavery
Exist in America?
U.S. Constitution
Paul Krugman
p. 33
p. 380
His Holiness the Dalai Lama
p. 384
United Nations
p. 386
Joanne B. Ciulla
Joshua Harris Prager
p. 367
p. 369
Seth Faison
p. 371
Barry Bearak
p. 375
Tim Weiner
p. 390
John Bowe
p. 475
STUDY QUESTIONS
1. According to the US Bill of Rights, the Dalai Lama and the UN Declaration of Human
Rights have any basic human rights been violated in the “Oil Rig” case? Are the ex-pats
justified in getting better treatment than the Angolans?
2. Should cruise workers that service US ports enjoy the rights of other US workers
(“Life Is No Love Boat”)? Would Krugman (“Praise of Cheap Labor”) or any of the
other ethical thinkers we have studied think that this was an unethical situation?
3. Should US labor and safety laws apply to the Northern Mariana Islands (“Stretching
Federal Labor”)? Are sweatshops unethical according to Krugman or the Dalai Lama?
4. Do human rights exist? If so, as a corporation how would you apply these ideas to
workers in the Bangladesh (“Lives Held Cheap”) and Costa Rican sweatshops
(“Baseballs for Millionaires”)? What about sweatshops or working conditions in
America (“Nobodies”case)?
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