Wednesday, October 18, 2006

Legal Question

Interesting theoretical question given in our law orientation class today. Actually, it was handed out as some professor's study on law and psychology. The question:

You own a cereal factory on a small lake. You have the opportunity to produce a new kind of cereal. The only problem is that this requires dumping a chemical into the lake. The only damages from this chemical will be that it will raise the production costs for another cereal factory, that is on the small lake. There are no health or environmental issues. You know that if you do dump this chemicals, the other factory will sue you and win. However, your profits will exceed the amount that the court will award the other side. Is the decision to produce the new cereal a) moral, b) legal, c) good business practice, d) good for you personally?


Within our small orientation group, people intuitively had radically different answers. So I'd love to get a poll of the audience. And once I get...five responses, I'll post my thoughts. Okay? Awesome! It'll be like a contest! Whoever actually responds gets a... special present. Or something. Or, quite possibly, nothing.


UPDATE: Yay! Responses! Okay, everybody wins my undying gratitude. It's not much, but it's easily transferable over internation boundaries, and also it's cheap.

My intuitive position, although I may be starting to rethink it, was this:

Legal: Well, obviously not, considering that you would lose your lawsuit.

Worth doing: Depends on how much you think that the bad PR would damage you.

Moral: Here comes the interesting bit. Really, who are you harming? The other cereal company is getting compensated for all the damage that you do it, plus, most likely, all of their legal fees and a decent amount of punitary fees (I hope that's the right word. I have fort he first time encountered the phenomena that I can describe something in Hebrew better than English. Whee!). The only reason, in fact, that they wouldn't simply agree to take the money in the first place and walk away satisfies is that they're also a cereal compnay and thus have a vested interest in your lack of success. But that's always going to be a 'damage' to them, even if you wouldn't have had to dump anything. So the question is really is it moral to break the law in order to get what you really would be able to get legally, if it wasn't for extenuating circumstances?

And I think that my automatic answer is sure. The other cereal company comes out no farther behind on the deal than the rest of your competition, and probably somewhat ahead. You have not hurt anybody in any way, and have benefited yourself. Why should there be a moral problem? The only potential answer that I can see is that there is a benefit towards keeping the law even when it is neither beneficial nor ensures morality, just so that people won't go around breaking it.

But is the purpose of the law really to ensure blind obedience when it benefits nobody (at kleast, nobody with a legal right to benefit. The fact that it makes your competition happy isn't really their legal right. It's just a happy side benefit of their having chosen the same lake as you.) ? Or maybe it's simply to give a sufficient disincentive towards doing behavior it would prefer that you didn't?And once it's done it's best to disincent and it's still worthwhile for you, maybe it's perfectly okay to go ahead with it. I feel like, in some twisted way, this is the same logicas a conscientious objector- the job of the law is to provide as much disincentive as it thinks the action deserves, leaving the individual to weigh his own personal costs and beneifts. So basically, I think that the action is perfectly moral, and, should the bad publicity not outweigh the profit, there's no reason taht you shouldn't go ahead with it.

11 comments:

mike said...

All of the above. This is assuming that you make the upfront payment instead of going to court. Otherwise it probably isn't moral to force somebody to wait years for his money

Irina Tsukerman said...

Moral? Well, if you know it's going to harm someone else, it's not quite moral.

Legal? Er, sorry, no clue about Israel's law on the subject. But if it happened in the United States, I would say that the courts would probably rule on unfair competition, and if the lake belonged to the other business and not to you, some sort of a tresspass as well. That's how the other party would probably get that winning decision.

Good business practice? In general, probably not. A good business seeks to avoid litigation. In the particular case, you already know that your economic benefits will outweigh your losses, but in general those things are much more difficutl to calculate. Furthermore, being constantly involved in litigation - and losing - gets you a bad rep, and can affect hit in a number of ways - from your stocks falling to facing possible fines for various legal infringements.

Good for you? If we're talking about this particular case on its own, and not general practice, I'd say that the outcome is mix. On the one hand, you're getting an economic benefit out of it, so that's obviously good. On the other, you're facing possible loss of face due to your loss in court. That's a long-term risk that can potentially outweigh your short-term economic benefit. Furthermore, as someone involved in a production of a cereal, it's probably not a good idea to act mean to your competitors, because further down the road, they may try to get back at you at the first opportunity. In fact, sometimes it's better to take a short-term economic loss but ensure the goodwill of the company in the same industry than you are. If one day you decide to expand and are in a position to suggest a merger-deal to the other company, a company that knows you're an ethical and honest business "person", will be far more willing to cooperate both in a merger, or in a variety of other possible merger scenarious.

Anonymous said...

It is clearly not legal if you would lose the law suit.
It is probably not moral, since you have the knowledge that something with a solely financial benefit harms another, although this is not well-defined.
If the case goes to court and receives media publicity, then it is probably not good business practice for it to be known that you did something to help yourself and harm your competitor.
Personally, I say that it's financially lucrative but poisonous to one's soul (or self-worth).
Have a nice day.

Rachel said...

I'll give you my opinions on these issues as soon as Rachel tells me what they are.

I just came in (Rachel). Here's what I think: 1)In a vague case like this, the general practice determines morality. People are obliged to follow social norms - but not go beyond them. This is equivalent to the rule that you can't steal - but you're not obligated to give money to your competitor.

Irina Tsukerman said...

Hmm, that makes sense... but not always. Sometimes, if the general practice is clearly immoral/illegal, you're obliged to go against it.

David said...

I think that this question is deceptive and unfair. By describing this scenario as "dumping chemicals into a lake", it intuitively suggests to us that will be health and environmental issues. Thus, we are emotionally tempted to describe this as immoral behavior. The fact that the question explicitly states that there are no health issues does nothing to our emotional response. If we really wanted to investigate this issue, we should have come up with a scenario that in real life involves only economic damages to another party. Otherwise, we are describing this situation in emotionally charged language.

dbs said...

Sorry for handing this in late:

1. It's completely immoral. Harming someone else for your own gain? You could ask this in a way such as "would it be better to dump or to have to fire x number of workers". But that would just give you a (potential) rational for doing something immoral, not make this moral.

2. It's illegal. This isn't a moral judgement - it just is the fact as you described it.

3. There are different theories about business practice, but I would consider this one to be very bad business. It really would take too much space to go through the whole thing, but in a nutshell, you are going to damage your reputation and establish a corporate culture of disregard for law.

4. 'Good for you' is totaly subjective. I think that most people would be negatively affected by doing this, but certainly not all.

So what did your proff say?

dbs said...

Toby,

Now that I've read your answer, I'll add:

What if the case was "can you set fire to someone's house if the only damage is to his property, and he can sue you to recover damages."

Is that moral? Get a grip! The fact that you may be forced to compensate someone for hurting them does not make something moral.

uy.

Tobie said...

Fine, dbs, but you're beginning with the assumption that it is immoral and then asking how I can justify it. But who says it's wrong to manufacture your product just because it may make your competitor's life harder? What if the situation was that the product would require you to purchase more a certain resource, thus raising the price and making your competitor's supply charges rise? What gives this guy an inherent right to use the lake cheaply?

If you're going to say that the law does so, fine, but that assumes that law dictates what's moral and not just what it would prefer that you would do. There is actually a legal concept by contracts in which you can officially violate a contract should it prove to be sufficiently inconvenient, with the understanding that you'll recompensate the one you harm. Or a concept in which a fisherman in a storm can tie his boat to any random pier, with the understanding that he'll recompensate the owner. Why can't we see this case as similar?

Your example rings false for me because you're getting into the issues of right to property and security and so forth. There's no inherent moral right to low production costs, and your competitor does not own the lake any more than you do.

dbs said...

Tobie,

I understand your point. It does depends on what you assume about the situation. My assumption is that, since the other company has legal recourse, it does, in fact have rights governing the use of the lake. Therefore, unliaterally dumping is depriving him of a right.

I also want to point out that just the fact that he can sue you and win is not a remedy for the morality issue. It would be different if you went to the company and worked out a deal, or at least offered a settlement. The reality of a court case is that you will defend yourself and construct a legal theory to vidicate yourself. And of course, you are never certain of any verdict. In addition, you don't know what collateral damage is done in the meantime. If the business is harmed and people are laid off, do you go and compensate them?

The contract example is based (I believe) on a situation where the performance of the contract is inconvienient in a manner which is far out of proportion to the benefit of the other party. It is not okay to break a contract simply because it is more advantageous to you.

Tobie said...

dbs- I don't know if the law necessarily implies rights. WIth regards to the court thing, I agree that it would be more moral to give them the money without dragging them into court. The only issue here is that you cannot simply work out an arrangement by which they will agree to forego their rights to the lake in return for a larger sum of money- a normally logical economic decision- because they are your competitors and have a vested interest in hurting you. So I would say that morally, you should be willing to come to the earliest and most generous possible settlement. But that doesn't mean that you should forego huge profits for yourself in order to save a competitor from a minor and later recompensated harm.