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Blackstone's decision
- You work for Blackstone, "an 18-person software business." You have been asked by Toysmart to provide software the following functions: (1) designing a webpage that would attract customers and communicate Toysmart Values, (2) advise Toysmart on its privacy and data security policy including whether to register with an online trust, security measures to protect customer data during online transactions, and measures to prevent unauthorized access to customer data while stored, and (3) a comprehensive online catalogue that would provide customers with access to educational toys from a variety of small busines manufacturers. An example of small toy manufacturers to which Toysmart should be linked is Brio Corporation which manufactures wooden toys such as blocks, trains, and trucks. Develop general recommendations for Toysmart around these three areas.
- (Information for this scenario comes from Laura Lorek, "When Toysmart Broke," http://www.zdnet.com/eweek/stories/general/0,1101,2612962,00.html. Accessed July 16, 2001. )
- Toysmart is a fairly new dot-com. While it is supported by Disney, it is still a risky venture. Should you ask them for advance payment for whatever services you render? What kind of policies does your company have for identifying and assessing financial risk?
- What kind of privacy and data security policy should you recommend to Toysmart? What kind of values come into conflict when a company like Toysmart develops and implements privacy and data security measures? (Use your STS description to answer this question.)
- Should Toysmart become bankrupt, their data base would turn into a valuable asset. What recommendations should you make to help Toysmart plan around this possibility? What values come into conflict when planning to dispose of assets during bankruptcy proceedings? What kind of obligations does a company take on during its operation that continue even after it has become bankrupt?
- Using the link provided with this module, visit the TRUSTe website and find its white paper on developing a privacy policy. Evaluate this privacy policy for Toysmart. What benefits can a strong privacy policy bring to a dot-com? Should Toysmart work to qualify to display the TRUSTe seal on its website? Examine TRUSTe procedures for transferring confidential customer PII to third parties? What obligations will this create? Would this over-constrain Toysmart?
Liquidating toysmart
- You work for PAN Communications and have been providing advertising services for Toysmart. Now you find out that Toysmart has filed a Chapter 11 bankruptcy, and it has an outstanding debt to your company for $171,390. As a part of this filing procedure, Toysmart has reported its assets at $10,500,000 with debts of $29,000,000. Toysmart creditors, including PAN Communications, have petitioned the Office of the United States Trustee for a "Creditors' Committee Solicitation Form." This will allow for the formation of a committee composed of Toysmart creditors who decide on how the assets of the bankrupt firm will be distributed. You, because of your knowledge of bankruptcy and accounting procedures, have been asked to represent your company on this committee. This bleak situation is somewhat remedied by the customer data base that Toysmart compiled during its operation. It contains profiles of the PII (personal identifying information) of 260,000 individuals. Because selling educational toys is profitable, there is a good chance that this data base could be sold for up to $500 a profile to a third party. Should you recommend selling this data base? Should Toysmart customers be notified of the pending transfer of their PII and, if so, how should they be notified?
- Constraints: (a). As a member of the Creditors' Committee, you have a fiduciary duty to Toysmart creditors in working to distribute fairly the remaining Toysmart assets. This would, all things being equal, lead to recommending selling the Toysmart customer data base. (b)There are some provisions in the bankruptcy code that may require or allow overriding fiduciary duties given prior legal commitments made by Toysmart. These commitments, in the form of strong privacy guarantees made to customers by Toysmart on its webpage, may constitute an "executory contract." See the Legal Trail table in the Toysmart case narrative and also Larren M. Nashelsky, "On-Line Privacy Collides With Bankruptcy Creditors," New York Law Journal, New York Law Publishing Company, August 28, 2000. (c) Finally, Nashelsky makes an interesting argument. While deontological considerations would require setting aside creditor interests and honoring Toysmart privacy promises, a justice-based argument would recommend a compromise. Bankruptcy proceedings start from the fact that harm (financial) has been done. Consequently, the important justice consideration is to distribute fairly the harms involved among the harmed parties. Harm distributions are correlated with benefit distributions. Because Toysmart customers benefited from Toysmart offerings, they should also bear a share of the harms produced when the company goes bankrupt. This requires that they allow the distribution of their PII under certain conditions.
- How do you balance your obligations to PAN with those to other Toysmart creditors as a member of the Creditors' Committee?
- How should you approach the conflict between honoring Toysmart promises and carrying out Creditor Committee fiduciary duties? Do you agree with Nashelsky's argument characterized above?
- Should the Bankruptcy Code be changed to reflect issues such as these? Should privacy promises be considered an “executory contract” that overrides the duty to fairly and exhaustively distribute a company's assets?
- Finally, what do you think about the FTC's recommendation? The Bankruptcy Court's response? The final accommodation between Toysmart and Buena Vista Toy Company?
Source:
OpenStax, Using the ethics bowl to integrate ethics into the business and professional curriculum. OpenStax CNX. Dec 20, 2009 Download for free at http://legacy.cnx.org/content/col10411/1.2
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