University of Oklahoma

Price college EMBA

FINAL INTEGRATIVE CASES I

Summer, 2019

Zhanjing (Grant) Gao

EMBA 5101 Legal and Ethical Institutions

Instructor: Dr. Nim Razook
Due date: 14 Jul 2019
In the business world, what is legal is often not ethical, this is especially true when it come to
negotiations. Negotiations nowadays seems to have devolved into the art of deception, both parties
at the negotiating table are seldom truthful about the deck of cards they are holding. Even the most
cooperative negotiators often inflate or exaggerate the truth to gain more interests in their own
favor. This was especially true in the case of Zimpel v. Trawick. This case of mineral rights dispute
was the perfect showcase of the most egregious violation of ethics and legal code to an outrageous
extent.
Ethical philosophy and legal doctrine are both at play here in the case of Zimpel v. Trawick.
Larry Trawick violated several ethical principles to undercut Hedwig Zimpel’s mineral rights and
profits. One of the most obvious principle that Larry Trawick violated was the principle of market
failure. Market failure is the situation that there are inefficient distribution and allocation of goods
and services in a free market. This imbalance of results in a net loss of economic value. It is obvious
through analyzing the facts of this case Larry Trawick used information asymmetry to profit off at
the Zimpels’ expense. Information asymmetry is when one party has more information than the
other party in the transaction, this asymmetry creates a power imbalance among the negotiating
parties and often give the party with more information an upper hand. In this case, Larry Trawick
had the knowledge that the oil under Zimpel’s land is “tight holed”, meaning that experts in drilling
believe that the well is likely to be profitable and productive. However, when Larry Trawick
reached out to both John and Hedwig Zimpel, he withheld that information. The father-in-law of
the co-defendant in this case had experience in the drilling industry and told Trawick that “the well
was capable of producing 10,000,000 cubic feet of gas and 792 barrels of oil per day.” However,
Trawick conveniently omitted the fact when negotiating with Zimpel. The market failure caused
by information asymmetry is the most egregious offense among Larry Trawick’s ethical violations.
It matters because if the Zimpels had a more complete picture and understanding of the drilling
industry and how much their mineral rights is truly worth, they are unlikely to sell to Larry Trawick
at such a cheap price. This market failure also resulted in a net loss of the economic value of the
mineral rights. Since Hedwig sold her mineral right at such a cheap price, the economic profit
generated was under its true potential, and the overall value of the mineral right was depreciated.
Trawick’s behavior likely violated several ethical principles, but the most important
principle informing the parties’ position in this transaction is the theory of Deontology, according
to the principle of Deontology, all people should be able to enjoy certain rights unconditionally
upon birth, regardless of whether these rights would bring social benefits. These rights are thus
intrinsic values. Each person has the right to freedom and equality, and each has a moral duty and
responsibility to treat others in ways that are free and equal. Deontology stated that people should
not treat others as a mean to gain profit. According to the facts stated in the case, Hedwig is clearly
guided by this principle, as she treated Larry Trawick with respect and fairness. She knew she did
not have many days left on earth, and she was eager to pay off her medical bills and be debt free
before she passes away, her moral principle guided her to be fair to other people in her life, because
she could have simply abandoned her debt. Contrary to Hedwig Zimpel, Trawick’s problem is that
he lacks a guiding moral like Deontology, therefore he felt it was appropriate for him to use such
distasteful tactics to misrepresent the truth and gain personal profit at Hedwig’s expense.
Trawick’s act also breached the Theory of Justice, based on the theory of Justice, fairness
should be realized. In discussing distributive justice, people should, under the premises of freedom,
equality, and rationality, agree to follow a method accepted by everyone, so as to determine the
distribution of social resources or social responsibilities. In the society, everyone enjoys equal
rights to freedom as everyone else (meaning no one should be entitled to more freedom than others),
and everyone’s rights should be protected; everyone is also responsible for protecting the rights of
others. The scope included in the rights to freedom is broad, it includes the right to vote, the right
to freedom of speech, and the right of property ownership. Protecting the weak resolves social
injustice and allows capable companies to take more responsibilities. As Hedwig Zimpel was in
definite weak position, she had no knowledge about the value of her mineral facing the market
situation, so she relied on her Brother John, based on conversation between Trawick and John,
Trawick not only intentionally held the underground information, he even guided the john the
opposite way of the market to john "boom times were over." Therefore, he could easily lower the
quote of Ms. Zimpel, here is involved not only fairness, but cheating , as oil company man, Trawick
violated the justice ethic here.
There are several psychological factors here at play that may have influenced the ethical
decision-making process. Hedwig’s decision-making process is likely to be inhibited by bounded
rationality. Bounded rationality states that people are only partly rational and are emotional or
irrational in the rest of their actions. Hedwig’s health is failing, and she was eager to pay off her
debt before she dies. Her eagerness might have made her especially vulnerable to be exploited and
might have caused her to not be more cautious when she was striking this business deal. The
psychological factor that may have prevented Larry Trawick from acting ethically is self-serving
bias, the self-serving bias causes people to see things in ways that support their own best interests
and their own pre-existing points of view. Trawick likely only considered himself in this business
deal, the self-serving bias drove him to only think of how to make a profit without thinking about
he is exploiting a sick and dying woman.
Larry Trawick definitely violated common law. Although American common law typically
held that in negotiations, putting self-interest first is not acting in bad faith, however, common law
doctrine is very clear about cases of fraud. A fraudulent statement is when one party knowingly
misrepresent the material fact to the other party and cause them damage. Trawick knows the true
value of Zimpel’s mineral rights, however, he stressed in his conversation to Zimpel that oil prices
are way down, and the industry is nothing like the past, causing Zimpel to under sell her property.
Trawick likely committed fraud in this case.
 University of Oklahoma
Price college EMBA

FINAL INTEGRATIVE CASES II

Summer, 2019

Zhanjing(Grant) Gao

EMBA 5101 Legal and Ethical Institutions

Instructor: Dr. Nim Razook
Due date: 14 Jul 2019
 Bribery is defined by the Black’s Law Dictionary as the offering, giving, receiving, or
soliciting of any item of value to influence the actions of an official or other person in charge of a
public or legal duty. Essentially it is a quid pro quo relationship that exchange something of value
for a service that otherwise will not be provided. On the surface it seems like bribery is a victimless
crime, one party receive a bribe, and the other party receives services or other things in return.
However, bribery is a drain on public resources and damage to public good. Bribery is a violation
and assault to fiduciary obligations and can often cause infidelity to performance of contracts.
Bribery often is not disclosed, and in most cases cannot be disclosed. Without proper contract and
disclosure, bribery often result in a lowering of business standard, it can cause lowering of safety
standard and be potentially harmful to the surrounding community that the business is located in.
And on top of that Mayfair Corporation is a publicly traded company, therefore the company
shareholders and stock owners will have to absorb the cost of the bribe. The notion that bribery is
a necessary evil is false. Bribery is like quick sand, once the floodgate is open, there is no end in
sight. The party receiving bribe will expect more payments in the future and might impose
obstacles to normal business dealings if the company does not continue to pay bribes, it will be a
drain on the company’s financial resources. Bribery also opens up vulnerability for the company
for possible prosecution from law enforcement. Certainly, bribery can bring short-term success,
however, bribery is far more costly in the long run than developing a culture of law abiding and
compliance. Even countries that are prone to bribery have outlawed it, because bribery reduces the
credibility of a country’s investment market, and create a culture of opaque business dealings, it
can act as a deterrent to foreign direct investments. In the case of Mayfair’s bribery scandal, there
is also market failure involved. Market failure is defined as the situation in which goods and
services are not evenly distributed. By paying bribes to Nigerian government officials, Mayfair is
allowing the nature of the market to be corrupted. By paying bribes to government officials,
Mayfair as an agent of the market is gaining an unfair advantage among its competitors, and
therefore they are more likely to become a monopoly in the Nigerian oil market.
Economies with high levels of corruption is less likely to thrive and prosper compared with
economies with low levels of corruption. Because bribery often prevents the natural laws of
economy from taking place, it reduces natural competition and takes a toll of the country’s normal
socioeconomic order. Bribery and corruption often lead to monopolies, these giant conglomerates
have exclusive access to government and regulatory officials, therefore they can reduce
competition in the industry and have control over the industry. This will result in prices of goods
and products remains high while they have no motivation to improve the quality. It will also have
a race to the bottom effect on labor standards and protections. Data from the world bank also
corroborate this phenomenon, countries with high levels of bribery and corruption often have
higher infant mortality rate and lower literacy rate, and it is also less developed compared with
countries with lower level of corruption. Therefore, bribery hinders the growth and development
of a free and open market.
Bribery violates the ethical theory of justice, in theory of Justice, fairness should be realized.
In discussing distributive justice, people should, under the premises of freedom, equality, and
rationality, agree to follow a method accepted by everyone, so as to determine the distribution of
social resources or social responsibilities. Bribery allow individuals and corporations an unfair
advantage over their competitors, this power imbalance often result in benefits only shared with
selected few people while the burden lies on the public citizenry. Specifically, in Mayfair’s case,
as a publicly traded company, the stakeholders such as ordinary people who own Mayfair’s stock
are paying for the bribe money out of their pockets. The executives in Mayfair’s bribery scandal
also violated virtue ethics. Virtue Ethics is an ethical theory that put an emphasis on mind and
character. According to Virtue ethics, the executives at Mayfair was not truthful in their disclosure
of the use of the money and chose the easy way out instead of confronting their problems and
seeking proper channels to solve their permit issue.
Decent people often choose to pay bribes due to their psychological shortcomings, business
executives often fall into the trap of self-serving bias, meaning that they put their own profits above
all else, and their subordinates like Mayfair’s Thomas James often falls into the trap of obedience
to the authority and bounded ethicality, he likely felt pressured by his supervisors to change the
books in order for the transaction to look legal. There are also several corporate governance issue
that arose in Mayfair’s business dealings. They violated the principle of accountability and
transparency. In order to be accountable and transparent, company from executives to the
employees need to serve as a system of checks and balances to each other, and they cannot change
their financial disclosure to inflate or write off business losses, nonetheless record bribes as
legitimate business dealings.
The actors in this case have violated common law, under the purview of common law
doctrines, the stock owners and stakeholders of Mayfair suffered harm and losses as a direct result
of Mayfair’s conduct in Nigeria. Their money was used as a bribe when it was intended for Mayfair
to use for business development and company expansion. There are also well-established
precedents in the U.S. legal system stemming all the way back to the 1800s against bribery and
corruption.