Hi, #Gaians!

After you have submitted the activity from the Corporate Law unit I want to give you some feedback and mostly I want to thoroughly answer the questions that we proposed so you can learn more about Corporate Law.

In QUESTION 1, we asked you to analyze whether there was a contradiction between honoring valid subpoenas and warrants and refusing to comply with a court order to unlock a phone. Well, the first thing you needed to do was to analyze what subpoenas and warrants are. Many students did it but many limited their answer to personal insights, guys! Subpoena: Is a request for the production of documents, or a request to appear in court or other legal proceedings. It is a court-ordered command that essentially requires you to do something, such as testify or present information that may help support the facts that are at issue in a pending case. Under state and federal civil or criminal procedural laws, subpoenas offer attorneys a chance to obtain information to help prove or disprove their client’s case. Criminal attorneys, for example, often use subpoenas to obtain witness or lay opinion testimony from a third party that may lead to someone’s guilt or innocence at trial.In this case, Tim Cook stated, “When the FBI has requested data that’s in our possession, we have provided it. Apple complies with valid subpoenas and search warrants, as we have in the San Bernardino case.  We have also made apple engineers available to advise the FBI, and we have offered our best ideas on a number of investigative options at their disposal”. In the case of warrants and subpoenas, Apple extracted available information from the iPhone but did not unlock the phone. Also, there is a distinction between extracting or providing specified, limited information as directed by a warrant or subpoena versus building software that hacks into.

Warrant: Is a court order that authorizes a legal representative (usually law enforcement) to search or seize property. A warrant will be issued only if there is already reasonable evidence that a crime has been committed and the search or seizure will provide information relevant to the crime. A warrant cannot be used to determine whether relevant information exists or be used for a fishing expedition with the hope that something relevant will be discovered that will prove a crime has taken place. For example, because the police had reasonable evidence that the terrorist was using a cellphone to speak to others (e.g., his wife) about his planned attack, a warrant could be issued to seize and search the cellphone. The court order directing Apple to build the backdoor software was the kind of fishing expedition prohibited by a warrant. The legal authorities had no idea whether there was any relevant information on the phone, especially because the phone was issued for work. Further, the court was ordering Apple to do something special that would make otherwise unavailable information available for search or seizure.  

For the above reasons, Apple’s refusal to unlock the phone while following valid subpoenas and warrants may not be contradictory after all…

Regarding QUESTION 2, you had to apply the Badaracco’s Four Spheres of Managers’ Commitment in order to know what Cook’s primary responsibilities were. This approach was useful to understand the ethical dilemmas of management decision-making, it is important to examine whether Cook’s different spheres of responsibility pose colliding or conflicting claims. Some of you based your answers on this framework but did not create new questions to extract enough information from the case.

1.- The Commitments of Private Life (As a Person)

Commitments to private life are the commitments to one´s basic values and principles.

From this point of view let’s consider the following questions:

  • What are Cook’s basic values?
  • What are the virtues or principles by which he tries to live as an individual?
  • Are Cook’s personal principles conflicting with what is a stake in the present situation?

Two arguments suggest there is congruence between Cook’s personal principles and his commitments in other spheres, leading to his decision to refuse to acquiesce to the government’s demands.

One, as Cook’s commencement speech to the 2015 graduating class of George Washington University highlights, he believes personal values do not exist independently from the workplace, which has to be an arena where you can apply your values by fighting for injustice. Further, Cook exhorts the graduates not to be silent but to speak out against injustices. He believed in his own responsibility to give back.

Two, Cook had followed these principles and was acquiring the reputation of being “one of the world’s most outspoken corporate executives” in recent times. He had used the spotlight created by his role to focus attention on societal issues and issues of importance to him and the company. Cook believed he merely represented Apple’s long-standing culture of caring for these issues, even if these issues hadn’t previously been openly discussed. Cook declared, “You want to be the pebble in the pond that creates the ripple for change.

However, at the same time, there may be some conflict between Cook’s personal values and his commitment as a company leader. For instance, Apple employees have not been consulted on their views whether or not to build a backdoor to the iPhone. Similarly, the ‘backdoor’ issue also brought to the forefront a potential conflict between Cook’s personal values and his commitment to those outside the firm’s boundaries. Cook’s stance was in conflict with and ignoring the values of, freedom and justice for humankind.

2.- The Commitments of Economic Agents

These commitments are those Cook owed to the company’s shareholders. Cook’s commitment to shareholders may be analyzed by posing the following questions:

  • At this specific time, when iPhone sales are slowing down and Apple’s stock prices are declining, what can we say about Cook’s ability to serve the shareholders of Apple?
  • Is Cook in a strong position with the shareholders and investors, given Apple’s current financial results?
  • Are these commitments conflicting with his responsibility as company leader or with commitments beyond the firm’s boundaries?

Two arguments can feed the debate:

One, Apple, under Cook, had remained fundamentally sound and emerged as the world’s most valuable company. Apple stock prices had soared until March 2015, although the prices had begun to decline as of July 2015. Apple, under Cook, had also managed to please the financial markets with impressive profitability, dividends, and buybacks, and yet managed to triple its cash reserves as of 2010 to more than US$150 billion. Cook’s relationship with his shareholders stood in contrast to that of Steve Jobs, which was tumultuous, with Jobs often opposing dividends and buybacks.

Two, despite the impressive financials, Cook had the courage to stand up to his convictions, even when it meant displeasing his investors. As the case mentions, Cook had defended Apple’s non-business initiatives, which investors perceived as contradictory to the company’s bottom line. Cook had defended these initiatives by saying Apple would continue to do things that were “just and right.”

Thus, Cook’s commitments as an economic agent, up until this point, had not been colliding with his commitments of private life; however, his commitments as an economic agent do seem to collide with his views on responsibility beyond the firm’s boundaries, and also with his responsibility as a company leader. For instance, Cook’s firing of two high performing individuals, who were responsible for creating the iOS and improving Apple store profitability was in keeping with his responsibility as a company leader and his own personal values of fostering a culture of collaboration. Yet, it was contradictory to his responsibility as an economic agent.  

3.- The Commitments as Company Leader

These commitments pertain to the lives and welfare of company employees. The following questions will help us to analyze this point:

  • What is Apple’s culture?
  • What values do Apple employees embody?
  • Is Cook aligned or in conflict with this culture?
  • Would Apple employees support Cook’s stance against the FBI request?

These are Cook’s commitments as a company leader:

  • Cook valued the company culture and believed there was harmony between his personal values and the values Apple embodies.
  • He sought to build a culture that fostered collaboration, which he believed was the key for innovation.
  • He sought to build a culture of transparency and openness.
  • He did not believe in hogging the limelight, but rather in sharing it with his senior managers.
  • He believed in corporate philanthropy, and he encouraged employee giving.

However there’s no evidence that Cook had internally checked with Apple employees before refusing the FBI´s demands, employees might have their own private values in this case so they might be approved the company’s stance, or they might though differently.  So in this particular case, there is a conflict between Cook´s commitment to private life and his commitment as a company leader.

4.- Responsibilities Beyond the Firm’s Boundaries

Let’s think of Apple’s (and Cook’s) responsibilities beyond the firm’s boundaries by posing the following questions, each relating to a different stakeholder in Apple’s external world:

  • What is Apple’s mission? What does it stand for?
  • Is Cooks decision to refuse to cooperate with FBI reflective of Apple’s new mission statement?
  • How will the public react to Apple during adverse times?
  • Can such public opinion affect Apple’s image and, therefore, its sales?

As we saw in the case, Cook has been demonstrating responsibility beyond the firm’s boundaries. He has been defending a range of human rights and using the platform provided by Apple to influence and affect the lives of millions of people.

On the other hand, let’s read Apple’s New Mission:

Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork, and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and is defining the future of mobile media and computing devices with iPad.

The new mission statement can be interpreted to mean that Apple merely cared for its own customers in the sense of providing them with the best product lines, rather than its earlier focus on “humankind” at large, and advancing its cause.

We also know that American Tech companies, in order to protect their reputation improve their privacy policies, especially after what happened with the NASA and its program PRISM, so building back door could mean probably that the public won’t feel secure and won’t give up privacy and freedom in exchange for safety, and the company might lose a significant market.

In regards to QUESTION 3, you had to think about consequences. The question was “Which course of action (i.e. whether to cooperate with the FBI to build a backdoor to the iPhone or not) will do the most good and the least harm?”, so let’s analyze this dilemma from different points of view:

  • Apple: Apple may lose or gain as a result of the decision not to build a backdoor to the iPhone.  It may gain stature as a company willing to stand up for customer rights. However, any negative outcome arising from such a decision that may be traced back to Apple may lead to a reputational loss for Apple. The company would need to weigh the short-term consequences of brand building to the long-term consequences of reputational loss.
  • Nation (United States): There is a genuine threat to national security due to the use of the Internet and social media by terrorists to plan and coordinate international terror attacks. The use of secret, private chat rooms and encrypted Internet message boards created a need for surveillance programs like Prism. In a world faced with growing threats of terrorism, the nation stands to lose as a result of Apple’s decision to not accede to the demand to build a backdoor to the iPhone.
  • Global community: The global community stands to lose as a result of Apple’s decision, since the effect of international terrorism would not be limited to the United States alone.
  • Technology sector companies: Apple’s competitors may gain or lose, depending on how Apple’s decision is perceived by the American public. If public opinion is in favor of Apple’s decision to protect customer privacy rights, other technology companies that cooperate with the U.S. government may be seen as compromising such rights. On the other hand, if Apple’s decision is perceived as negative, other technology companies stand to gain.
  • Internet rights activist groups: Such groups will welcome Apple’s decision to refuse to build a backdoor to the iPhone.

If we look at Apple’s U.S. customers as being a subset of the U.S. citizens group, which itself is a subset of the global community. In this scenario, a decision to refuse the FBI demands can be seen as myopic, serving only a small group, not the entire community. Moreover, as claimed by Apple itself, national security-related requests from the U.S. government over the first six months of 2015 had affected just 0.00673 percent of Apple’s customers.

Apple holds a leadership position in the industry. Hence, a decision to go with the government’s request could set a precedent for other technology companies, enhance Apple’s stature, and win public admiration, possibly resulting in a win-win situation.

Based on the analysis of consequences, it appears that complying with the government’s demands may be seen as doing greater good for a greater number of people. Apple should cooperate with the government.

The more personal approach could be used in QUESTION 4 since you had to imagine what you would have done if you were in Cook’s shoes, these were some of the possible options:

  • Since it was a one-off case, I would choose to build the backdoor. I would, however, remain committed to customer security and privacy.
  • I would seek the views of my employees as well. If my team expressed dissent with my decision, I would honor their opinion and build a backdoor.
  • I would choose to cooperate with the FBI since national security is a larger concern than the reputational risk associated with unlocking a single iPhone.
  • I would continue with Cook’s decision since the FBI could always use other means of getting information. Unlocking the iPhone may yield no tangible results.
  • Unlocking the iPhone by compromising my customers’ personal data leads to the risk of reputational loss. I shall not do so unless the government forces me. In such a case, I shall no longer be held responsible for any of the consequences.  
  • The phone did not belong to Farook but belonged to the San Bernardino County — Farook’s employer. The County gave permission to unlock the phone. As Apple’s CEO, this point of ownership helps me resolve the ethical dilemma of being true to my customer.

None of these answers was right or wrong. The idea was to understand the moral and ethical dilemmas of such decisions and to highlight how, in hindsight, it may appear that a different decision could yield a different outcome.

Finally, you were required to search what happened with Vodafone Germany in 2013 and see whether a backdoor could have put in risk cyber security and open a door to cybercriminals (QUESTION 5). A right approach was that creating a backdoor would not be technologically difficult for companies such as Apple.  However, protecting the Key would be a significant challenge. Cybersecurity experts stressed that no backdoor for one government could be fully protected from others. In this context, any key to a backdoor will need to be carefully protected from hackers and would have to be constantly monitored. This will not be cheap and would constitute a big risk with potentially terrible consequences and probably make easier the job for cybercriminal hunting personal data from companies such as Vodafone and some other more around the world.

On the whole, you did a good activity and we hope you have learned from it. Let’s continue with the Corporate Strategy activity!

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