of the "fred friendl seminars" at the columbia university graduate school of journalism.

casablanca cruise lines has purchased two majestic ocean liners. they are retrofitting them to create basically a luxury playground on the seas for active seniors and anyone else who might enjoy a return to yesteryear on the ocean. betsy, you are the ceo of casablanca cruise lines. sounds like an exciting opportunity? - so far. - tapper: so far. one little wrinkle: the ships that you purchased were not new. there's a little bit of asbestos in them. you need to have it removed. in the united states you can have the two ships stripped of asbestos for $100 million. or there's this country, novastan, an impoverished former soviet republic on the black sea, and they will do it for $20 million. in order to make your numbers,

you need to do it for less than $30 million. why do you think there's such a price difference if the quality of the work is the same? there may be a different labor cost. there may be a different regulatory environment, but you said that it was an equivalent standard. william mcdonough: i think the issue is: are there some concerns that we should have about the effect on novastan of doing the work there? and if there's any danger to those people, that we understand it, and perhaps with our $10 million, the difference between the $20 million and the budget that we have of $30 million, maybe we take some of that resource, and use that to bring up a standard if it's necessary. tapper: let me just explain the health regulations in novastan: workers have to wear boots; they have to wear gloves; they have to wear overalls; they have to wear masks; and all those are supplied. in the united states there is much more high-tech equipment: negative airflow ventilation system; personal ventilation systems. so there is a clear difference in terms of the workers.

paul krugman: this is very close to another example-- the ship-breaking industry in alang, india-- which is in fact cheaper, much cheaper to break up a ship in india than it is to do it in baltimore or in rotterdam. it costs substantially less 'cause the wages are much lower and because the protections for the workers are much worse. but the moral case for saying it's okay to do that-- it's a question of what would the workers in alang be doing otherwise? india's a very poor country. these are opportunities and this is a case where you can in good conscience, being a full humanitarian, say, "look, if you-- if you insist that they be working under first-world standards, they're not going to have any export industry at all." - atkins: well, let me poll my... - tapper: okay, thank you. - ...fellow colleagues. - i recommend we go forward. - i agree. - i agree. - so we're going forward with novastan. - tapper: we're going forward. we're going forward. ben heineman: can the counsel disagree? - ( all chuckling ) - tapper: we will get to you in a second. - leslie lowe: can your shareholders disagree? - tapper: well, leslie, you're the head of an n.g.o. that's focused on the environment. and you know betsy just because

- your kids go to the same school. - oh, okay. and you've heard about this novastan deal going through. - you have concerns about this. - lowe: sure. betsy, my concern about what paul just said is it isn't just the workers. asbestos generalized in the environment is a very very dangerous substance. and unless there are those protections, i'd say that your company might be setting itself up for a big problem. well, i think that it's important to take what's been learned and transfer it to the environment to minimize any negative damage. but at the end of the day we do need to make a product and get it to market in timely fashion. we compete with many other cruise lines and we can't not go to market. - lowe: you know, betsy... - we've got the expense of our loans on these large ships. ...you don't want greenpeace or some of those other n.g.o.s to start coming after you about "the death ship." that might really ruin your business plan. as an advisor, i think it's very important to recognize that whereas greenpeace has a very strong moral position: in their view the environmental standards in novastan should be exactly the same as they are in the united states,

and i think the other moral position that paul articulated suggests that in fact we would be obscenely immoral if we basically tried to suppress their ability to escape poverty. - lowe: but fred-- - mcdonough: i think we can bridge this gap by being responsible, taking the $20 million deal but investigating whether it would not be possible for us to have the contractor do the business in a somewhat different way, which would lessen our possible both moral and legal risk. - what does that mean? - if they would have asbestos-laden clothing that they would be required to take off at the end of the day, shower, get themselves cleaned up before they go home to their families, we could do something at not great expense to ourselves. tapper: how much-- how much are you willing to spend? - ( all chattering ) - donaldson: we got $10 million to spend... - atkins: yes, we do. - donaldson: ...to make sure... - ...that it's done properly. - ...that we do just what bill said. i think they've started backwards. you shouldn't look at the $10 million. you should look at the comparative health risk. that's the issue.

and can you change the comparative health risks so that the workers in novastan are not facing death from cancer? i mean, asbestos is not-- it's not like child labor. it's not where you can have an argument where 14-year-olds can work because that's the cultural norm and they can get some income assuming the conditions are okay. asbestos kills people. exposure kills people. so you have to determine first the comparative health risk and what it would cost to make sure that the risks that the novastan workers were facing would not kill them. paul sarbanes: ben's onto a very important point. i think you have to ask the question, "how much harm is going to be done to the workers in novastan?" as you-- as you do this analysis. krugman: this has to be comparative. if this is a country where the risk of accidents, industrial accidents, is high across the board, to say, well, if it isn't as safe as it is in the united states - then we can't do it-- - sarbanes: no, i didn't say "as safe." no, that-- that need not be your standard. but it seems to me that regardless of the conditions in novastan, if your project is going to kill the workers, you should not do it.

- lowe: and-- and -- - krugman: but you're not going to know that. - if you know that, then you don't do it. - with asbestos, you know it. - sarbanes: that's an important point. - heineman: people understand exposure to asbestos and subsequent disease. how much, under the way that they do it, are the workers and their families being exposed to asbestos compared to the safety standards in the united states, and what does it take to move them to a point where people might determine the exposure is reasonably safe? back in the office between leslie and betsy, in this meeting, what can she say to allay your concerns, if anything? i think what has just been said would be the appropriate route. because even though those workers are getting wages, the rest of the people in novastan who might be exposed to that asbestos did not touch that wage. - so they're getting a risk without any of the benefit. - tapper: what would you like? - tapper: i understand. what would you like? - what i would like to see is for the company to be very transparent about how they approach this, to set out for the shareholders, for environmental activists,

exactly how they proceeded. tapper: nell, what do you think should be done? you've invested your money in this cruise line, - presumably to make money. - to make money, yes. that's right. and i've got high hopes because betsy's a great ceo. but i also am concerned about the kind of liability, whether it's a reputational hit or whether it's any other kind of liability. i would encourage betsy to go and sit down with the prime minister of novastan-- i guarantee you, if you're willing to spend $20 million in a country, you can get his attention-- and talk with him about what they can do to get u.s. business. mcdonough: i think we need to protect the good name of our company in the eyes of a responsible, sensible investor like nell, because if we endanger the good name of the company, that's a cost that we simply cannot afford. smith: but i'd like-- but there's a risk here, because the n.g.o. movement tends to have - a certain belief that we can make the-- - atkins: guilty before proven. that's right. guilty before proven. and that's why transparency is so important.

but it's important to realize you don't show run and opall your competitors and the outside world your decision process. you do that with sound advisors, with good fact-finding. but you don't transparently disgorge every decision you do. tapper: the decision has been made to go oject, and casablanca has decided that they're actually going to invest more money and make it so that the novastani workers, the subcontractors, are abiding not only by the strict regulations of the novastani government, but also a little bit more, a little bit more than is actually done. they've decided that-- i mean, does that sound like a reasonable - solution to this problem? - atkins: i think it's a very reasonable solution. ( all chattering ) especially if we can confirm for ourselves that we're not-- that in fact by doing this, we are mitigating a real health risk. - tapper: okay, well, you've put fred in charge of compliance. - right. - atkins: and fred's vigilant. - tapper: you're talking to a local official on the ground and he tells you one day,

( russian accent ) "we are abiding by the novastani regulations, but i have to tell you-- all the equipment is there, but the men are not wearing the masks." they often don't wear the masks in the united states, and that's one of the facts that you'd want to get in this area. "is it okay? is that good?" - do you stop the process? - minow: no, stop the process. - tapper: stop it? - minow: stop it right now. tapper: "let me explain something to you: in novastan we have beards for religious reasons." atkins: there's plenty of workers in novastan. if you won't comply with fred's strict compliance, - we'll find another worker. - tapper: the novastani government knows, the inspector comes, he drinks coffee with us, it's fine. - you're abiding by novastani regulations. - atkins: it isn't fine. we're the customer. it's our contract. and we will cease the contract until you comply with our compliance regulation. and i'm sorry that it makes your beard itch. - tapper: you'll pull out? - no, we'll stop and we'll replace you. okay. i'm the next guy. they are not wearing the masks. ( audience laughing ) they don't wear them. it's okay. the government-- do you want to talk to a novastani official? no, i'm sure i can find another couple of contractors who will comply.

smith: the question is whether or not we're going to offer, not safety, leslie wants the world to be safe. there's no way to make the world safe. there are ways of making the world safer. right now what we're offering with our corporation is a chance for the novastani people to have an increment of risk reduction. but this risk has to be put in perspective with other risks, and poverty is a risk of novastan, not asbestosis. minow: the question is: are you going to shut down the operation because they're not complying? - even though-- - tapper: nell, what do you want? - yes! i-- - tapper: you want it shut down? yes, i want it shut down immediately. - tapper: mr. donaldson. - donaldson: we got a ship, and we gotta get this asbestos out of it. we gotta get it done. tapper: what do you want to do with this project now? - i want to stop it. - tapper: you want to stop it. - yeah. - mcdonough: i don't think you have to stop it. i want to figure out how we can-- mcdonough: i think you have to say to the foreman in whatever accent one wants to put on "put the masks on, and get the workers busy." - he would say, "yes, sir." - tapper: the masks are on. and if the masks come off, then you're relieved.

and we'll find an alternative person who will comply and wear the masks. because we know that there's a plethora of workers and not a lot of high-paying jobs in novastan. tapper: okay. mr. mcdonough, you're a chief executive at casablanca. your daughter joanne comes home from grad school with a copy of "bleeding heart magazine." ( laughing ) ah, you hate it when she brings that home. and in it is a very lengthy investigative piece on third-world workers. and there are pictures of casablanca subcontracted employees in novastan, and-- without the masks-- it's pretty clear some of them are teenagers. - hmm. - joanne, talk to your dad. well, dad, first of all, i'm really disappointed about this. i understand that you need to give these people jobs, but it looks like you're not

enforcing your rules very well there, and i want to know what your company's doing. it's one thing to have a good plan to protect people against asbestos. it's another thing to have a good plan to make sure there's compliance to that. well, joanne, i'm glad that you gave us credit for protecting them on the health, because those scurrilous pictures that were taken were taken during that brief period before-- - ( laughing ) - before we cracked down and made sure that they wore the masks. i'm glad that you noticed that. tapper: leslie, you have a 14-year-old daughter. does this concern you, 14-year-olds? yeah. i mean, betsy, really-- i mean, this is toxic work, and you're employing young people who in novastan's life expectancy could live another 20 or 30 years, which is enough to develop asbestos-related diseases. and this just really-- i mean morally speaking, i just think you've really stepped off the deep end here. it's important that you separate your social and moral and business ethical issues. the role of-- of a corporation

is to stay in business, make profit for the long term, while being a good business, ethical world citizen. we are doing that. and there are social conditions that we can't control. i don't think you can separate moral sensibilities from business sensibilities, at least, not in the current world. we are linked by the internet. it's a global economy, there is global information. so if you're not taking good care of those workers in novastan, it's going to come right back at you. but we're trying to find ways of having some of the novastani citizens whose lifestyle is improving, whose kids for the first time are able to save, go to school, who can do some health care, to tell their stories. and we're beginning to try to find ways of letting the novastani people say, "don't crucify us on a cross of american standards, which will kill us much faster than they do." there's a balance here. it's not an either/or decision: should we have no jobs, or must the jobs be paying the minimum possible, the working conditions as bad as possible?

this is a case where the company's interests are served by somewhat appeasing the community of n.g.o.s who want things to be better. the n.g.o.s do a useful service as long as they don't actually cut off the jobs. it's not going to be u.s. standards. it's not going to be western european standards. but it can be better, and it's-- pressure is good. what do those jobs do in the short term for the people of novastan? almost immediately somebody is getting a job that pays more than they could elsewhere. tapper: is it possible that american companies would demand health worker safety regulations so high that it wouldn't actually be cheaper to actually take the jobs to novastan? the novastanis are going to have to decide what level of standards they establish. but i think just as fundamental, casablanca and companies like it have to decide what their global practices are going to be. and that's why it's so difficult, because there's no simple answer. i don't think it's satisfactory to say you follow whatever novastani government officials decide; nor can you say "i'm only going to follow the standards that are applicable in the u.s.,

and try to spread them throughout the world." betsy and her colleagues are going to have to decide, what do they want to stand for? and i don't know where you come out on the 14-year-old, but if there were eight-year-olds compelled to work in that shipping operation. i suspect betsy and her colleagues would decide they're not prepared to put their ship in the service of those workers. nell, what about this? he talked about eight-year-olds. where does it stop? is this a race to the bottom? one would hope that at some point there are standards that companies interested in following good business practices establish, and that over time, governments come to the point of adopting those standards. but in the short run, each company's going to have to decide for itself - what practices it can tolerate. - minow: as you said-- i'm an investor: i buy low, i sell high. i bought into this company because i want it to make money and i have every expectation that it will. but i do not make a distinction

between business decisions and moral decisions. i think all decisions have moral consequences, but as this hypothetical shows, there are a lot of competing moral concerns, and it's navigating that that can be the challenge. but we're talking about a high-end consumer product that has a brand, and if you want to try to sell that product, you better make sure that you're not gonna go out sailing while children die because of the way that we removed the asbestos. so you want to have some kind of very clear, very transparent standards. that is not your strategy, that is part of your brand. i don't think you can set worldwide standards for how old you workers are going to be. our concern here is getting the job done, and not causing deaths getting it done. bill, you can't set worldwide standards all across the board, but you can have worldwide floors. i think we can all agree that six is too young. we can all agree that seven is too young. and i think businesses have to get together and agree to a set of principles

that they're going to establish around the world. smith: but this is the problem with that-- if we set a standard for our company-- and i think our company does need some policies here. but i think our policies ought to be, are our involvement in novastan going to make the novastani citizenry better off-- healthier, wealthier? and that may differ. the policies-- the actual implementation may turn out to be different in novastan than it's going to be in india and so forth. but we do not want to set a floor. because their floor may be so much lower than that. but the floor should be something making a substantial improvement in the lives of people there. - smith: right. - krugman: substantial. i'd like to challenge one point, if i heard you right-- we should be improving the quality of the life of those people. and as a public corporation for profit, we have to develop a set of business principles and business ethics. but we're not in business philosophically to raise social standards. we're in business to have business that makes profit for our owners,

and the way to do that for the long term is to have good business ethics in all your various constituencies, but not to be a social cause-- - krugman: but there's a corporate reputation-- - --that raises levels. this is why n.g.o.s are so useful, because they turn having social ethics into also a good business decision, because they will make your life hell if you make really bad ones. - the next question-- - atkins: we do need a business ethics standard that we have developed that's the right long-term strategy. but to say that part of our business mission is to raise social standards, that is not part of our business mission. - ( arguing ) - tapper: i have to take you out of the developing nation of novastan-- whew-- and back into the united states where these ethical issues are so much clearer cut. ( laughing ) smith: not necessarily. tapper: john. you are the c.e.o. of a private corporation called maxicorp. your group of brilliant engineers has developed a product

that is amazing. it's called the maximile. you attach it to a car's engine, it doubles the mileage. it's a huge technological breakthrough. it's a wonderful business opportunity. - you're excited about this, right? - abele: absolutely. tapper: you are located in the mid-atlantic state of centralia. senator sarbanes is your senator. lew kaden is your number two. ben heineman is your chief counsel. already one u.s. auto manufacturer has developed an environmentally-friendly car called the i-care car. the maximile is a huge part of that i-care car. the i-care car was introduced two years ago. they've already sold 950,000 of them. it's just a great time for you. - until-- - ( laughing ) mr. heineman, one day you get a letter - from a trial attorney. - been there. you knew it was a trial attorney, didn't you? an i-care car with a maximile was doing 85 miles per hour

on the highway and it stalled. it was rear ended; the driver was killed. the family is threatening to sue i-care car and maximile. is there anything you're going to do? i'm going to go talk to-- i mean, most companies will have product quality people, who are gonna be able to reverse engineer, go back, look at it. - tapper: okay. - think about it, test it. we have to know whether it's one-in-a-million, whether it's 100-in-a-million. you poke around, and find out there have been five incidents-- still only one fatality. then that's an enormous risk. we have to understand what that risk is. tapper: i'm the head engineer. this product is fine. but, you're my bosses, i hear you. we're going to hook maximiles up to a bunch of engines, and we're just gonna let them go at different speeds. it's gonna take about three weeks for this to happen. you're gonna want a third party at this stage. you're not gonna leave it to your own company. you're gonna get a third party who's gonna either work with your engineers, but is going to provide some check on the credibility of what he says.

abele: here's what we want to know: we've got a-- what appears to be a rare incident, but a devastating incident. and we want to know whether, in fact, this is something that is related to the product we've got, or is just an incident-- one in a million is probably what any car has in terms of rear enders. their tests are going on. i forgot to tell you-- a different auto manufacturer, the sunbolt car company, is expecting a shipment of maximiles in four days. the testing is going on, but it's going to take at least three weeks. can i just make the distinction between forward and back? in other words, when you've got a population out there, it's a very tough question of how many incidents have to occur within that population before you do something-- notice, recall, whatever it is. going forward, it seems pretty clear as counsel that you would not do it until you had determined-- given the severity of the injury-- until you determined whether you have a defect.

atkins: but assuming-- and we haven't yet proven that this is our product's problem-- i think we should begin to do our worst-case scenario planning immediately, so we aren't caught behind the power curve, and we have our thinking together. tapper: what about the sunbolt car company? the shipment is in four days. the test won't be done for three weeks. minow: what we do is we call them and we say, "we will be happy to deliver them to you but we want to alert you that we are having this problem." we've had one problem out of 950,000 cars, and we felt it was our obligation to tell you right away. we're also calling in the national highway transportation safety board to let them know that this claim has been made. tapper: is that right, ben? are you calling in the national transportation highway board? there will be a standard at which you absolutely have to call them in. the question will be, if you're short of that standard, do you still want to call them in to get them involved - so that you've got-- - it's always better to tell them. --so you have a third party involved, the n.t.s.b., your engineers, looking at the problem? don't you think that trial attorney has already let them know that he thinks there's a problem?

maybe not because he doesn't want it to leak around some other trial attorney's got on the case. but it's always better to go to the regulators early. i agree with you. it's better to come forward early and let them know you're investigating it, what your process is, what your diligence is going to be. - minow: invite them in. - don't try and hide. - bill? - i just want to ask the counsel: what sort of liability do we have now, if we don't do anything for the next three weeks? i mean, if we just-- what do we have to do now? i wouldn't ship, because you don't want them incurring the cost of manufacturing the car when you knew that there was a potential defect, 'cause there are a lot of damages as they build the cars, and then you say, "whoops, the engines-- we have to retrofit or do something else." so i would not ship. as i said, i distinguish forward from what's happened. does your contract have a severe penalty if you don't ship? - you'd talk to them. you'd work it out. - all right. tapper: i need a decision from john. are you not shipping to sun--? i'm not-- i'm going to tell sunbolt, "hey, this is what we've got. it's a one- in-a-million number, but this is a new product. this is something that we and you

want to have real clarity on." - ( all chatter ) - i want to tell you one more thing. that lawyer... he has called you and said that he thinks the family would be willing to settle. we're never gonna to be bought off. - we will l do what we have to do to-- - tapper: so you won't settle? we might settle or not, but we're going to go forward with the safety assessment and meet all regulatory-- tapper: i want to know if you're gonna settle. - we might settle. - minow: not now. i would accept in this case the counsel's advice. i'd be willing to settle, but not change the strategy of making sure that we understand what the risk is. we've done-- and we've been transparent within our community. in the meantime, the maxicorp research department has been mining the data, and they have found 10 accidents, two fatalities, including the first one. in all those cases, the driver was speeding. does this change anything? i'm going to go back to our engineers and say,

"have you been able to duplicate this result in any way whatsoever?" tapper: let me tell you-- i'm the engineer. "everything is within the specs. there was this one engine that was hooked up to a maximile. we ran it at 85 miles an hour-- which of course is above the speed limit-- for 60,000 straight miles, and there was a little bit of metal fatigue. it was still within the specs. i want to do some more testing." i would absolutely convene a panel of our top people, probably a few outsiders that are trusted honest brokers in this process, and i'd say, "look, what's the exposure? what is the likelihood? and what is the severity?" if this is something that can happen in one in even 100,000 cars, that is a high risk. mr. chairman, here's my recommendation, especially since you have decided-- wisely, in my view--

that as a minimum, we're going to stall the lawyer who wants to settle, at some expense to us: that the story will become public very quickly. part of our fact base is this has happened only at speeds of 85 m.p.h., which happens to be above the speed limit. i recommend that we preempt the bad story we're going to have, and say, "there may be a difficulty if you're driving at 85 m.p.h. hour, which you shouldn't be doing anyway." and therefore, we warn all people who've had this product: don't speed. - tapper: so you think there should be a press release-- - yes. - --telling people not to speed? - bill, with all due respect, you know, we just can't do that. - ( laughter ) - first of all, there are a lot of highways now, you can get rear ended when you're driving 85 miles an hour. and so even though that's outside of the legal limit, it's certainly a risk that we cannot-- - tapper: your chief counsel-- - heineman: there's a different reason,

which is you haven't completed the testing. if you put something out like that, then you're asked the question, "well, what about under other conditions? what's going on? what kind of testing are you doing? what's the situation?" you can't-- i don't think-- answer those questions at this point. so until you're prepared, i think, to give a report that fairly states the conditions under which it has to be recalled or changed or whatever, you will make a terrible mistake and probably get into all kinds of legal liability by doing it. minow: but, ben, wait wait. you're saying, "we wanna wait." how many fatalities are you risking during that waiting period? no, i didn't say-- i just was disagreeing with the esteemed board member's view as to what the press release would say. - yes. - you might well determine it's time for a recall. that's a different question. but my esteemed board member was saying he was gonna say, "don't speed because something could happen at 85," and i'm just saying, that's an incomplete statement at this point in time. smith: but we're always going to find risk information flowing in as we go hopefully from a million sales up to the 30 million we hope to have in time. how are we ever going to be able to address this problem,

if every time a trial lawyer writes us a thing, we tell our customers we're going to wait three weeks? we'll never sell anything in that condition. tapper: john, your number two wants to say something. kaden: the reason they pay us so much is that it's part of our job to gather facts, assess risks and make a judgment. and we're conducting these tests, we're gonna get all the factors we want-- the world is not perfect-- and then we're gonna assess what our course of action is. should we stop shipping the product? should we withdraw the products that are on the market already? that's going to depend on the statistical evidence, the engineering data, from all the sources we can get-- from objective sources as well as our own people. queenan: how long is all of this going to take? - kaden: if we can do it in-- - minow: how many people are going to speed-- if we can do it in 24 hours, we'll do it. if it takes us three weeks, it'll take us three weeks. and in the meantime, it's up to us to make a judgment whether the evidence justifies