Welcome Schulich Students!

Business & Sustainability

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Fishbanks Simulation
 Overview
• Your team is one of 9 competitors in 1 of 2 oceans

• This game runs over 10 periods/years

• 2 decisions for every year/period

1. Auction/Trading (not mandatory)
2. Building/Fishing (mandatory)

• There are two separate games running concurrently

(Atlantic, Pacific)
 To Win this Game!!!
You need the most assets at the end of the game

$$$
ASSETS = SHIPS’ SALVAGE
VALUE + BANK BALANCE

Starts at $300, fluctuates Profits

based on demand
Fishing Fleet

• Initial Size (2 ships)

• Enlarge fleet
- Win the auction
- Buy from others
- Build new

• Reduce fleet
- Sell to others
 Profit

Profit = Income - Expenses

FISH NEW
SALES SHIP
HARBOR & ORDERS
OPERATING
INTEREST COSTS
EARNINGS

SHIP INTEREST
TRADE SHIP CHARGES
SALES AUCTIONS &
TRADE
PURCHASES
 Income

Fish
Sales Catch x Price ($20 per fish)

Interest 2% on cash balance

Earnings (interest is calculated after expenses incurred and before
revenue accrues)

Ship
Trade Sell ships to others (highest bidder)
Sales
 Expenses

Harbor & Harbor: $50/ship-year

Operating Coastal Fishery: $150/ship-year
Costs Deep Sea Fishery: $250/ship-year

New Ship Build new ships: $300 each; charged current yr; delivered next yr
Orders

Auction: About 2 ships/yr, buyer takes all; av’ble current yr

Auction &
Trade
Purchase Buy ships from others: Highest bidder

Interest 5% on debt Interest is calculated after expenses

Charges incurred and before revenue accrues
 Your Catch

Catch influenced by:

• Number of Ships (your decision)
• Yield per Ship (see next slide)
• Weather (unpredictable)
 Fishing Areas

Deep Sea Fishery Coastal Fishery Harbor

Maximum population: Maximum population: Maximum population

• 2,000 – 4,000 fish • 1,000 – 2,000 fish • 0 fish

Operating cost: Operating cost: Operating cost

• $250 per ship-year • $150 per ship-year • $50 per ship/year

Yield in year 1: Yield in year 1: Yield in year 1:

• approx 25 fish per ship • approx 15 fish per ship • 0
 Interest & Asset Calculation Example
INITIAL BANK BALANCE $600

EXPENSES:
Operating Costs Deep Sea (2 ships x $250) -500
Coastal (1 ship x $150) -150
Harbor (1 ship x $50) -50

Minimum Balance opening balance less expenses -$100

Interest expense/credit -$100 x 5% -5

INCOME:
Fish sales Deep Sea (2 ships x 25 fish x $20/fish) 1,000
Coastal (1 ship x 15 fish x $20/fish) 300
Harbor (1 ship x 0) 0

FINAL BANK BALANCE $1195

Asset Value Market value ( 4 ships x $250) + 1185 $2195

Interest is charged on debt at the beginning of the period

interest is earned on revenues at the end of the period
 Starting Conditions

Cash balance = $600

Ships = 3 (worth $300 each initially)

Total assets = $1500

Members per team: 2-4

Bank loans: available and automatic

 THE REWARD!!!!

1st Place overall: 2 additional percentage points added to

students’ final grades

1st Place in remaining oceans: 1 additional percentage

point added to students’ final grade

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 Sustainability
• Meeting the needs of the present without compromising
the ability of future generations to meet their own needs
 Sustainability Dimensions
Ecological Social Economic
• Biodiversity • Access to basic services • Financial system
• Replenishment cycle • Social equity/justice • Flow of goods/services
• Water and dry systems • Human rights • Stable economic cycles
• Ice systems • Democratic systems • Income distribution
• Species reproduction • Healthy communities • Income equality

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Social

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Economic
Percent of Households With Annual Income Within 50% of the Median
Percent
52

50.3
50

48
47.3

46 45.6

44.2
44

42.2
42

40

0
38
1970 1980 1990 2000 2010
Source: CEA Calculations from Current Population Survey

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 Ecological

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Pacific Garbage Patch

Is this Realistic? Yes or No?
 What happened?

Your Results: Schulich Student Priority

40

35

30

25

20

15

10

Protecting the environment should be given Economic growth and creating jobs should
priority, even if it causes slower economic be the top priority, even if the environment
growth and some job loss suffers to some extent
What was your responsibility in this
game?
Did any groups attempt to cooperate?
 The Dilemma
• Public good: is a good that individuals cannot be effectively
excluded from use and where use by one individual does not
reduce availability to others (e.g. fishstocks)

• Public good dilemma: while cooperating is optimal from the

collective point of view, self-interested individuals tend to
deplete the resource because individual users do not bear the
full cost of their use nor do they internalize the full benefit,
both of which accrue to the collective (also known as the
Tragedy of the Commons)
 The Nash
Equilibrium
Prisoner’s dilemma from game theory:

• If we all cooperate, we all get moderate gains

• the first person to ‘defect’ makes a big gain at the expense of
the others;
• If we all defect, we all lose

• Nash received the Nobel prize by showing that rational individuals

tend to defect
 COVID-19

4 Types
1. 65% of the population are willing participants
2. 20% of the population are rational egoists
3. 7.5% of the population are altruists
4. 7.5% of the population are punishers
 The Rational Egoist!
• When egoists don't follow the rules, they show willing participants
the wrong way to behave.

• If willing participants saw enough egoists ignoring social distancing,

then some of them would also begin to ignore social distancing.

• They're still "willing," but instead of following the rules, they're also
now "willing" to break them.

• If some rule breakers (egoists) turn into lots of rule breakers

(egoists and willing participants), that's when it gets dangerous.
 Ecological Overshoot

1960s: 70% of nature's yearly output

1980s: 100% of nature’s yearly output
2006: 125% of nature’s yearly output
2014: 150% of nature’s yearly output
 Top Countries (Global Hectares)

United Arab Emirates (15.99) Sweden (7.53)

United States (12.22) France (7.27)
World Average: 2.3
Kuwait (10.31) Estonia (7.12)
Denmark (9.88) Switzerland (6.63)
New Zealand (9.54) Sustainable Average: 1.7 Germany (6.31)
Ireland (9.43) Czech Republic (6.3)
Australia (8.49) United Kingdom (6.29)
Finland (8.45) Saudi Arabia (6.15)
Canada (7.66) Norway (6.13)
 Why is this simulation important?
• We can apply what happened in the simulation to other public goods (e.g. air, water,
ecosystems, etc.)

• Those who try to be responsible foot the bill but have to share the benefits with
other players who likely defect

• Example: Social Media Misinformation

– One firm incurs cost to establish standards/processes in the industry
– Public Good: increased industry reputation, public trust in information
– Problem
• If one firm incurs the full cost but doesn’t get full benefit, it’s often a non-starter
• While costs are incurred, competitors are benefiting from shared misinformation
• Because of how lucrative misinformation can be, players face huge incentive to shirk
• Overall industry reputation threatened, public trust is exploited
Negative Externalities: a cost that results from an activity or
transaction and that affects an otherwise uninvolved party
who did not choose to incur that cost or benefit (Buchanan, 1962)

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 ‘Business Sustainability’ refers to the
achievement of economic viability (profitability)
while operating within the capacity, or
contributing to the integrity, of social, economic,
and ecological systems.

Triple Bottom
Line Economic

Social Environmental
 A Solution
• Nobel Prize in Economics winner Elinor Ostrom proved that
game theory predictions are not inevitable, if
• Groups of companies
– Set participant boundaries
– Ensure collective decision-making How is
– Put in place independent monitoring leadership in
– Have progressive punishments in place business defined
– Put in place conflict resolution procedures in this case?
– Ensure higher level authority buy-in
– Customize rules to local conditions

Source: Elinor Ostrom: Revisiting the Commons

 Sustained
Catch…so far
Norway Cod, Hake, Haddock Catch Australian Lobster Catch
1,400 20

1,200
Thousand Metric Tons

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Thousand metric tons

1,000

800
10
600

400
5

200

- 0
1960 1970 1980 1990 2000 1960 1970 1980 1990 2000
 Fishbanks? Really?
Fish Population

3,000
Deep Sea
Coastal

2,500

2,000
Number of Fish

1,500

1,000

500

0
1 2 3 4 5 6 7 8 9 10
Year
 Team Assets - limited expansion
Assets - $
Ships - #
$25,000 8

$20,000
6

5
$15,000
Assets

Ships
4

$10,000
3

2
$5,000

$0 0
1 2 3 4 5 6
Team
 Industry Wealth

$120,000

Ships
Cash
$100,000

$80,000
Total ships

$60,000

$40,000

$20,000

$0
1 2 3 4 5 6 7 8 9 10
Year
 Quick Exercise
• Based on our class today, how would you define
leadership in business?

• Answer this question on Canvas under module 1.

September 13th, 2019 37

 Module 1 Summary Objectives
• Our exclusive objective of profitability can create unprecedented negative externalities,
which has led to increasing debate about the role of business in society

• The simulation showed that the path of least resistance is to deny responsibility for
anything beyond profit which, counter-intuitively, leads to the firm’s peril

• Understand the concept of ecological bankruptcy and the associated concepts of natural
capital, carrying capacity, and ecological footprint

• The Fishbanks outcome can be applied to a range of situations where collaboration is

critical for broader societal needs (e.g. climate change, social media misinformation,
systemic racism)

• To lead in sustainability, firms often need to consider how to foster collective action among
competitors and thereby challenge the highly entrenched norm of competitiveness (more
on this in module 4)
Course Overview
 Business and Sustainability
Course Objectives

By the conclusion of this course, you should have:

• Gained a broad understanding of the sources of tension between traditional business approaches and
society and the challenges managers and leaders face as a result.

• Developed knowledge of different strategic approaches businesses adopt in response to societal needs
across a range of industries.

• Learned how to critically assess a business’ performance along non-financial dimensions.

• Identified, understood and applied the fundamental challenges that inhibit businesses from pursuing
progressive responsible business strategies.

• Gained a broad understanding of the opportunities for alignment between business interests and those
of society and the tools required to achieve this alignment.
 Course Roadmap

Paradox

Sustainability Business
Philosophy Case

Philanthropy

Denial Defense Isolated Embedded Transformational

Sustainability Strategy
 Evaluation

• 10%: Course Participation

• 20%: Canvas Exercises
• 35%: Company Sustainability Assessment
• 35%: Business Leadership in Society

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 Canvas Exercises – 20%
• Your ongoing participation and performance in exercises,
quizzes, activities

• Meant to help you understand and practice applying the

material and to prepare you for the class

• Points awarded throughout the semester

• Ongoing feedback

September 13th, 2019 43

 Course Participation
• Evaluated on frequency/quality of contribution online and in-class
• After each class, I assign each student with one of the following
grades
• -1 – unprepared, disruptive, failing to listen, nothing online
• 0 – unexcused absence, late, nothing online
• 1 – present but say nothing, basic engagement online
• 2 – topical information and/or factual information from case/reading,
satisfactory engagement online
• 3 – answers to questions, advances discussion, challenge comments,
strong engagement online
• 4 – analyzing course material within and across modules , takes risks,
strong engagement and performance in online units
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 My Expectations of You
➢ Attendance is mandatory
➢ Online and In-Class contribution are essential
➢ Participate in online exercises
➢ Debate, argue, support, discuss
➢ Come prepared
➢ Complete assigned material
➢ Answer assigned questions
➢ Respect each other
➢ Support an engaging atmosphere
➢ Share your views and experience
➢ Always refer to Canvas for course content!

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 What are your expectations of me?

• Evaluation • Outside Classroom

– Balance student participation – Be available
– Grading consistency – Incorporate your feedback
– Grading transparency
– Clear on expectations • Class Content/Delivery
– Don’t get boring
• Classroom Management – Current events
– Foster interaction/debate – Summary objectives
– Challenge us to think – Diversity of delivery modes
differently – Debates and controversial topics

Anything to Delete or Add?

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 Next Class:
Profit and the Public Good

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Comments/Questions?

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