Sarah Cabral, Amy LaCombe
Case Study: Robinhood’s Decision to Halt the Trade of GameStop Stock
In this business ethics case study, we will focus on the history making GameStop short and stock price surge that occurred during January 2021. Specifically, the decision point will center on Thursday, Jan. 28th, 2021 when Robinhood CEO, Vlad Tenev, decided to halt the trading of GameStop stock on his company’s stock trading app. Did Tenev make the right choice? Did he have a choice? Either way, what should Robinhood do to make amends for the role it played in causing monetary damages to its customers? In order for students to understand the context within which this decision was made and debate the appropriateness of the decision and response overall, we will provide an overview of the industry Robinhood is a part of and their role within it, in addition to providing a background on GameStop. Furthermore, the social media company, Reddit, which provided the platform for users to connect and rally behind GameStop and buy up shares, will also be explained and examined. In the accompanying teacher’s note, we will explain relevant terminology, such as “short” and “short squeeze,” as well as providing both discussion questions and answers. It is our understanding that this case study will be both relevant and important to discuss with undergraduate students in our Jesuit business schools. A Jesuit education takes a learner-centered approach. In deciding to write this case study, we considered what topics and cases might engage our undergraduate business ethics students. Of particular interest to our students is the role social media now plays in varying business sectors. This case hopes to highlight the power of social media in influencing actions with the purchase and sale of stock. It is largely a new field as E-trading software is gaining popularity. This is allowing individual investors to participate in trading in a way that was usually reserved for the big investment banks. Social media is influencing the actions of these individual investors, creating a lot of volatility and uncertainty in the markets, with respect to certain stocks. A Jesuit education expands student understanding and guides students toward the tensions that exist within business activities. This case identifies that there are investors who are betting against companies, and this “shorting” of a stock allows there to be another market where investors are betting on the direction of the stock price. This can be risky if a person “shorts” a stock because the stock can go up forever, causing excessive losses. The fact that there are investors betting on both possible directions of the stock (short and up), allows there to be liquidity in the market and strengthens the market if there is a stock price that is overinflated. This nuanced approach to learning about financial markets prevents superficial judgments, regarding the ethics of a particular practice, company, or individual. A Jesuit education is concerned with social justice and prioritizes the common good. This case hopes to highlight how conflicts of interest may put companies in a position where they have to act in a way that goes against their stated mission and culture. Robinhood was founded to “democratize” the stock market, but when it halted trading, it did not allow its individual investors to purchase shares of Gamestop stock. It is complex and nuanced, but we hope that students can see that short-term financial survival can influence people to make a decision that will potentially compromise their mission or purpose. It is important to have these discussions early on as evidence shows that “scripting” or anticipating difficult situations can be a powerful tool to combat this tension and keep companies from compromising their values. A Jesuit education challenges students to consider the best possible course of action. This case will spark a class discussion about whether or not Robinhood should try to make amends for decisions made that cost their customers money. Students will be asked to provide concrete ways in which Robinhood might make amends. There are several stakeholders involved with this business decision, so students must consider what responsibility a company has to its customers when their own financial survival is at risk. Finally, students will question whether or not Robinhood can repair their relationship with affected customers.