Business And Its Legal Environment (Management 246)

1
Business And Its Legal Environment (Management
246)

• Professor Charles H. Smith
• Course Introduction/Business And Its Legal
  Environment (Chapter 1)/Ethics and Business
  Decision Making (Chapter 4)
• Spring 2008

2
Course introduction

• Introduce myself/course.
• Call roll.
• Review syllabus.
• My e-mail chsmith_at_fullerton.edu (best way to
  contact me).
• Website http//faculty.fullerton.edu/chsmith
  (check it regularly).
• Warning survey of law often involves some kind
  of wrongful conduct (illegal, unethical or both)
  due to this wrongful conduct, cases and examples
  presented in class may deal with offensive
  matter presented for educational value, not
  shock value.

3
Grades

• Five exams (worth 150 points total) all
  multiple-choice need Scantron Form No. 882-E and
  No. 2 pencil.
• I realize that everyone wants a good grade,
  which can range from I need an A in this class
  or I will be disowned/divorced/deported to I
  just want a C. There is no secret formula when
  it comes to earning a good grade. You earn your
  course grade. Therefore, you need to put in the
  work in this class on a consistent basis. If you
  are concerned about your grade at any time during
  the semester, please contact me. Do not wait
  until the end of the semester to advocate for a
  better grade.

4
Why should a business major be required to take a
law course?

• Why not? After all, legal issues come up on a
  weekly, daily and even hourly basis in any
  business.
• Legal issues which can arise in any business can
  involve
• Money e.g., taxes, how money must be recorded
  and reported.
• Marketing e.g., false advertising, other
  misconduct.
• Worker relations e.g., compensation or
  employment decisions.
• Contracts e.g., buying or renting premises or
  equipment.
• Student examples.

5
Bases of American law

• Constitutions federal plus every state
  everyone in U.S. subject to federal constitution
  plus one state constitution at all times creates
  government powers/structure and guarantees
  individual rights.
• Statutes laws created by federal, state and
  local legislatures also called ordinances,
  regulations and codes.
• Common or case law decisions by judges, who
  interpret constitutions, statutes and/or prior
  cases (precedent) to make decision of current
  dispute stare decisis ordinarily requires judges
  to follow past decisions, which facilitates
  predictability and stability in legal and
  business matters.
• Administrative law decisions and rules of
  federal, state and local administrative entities
  (e.g., IRS, DMV) important since many laws
  require a hearing by an administrative agency
  before being able to file a case in court (note
  that courts often give great deference to
  administrative agencys decision).

6
Categories of law

• Substantive and procedural substantive law
  defines legal rights/limitations procedural law
  provides the methods for seeking or defending
  legal rights/limitations.
• Public and private public law involves matters
  of public interest private law pertains to the
  parties to a dispute only.
• Civil and criminal civil law relates to duties
  between individuals, businesses and/or
  government criminal law relates to wrongs
  against society and is investigated, prosecuted
  and administered by government.
• Law and equity actions at law involve money
  actions in equity involve non-monetary relief
  (e.g., injunction, specific performance) jury
  trial available in actions at law only.

7
Parties in a civil lawsuit

• Parties in the trial court
• Plaintiff
• Defendant
• Cross-complainant
• Cross-defendant
• Party can be more than one examples include
• Business dispute
• Construction defect case
• Parties in the appellate court
• Appellant
• Appellee or respondent
• Cross-appellant
• Cross-appellee
• Party can be more than one though this is rare
  since appeal almost always involves clear winner
  and loser in the trial court.

8
Law vs. ethics

• Law rules which must be followed by everyone
  in society like it or not.
• Ethics your own rules, such as personal
  beliefs, religious doctrine, moral code, cultural
  traditions, etc. may involve giving up a legal
  right or violating the law (e.g., tattoo, body
  piercing, man wearing hat indoors, taking drugs,
  violence as revenge).
• Ethics will give rise to law, but law does not
  necessarily give rise to ethical behavior.
• Example of ethics giving rise to law religious
  doctrine re killing another person now found in
  homicide laws (definitions, penalties, defenses,
  etc.).

9
Law vs. ethics cont.

• Examples of following law without being ethical
• MLB teams name change from Anaheim Angels to Los
  Angeles Angels of Anaheim contract requires that
  Anaheim must be in teams name, but is new name
  what was contemplated by the city or the Angels
  when contract signed back in 1996?
• Landlord starts eviction proceedings against
  tenant who is late with rent only once
  (technically a breach of contract) despite that
  tenant has rented same premises for two years
  with no problems.

10
Business ethics

• Focus is what is right and wrong in context of
  the business world (the specific application of
  ethics in the workplace).
• Ethics are important to a companys long-term
  viability reputation lasts longer than this
  quarters profits.
• Fiduciary duty obligation of trust, disclosure
  and loyalty owed by co-owners of business to each
  other case study Time Warner Entertainment Co.
  v. Six Flags Over Georgia, LLC (pages 84-85).

11
Setting the right ethical tone

• Ethical leadership
• Top management must be committed to ethics or
  underlings will not be.
• Looking the other way managers ignoring
  workers bad conduct will encourage future bad
  conduct by all workers.
• Periodic ethics evaluation.
• Case study In re the Exxon Valdez (pages
  86-87).
• Ethics codes and training provides clarity and
  shows company is serious
• Written codes.
• Ethics training for employees.

12
Stakeholders

• Conflicts and trade-offs if decision needs to
  be made, which group of stakeholders (people
  with an interest in a business and its decisions)
  should take priority? Which stakeholders are
  more important?
• Stakeholders in a business or its decisions can
  include
• Owners/investors.
• Employees.
• Supply chain (customers and suppliers).
• Government.
• Community.
• Others student examples.

13
Companies that defy the rules

• Enron
• Conflicts of interest e.g., doing business with
  businesses owned by CEOs son and daughter.
• Shady accounting practices e.g., reporting
  Enron losses under subsidiaries.
• Document-shredding.
• Merck controversy re Vioxx (painkiller)
• Mercks knowledge of risks study showed that
  patients taking Vioxx for extended period had up
  to 4X as many heart attacks and strokes as
  patients who took Naproxen, though less stomach
  bleeding if patients took Vioxx instead of
  Naproxen.
• Merck executives took position that Vioxx was
  safe until proven otherwise.
• August 2005 jury awarded 253M to widow of
  Vioxx victim (later reduced to 25M due to Texas
  statutory cap on punitive damages).

14
Business ethics and law

• Laws regulating business
• Extensive federal, state and local regulation,
  with frequent changes/additions to governing law
  ignorance of the law is no excuse.
• Therefore, important to stay current re governing
  law.
• Legal gray areas
• Definitions of terms in statutes and cases, such
  as
• Reasonable person
• Good faith
• Abuse of discretion
• Exceptions to general rules often called
  loopholes.
• Contract interpretation, especially if contract
  comprised of multiple documents/communications.

15
Approaches to ethical reasoning

• Duty-based ethics
• Religious beliefs every religion has set of
  rules that are both absolute and based on
  compassion.
• Kant central theme is individual should
  evaluate his actions in light of consequences
  that would follow if everyone acted the same way
  (categorical imperative).
• Principle of rights humans have basic rights,
  such as life, freedom and pursuit of happiness.
• If the above concepts are in conflict, which
  should be controlling?
• Outcome-based ethics (utilitarianism) focus on
  consequences, not the nature of an action itself
  or any moral/ethical rules wants the greatest
  good for the greatest number of people.

16
Business ethics on a global level

• Different ethics in different countries/cultures
• Example U.S. laws barring discrimination
  against women and other protected classes of
  people, such as people of color or non-U.S.
  origin other countries permit such
  discrimination.
• Example while alcohol consumption is legal in
  U.S., it is up to each individual whether to
  imbibe in some countries, alcohol consumption is
  illegal, so no individual choice.
• Foreign Corrupt Practices Act (1977)
• Prohibits bribery of foreign officials.
• Exception for facilitating payments.