Business and Its Legal Environment (Management 246)Course Introduction/Business and Its Legal Environment (Chapter 1)/Ethics and Business Decision Making (Chapter 4)Professor Charles H. SmithSpring 2011

Course introduction• Introduce myself/course.• Distribute sign-in sheet.• Review syllabus.• My e-mail –

chsmith@fullerton.edu (best way to contact me).

• Website – http://faculty.fullerton.edu/chsmith (check it regularly - note that I am not on Blackboard).

A disclaimer and an opportunity• Disclaimer – 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.

• Opportunity – does anyone have a question for me before we proceed? Your question can be academic, legal, personal, etc.

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., employee or independent contractor, discrimination.

– Contracts; e.g., buying or renting premises or equipment.

– Student examples.

Basis of American law - Constitutions• “The Constitution” usually refers to

the United States Constitution, which governs the entire U.S.; all laws in the U.S. must comply with requirements stated in the U.S. Constitution since it is “the supreme law of the land.”

• However, each state has its own state constitution which often provides additional rights or an alternative way to have rights; e.g., same-sex marriage cases.

• Any constitution creates government powers/structure and also guarantees individual rights, though constitutions are usually general and even vague.

• Student examples.

Basis of American law - Statutes

• Laws created by federal, state and local legislatures.

• Also called ordinances, regulations and codes.

• Often very detailed.• Many areas of law

governed by statutes.• Student examples.

Basis of American law – Common or case law• U.S. legal system is a “common

law” system.• Judge is required to interpret

constitutions, statutes and/or prior cases (“precedent”) in order 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.

• Virtually any legal dispute/issue can be decided by precedent.

• Student examples.

IRAC case analysis method

• “I” – what issue being decided by the court?

• “R” – what rule is being applied by the court to the issue.

• “A” – the court’s analysis or application of the rule to the issue.

• “C” – the court’s conclusion.• Example – Brown v. Board of

Education.

Basis of American law – Administrative law• Decisions and rules of federal,

state and local administrative agencies.

• Important since many laws require a hearing by an administrative agency before being able to file a case in court.

• Courts often give great deference to administrative agency’s decision so take administrative proceedings seriously.

• Student examples.

Categories of law• Substantive law vs. procedural law

– Substantive law defines legal rights/limitations; most would just call this “the law.”

– Procedural law provides the methods for seeking or defending legal rights/limitations.

– Student examples.• Public law vs. private law

– Public law involves matters of public interest.

– Private law pertains to the parties to a dispute only.

– Student examples.

Categories of law cont.• Civil law vs. criminal law

– Civil law relates to duties between individuals, businesses and/or government; usually only money involved.

– Criminal law relates to wrongs against society and is investigated, prosecuted and administered by government.

– Student examples.• Law vs. equity

– Action at law is when plaintiff is seeking money; right to jury trial.

– Action in equity involves non-monetary relief; cannot have jury trial.

– Student examples.

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 – partners

suing each other.• Construction defect case –

HOA, general contractor and sub-contractors suing each other based on problems at a housing development.

Parties in a civil lawsuit cont.

• Parties on appeal– Appellant– Appellee or respondent– Cross-appellant– Cross-appellee or cross-

respondent– Party can be more than one

though this is rare since an appeal almost always involves clear winner and loser in the trial court.

Law vs. ethics• Law

– Rules imposed by ruler(s) of society which must be followed by everyone in that society – like it or not.

• Ethics– Your own rules, such as

personal beliefs, religious doctrine, moral code, cultural traditions, etc.

– May involve legal or illegal conduct.

Law vs. ethics cont.• Examples of following law but

ethical issues raised– Meg Whitman reportedly

spent well over $100M of her own money running for governor.

– Sarah Palin’s use of the phrase “blood libel” as to recent Arizona murders.

– Student examples.

Law vs. ethics cont.

• Examples of being ethical but– Giving up legal right

• 21 years old or older – refuses to drink alcohol due to religion or health.

• Student examples.– Violating the law

• Property stolen – forcible retrieval instead of calling police.

• Student examples.

Business ethics• Focus is what is right and

wrong in context of the business world – the specific application of ethics in the workplace.

• Should you have different ethics at work and at home?

• Ethics are important to a company’s long-term viability; reputation lasts longer than this quarter’s profits.

Setting the right ethical tone• Ethical leadership

– Top management must be committed to ethics or underlings will not be – manager must be a “role model.”

– “Looking the other way” – manager’s ignoring worker’s bad conduct will encourage future bad conduct by other workers.

• Ethics codes and training – provides clarity and shows company is serious– Written codes – but see Enron’s

code of ethics; must be more than words on a page.

– Ethics training for employees.

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.

Stakeholders cont.

• Who are the stakeholders regarding the following entities?– Cal State Fullerton.– Where you work.– Your favorite band.

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 with 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 and/or has ambiguous wording.

Duty-based ethics• Religious beliefs – every religion

has set of rules that are both absolute and based on compassion; e.g., 10 Commandments.

• Kant – central theme is individual should evaluate his actions in light of consequences that would follow if everyone acted the same way (“categorical imperative”); e.g., theft from employer; punch in face.

• Principle of rights – humans have basic rights, such as life, freedom and pursuit of happiness.

Outcome-based ethics

• Focus on consequences, not the nature of an action itself or any moral/ethical rules; some examples– End/means doctrine – good

result justifies using bad methods to achieve it.

– Utilitarianism – wants the greatest good for the greatest number of people.

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.

Business ethics on a global level cont.• Foreign Corrupt Practices Act

passed in 1977– Prohibits U.S.

companies/businesspeople from bribing foreign officials to obtain or retain business.

– However, such payments are legal if purpose is to expedite routine government action.