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. Smith Spring 2011

Course introduction Introduce myself/course. Distribute sign-in sheet. Review syllabus. My – (best way to contact me). Website – chsmith (check it regularly - note that I am not on Blackboard). chsmith

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.