The Modern Environment of Business Law and Ethics Introducing The Modern Environment of Business Law and Ethics By Dr. Mohammad Naushad College of Business Administration (Al-Kharj) Al-Kharj University, KSA

The Modern Environment of Business Key functions of the Legal Systems Sources of Law Classifications of Law Ethics and Business

Key functions of the Legal Systems Improving Social Stability by Influencing Behavior - Limit actions detrimental to the “public interest” and encourage beneficial acts (Laws in different countries may reflect countries’ social norms) Conflict Resolution - Courts are one mechanism for resolving disputes (Businesses moving more to resolution outside the courts) Social Stability and Change - Reflect the social values and customs of a society (Ex: the changing status of unnatural marriages & controversies involved) - Effective way to change what is “acceptable” behavior (Laws reflect social changes about discrimination in the workplace) See “Chad: A Third-World Country Looks to Create a Legal System” – Developing a legal system more attractive to the world business community

Sources of Law Constitution Legislatures and Statutes Administrative Agencies and Regulations The Judiciary and Common Law The Executive International Sources of Law

Constitution Fundamental law of the landFundamental law of the land Establishes the limits and power of governmentEstablishes the limits and power of government U.S. Constitution, the oldest written constitution in force in the worldU.S. Constitution, the oldest written constitution in force in the world Establishes legislative, executive and judicial branches of governmentEstablishes legislative, executive and judicial branches of government Each state also has its own constitutionEach state also has its own constitution

Legislatures & Statutes Legislatures create statutory law –Federal Laws –State Laws –Municipal Laws Judges interpret Laws must pass Constitutional muster Example: 1972 Congress enacted Clean Water Act, setting standards for national water quality, and giving EPA authority to adopt necessary regulations Example: States statutes regulate insurance industry, usually giving authority to state insurance commissions to assist in regulation

Administrative Agencies and Regulations Congress creates a statute Statute names administrative agency Agency makes regulations Sometimes both Congress and states enact regulations in the same area of concern, such as environmental regulations

International Sources of the Law Firms doing business in other countries are subject to countries’ laws. Code Law: Many countries use codes and do not have common law –Courts interpret the codes and their application to cases Treaties and Trade Agreements among countries define the law that affects business practices. Multinational regional or global organizations affect businesses –Ex: World Trade Organization See “Sources of Law in Japan”

Legal Framework of Saudi Arabia Islamic Law (Shari‘a)Islamic Law (Shari‘a) (Royal) Regulations, in particular Commercial Agency Regulations(Royal) Regulations, in particular Commercial Agency Regulations Analogy of codifications of other Arab countriesAnalogy of codifications of other Arab countries Contractual AgreementContractual Agreement

Legal Framework of Saudi Arabia SourcesSources –Qur‘an –Sunna (tradition of life of prophet Mohammad) –Ijma‘ (consensus on interpretation of Qur‘an and Sunna) –Qiyas (analogy to earlier accepted principles)

Legal Framework of Saudi Arabia Various „Schools“Various „Schools“ ComplilationsComplilations –Ottoman (Hanafi) Mejelle of 1877 –Saudi (Hanbali) Majalla of 1981

Legal Framework of Saudi Arabia Basic principlesBasic principles –No ‚riba‘ („interest“) No delay interestNo delay interest No interest on loansNo interest on loans –No‚gharar‘ („aleatory profits“) No gambling etc.No gambling etc. No ‚hypothetical‘ damages, e.g. lost profitsNo ‚hypothetical‘ damages, e.g. lost profits

Classifications of Law Public and Private –Public- legal relationships between members of society and the government influence behaviorinfluence behavior bring about social changebring about social change –Private- legal relationships among members of society resolves disputesresolves disputes primarily common lawprimarily common law

Classifications of Law Civil and Criminal –Criminal The guilty can be fined, imprisoned or both Creates either a felony or a misdemeanor Legal requirement for guilt: “beyond a reasonable doubt” –Civil Wrongdoer pays money, but no jail time! Legal requirement for liability: “preponderance of the evidence” Substantive and Procedural –Substantive Defines legal rights and regulates behavior –Procedural How it is to be enforced (the “nuts and bolts”)

Ethics and Business Public perception of business leaders has fallenPublic perception of business leaders has fallen Enron and WorldCom cases have brought issues of illegality and unethical behavior to the forefrontEnron and WorldCom cases have brought issues of illegality and unethical behavior to the forefront International business and corruption – duping investors and bribing government officialsInternational business and corruption – duping investors and bribing government officials Campaign contributions to influence public officialsCampaign contributions to influence public officials Practical consequence are high jury awards against large corporationsPractical consequence are high jury awards against large corporations More and more focus is on ethicsMore and more focus is on ethics Not to be confused with rules of lawNot to be confused with rules of law

Cyber Law: “Online Ethics and Legal Compliance” The evolution of computer and the Internet in relation to the law have created ethical challenges for businessesThe evolution of computer and the Internet in relation to the law have created ethical challenges for businesses Invasion of privacy is an issue in ethical discussions by employers and employeesInvasion of privacy is an issue in ethical discussions by employers and employees Sexual harassment and obscene s are problems in companiesSexual harassment and obscene s are problems in companies How do businesses choose to monitor the company computers?How do businesses choose to monitor the company computers? Does legal and ethics on-line training for employees have benefits?Does legal and ethics on-line training for employees have benefits?

Ethics and Morals (Ethics are not rules of law – although they overlap) Morals –Generally accepted standards of right and wrong in a society Ethics –Abstract concepts that might be studied in standards of right & wrong in philosophy and theology Morals/Ethics should not be confused with etiquette or good manners Morals/Ethics should not be confused with rules of law “Good morals inspire and teach.” “Good law governs.”