1. Legal & Ethical Issues in Business
Legal Environment of Business

2. Legal Environment of Business
Our society has not left business to its own devices- rather business operates within the constraints of law
Legal restrain would ensure the best allocation of resources

3. Legal Environment of Business
The Legal Environment of Business has as its basic purpose the equalization of market opportunities:
Business conduct restrained
Consumer protection

4. Legal Environment of Business
Business conduct restrained
Consumer protection
Restraints of trade can be accomplished by several devices:
Price fixing scheme
The division of market among conspiring competitors

5. Legal Environment of Business
Business conduct restrained
Consumer protection
Restraints of trade can be accomplished by several devices:
Discriminatory pricing practice
Vertical restraint on institution within a channel of distribution

6. Legal Environment of Business
Business conduct restrained
Consumer protection
Consumer protection bases for some laws enacted to protect public

7. Legal Environment of Business
Business conduct restrained
Consumer protection
Consumer are also protected against false and deceptive practices:
False and deceptive advertising and mislabeling
Use of impure materials

8. Legal Environment of Business
Business conduct restrained
Consumer protection
Consumer are also protected against false and deceptive practices:
Substances harmful to the human body
The unrevealed presence of used, reprocessed and substitute materials

9. Rationale for understanding Legal Environment
Commitment to national economic priorities and development strategy
Concern for and sympathy with emerging consumerism
The need for regulation of commercial relation amongst the citizen of the country

10. Rationale for understanding Legal Environment
Commitment to national economic priorities and development strategy
Concern for and sympathy with emerging consumerism
The need for regulation of commercial relation amongst the citizen of the country
What to be manufactured
How much to be manufactured
Who will manufacture

11. The power of these options is enormous enough to shape business decision

12. Rationale for understanding Legal Environment
Commitment to national economic priorities and development strategy
Concern for and sympathy with emerging consumerism
The need for regulation of commercial relation amongst the citizen of the country
Major causes of consumerism has been identified:
Rising price
Poor product performance
Deceptive advertising

13. Rationale for understanding Legal Environment
Commitment to national economic priorities and development strategy
Concern for and sympathy with emerging consumerism
The need for regulation of commercial relation amongst the citizen of the country
Regulate relationship between marketers and:
Buyers
Dealers
Advertising agencies
Transporters
Other parties

14. The Demand for Legislation
Rapid economic growth and expansion
Rapid change in social and economic structure
Other important developments

15. The Demand for Legislation
Others………..
The growing demand for capital created by the high investments requirement for specialization
Pressures for larger and larger volume of sales to compensates for the high cost of industrialization
Expanding network of rail-roads providing the means of market expansion
The opportunities for skilled and unskilled labor in the countries/cities

16. An Evaluation of the Legal Framework
Impact in the marketing behavior
Maintenance of competition
Public health and safety
Effecting business decision

17. Definition of Law
The term Law is used to denote rules of conduct emanated from and enforced by the State.
Law is the command of the Sovereign. It means –
Law has its source in sovereign authority.
Law is accompanied by sanctions.
The command to be a law should compel a course of conduct.

18. Definition of Law
Law is the rule of external human action enforced by the sovereign political authority.
Holland

19. Definition of Law
Law is the body of principles recognized and applied by the State in the administration of justice
Salmond

20. Definition of Law
Law is that portion of the established habit and thought of mankind which has gained distinct and formal recognition in the shape of uniform rules backed by the authority and power of the government
Woodrow Wilson

21. Characteristics of Law
Law is the rule relating to the actions of human beings.
Law attempts to regulate the external action of human beings.
Law is enforced by the State.

22. Law and Social Objectives
Law must be framed and changed on the basis of social needs.
Henry Maine

23. Law and Social Objectives
Moral values rather than the settlement of disputes of interests should be the objective of Law.
Observed by
Emile Durkheim
L. T. Hobhouse
Max Weber

24. Law and Social Objectives
Law is profoundly related to the following three elements –
The legal structure of the society
Constitutional ideals and principles
Legal procedure
Rosco Pound

25. Rules of Law There are three rules-
The rule of law states that, “No man is punishable or can be lawfully made to suffer in body or goods except for a distinct breach of law established in the ordinary legal manner before the ordinary courts.”
The rule of law mean, “No man is above law.”
The rule of law is “The result of statues and judicial decision determining the rights of private persons.”

26. Crane and Matten Business Ethics (3rd Edition)
Chapter 1

27. Introducing Business Ethics

28. What is business ethics?
Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed.

29. Ethics and the law
Ethics
grey
area
Law

30. Defining morality, ethics and ethical theory
Morality is concerned with the norms, values and beliefs embedded in social processes which define right and wrong for an individual or a community.
Ethics is concerned with the study of morality and the application of reason to elucidate specific rules and principles that determine right and wrong for any given situation.
These rules and principles are called ethical theories.

31. The relationship between morality, ethics and ethical theory
…that can be applied to any situation.
… to produce ethical
theory …
Ethics rationalizes morality …
Morality
Ethics
Ethical theory
Potential solutions to ethical problems

32. Why is business ethics important?
Power and influence of business in society
Potential to provide major contribution to society
Potential to inflict harm
Increasing demands from stakeholders
Lack of business ethics education or training
Continued occurrence of ethical infractions
Evaluating different ways of managing business ethics
Interesting and rewarding

33. Types of misconduct across sectors
24%
21%
19%
22%
20%
27%
25% 10 20 30
Putting own interests
ahead of org
Lying to
employees
Abusive behavior
Nonprofit
Business
Government
© 2008 Ethics Resource Center
Source: Ethics Resource Center (2008)

34. Observed ethical misconduct across sectors
46%
43%
49%
55%
56%
52%
57%
60% 0%
25%
50%
75%
2000
2003
2005
2007
© 2008 Ethics Resource Center
Nonprofit
Business
Government
Source: Ethics Resource Center (2008)

35. Differences across organizational types
Stakeholders
Large corporations
Small businesses
Civil society organizations
Public sector organizations
Main priorities in addressing ethical issues
Financial integrity, employee/customer issues
Financial integrity, employee/customer issues
Delivery of mission to clients; integrity of tactics; legitimacy and accountability
Rule of law, corruption, conflict of interest; procedural & accountability issues
Approach to managing ethics
Formal, public relations and/or systems-based
Informal, trust-based
Informal, values-based
Formal, bureaucratic
Responsible and/or accountable to
Shareholders and other stakeholders
Owners
Donors and clients
General public, higher level government organizations
Main constraints
Shareholder orientation; size and complexity
Lack of resources and attention
Lack of resources and formal training
Inertia, lack of transparency

36. Globalization: a key context for business ethics?

37. What is globalization?
According to Scholte (2005) globalization is not:
‘internationalization’
‘liberalization’
‘universalization’
‘westernization’
Globalization is: a process which diminishes the necessity of a common and shared territorial basis for social, economic, and political activities, processes, and relations.
‘deterritorialization’

38. Relevance of globalization for business ethics
Cultural issues
Legal issues
Accountability issues
Globalization can affect all stakeholders of the
corporation

39. Ethical impacts of globalization
Globalization provides potential for greater profitability, but also greater risks. Lack of regulation of global capital markets, leading to additional financial risks and instability.
Corporations outsource production to developing countries in order to reduce costs in global marketplace - this provides jobs but also raises the potential for exploitation of employees through poor working conditions.
Global products provide social benefits to consumers across the globe, but may also meet protests about cultural imperialism and westernization. Globalization can bring cheaper prices to customers, but vulnerable consumers in developing countries may also face the possibility of exploitation by MNCs.
Suppliers in developing countries face regulation from MNCs through supply chain management. Small scale indigenous competitors exposed to powerful global players.
Global business activities brings the company in direct interaction to local communities with possibility for erosion of traditional community life; globally active pressure groups emerge with aim to “police“ the corporation where governments are weak and tolerant.
Stakeholders
Ethical impacts of globalization
Employees
Suppliers & competitors
Civil society (NGOs, etc)
Government & regulation
Consumers
Globalization weakens governments and increases the corporate responsibility for jobs, welfare, maintenance of ethical standards, etc. Globalization also confronts governments with corporations from different cultural expectations about issues such as bribery, corruption, taxation, and philanthropy.

40. International perspectives on business ethics

41. Different approaches to business ethics
Who is responsible for ethical conduct in business?
Who is the key actor in business ethics?
What are the key ethical guidelines for ethical behaviour?
What are the key issues in business ethics?
What is the most dominant stakeholder management approach?

42. Regional differences: Europe, North America, Asia
The individual
Europe
N. America
Asia
Who is responsible for ethical conduct in business?
Who is the key actor in business ethics?
What are the key guidelines for ethical behaviour?
What are the key issues in business ethics?
What is the dominant stakeholder management approach?
Top management
Government, corporations
Managerial discretion
Corporate governance and accountability
Implicit multiple stakeholder approach, benign managerialism
The corporation
Corporate codes of ethics
Misconduct and immorality in single decisions situations
Focus on shareholder value
Social control by the collective
Government, trade unions, corporate associations
Negotiated legal framework of business
Social issues in organizing the framework of business
Formalised multiple stakeholder approach

43. Sustainability: a key goal for business ethics?

44. Defining sustainability
Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. (World Commission on Environment and Development 1987)
Sustainability refers to the long-term maintenance of systems according to environmental, economic and social considerations

45. The three components of sustainability
Economic
Social
Environmental

46. Triple bottom line Coined by John Elkington
Bottom line thinking suggests sustainability as a goal
Three dimensions:
Environmental perspectives
Economic perspectives
Social perspectives

47. Corporate commitments to sustainability
“At BP we define sustainability as the capacity to endure as a group: by renewing assets; creating and delivering better products and services that meet the evolving needs of society; attracting successive generations of employees; contributing to a sustainable environment; and retaining the trust and support of our customers, shareholders and the communities in which we operate.”
“[Sustainability] means enhancing our relationship with host and partner governments, building consumer confidence in diamonds, and ensuring our activities contribute positively to … both present and future generations.”
“Corporate responsibility (CR) at Nokia is a collective effort. We believe that management of CR issues is most effective when sustainability policies and programs are embedded in every aspect of our operations. ”
“ [For Toyota, a guiding principle is] ‘contributing to the development of a prosperous society through the manufacture of automobiles.’ ‘Contributing to the development of a prosperous society’ means ‘contributing to the sustainable development of the earth.’”
“Values, social responsibility and active sustainability are integral [to] our company culture. We are future-oriented in our approach to important issues such as climate change. We operate a broad range of [R&D] activities and provide trend-setting approaches to the mobility of tomorrow.”
Company
Sustainability statement
Source BP
DeBeers
Nokia
Toyota
Volkswagen
Sustainability Report, 2007
2009
CSR Report, 2007
Sustainability Report, 2008
2009