THE LEGAL ENVIRONMENT OF BUSINESS The Legal Environment
THE LEGAL ENVIRONMENT OF BUSINESS The Legal Environment of Business A Critical Thinking Approach 5 th Edition Nancy K. Kubasek Bartley A. Brennan M. Neil Browne © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -1
THE LEGAL ENVIRONMENT OF BUSINESS CHAPTER 8 Ethics, Social Responsibility, and the Business Manager © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -2
THE LEGAL ENVIRONMENT OF BUSINESS Business Ethics and Social Responsibility Notorious Cases: q Union Carbide Bhopal Disaster q Bridgestone-Firestone & Ford Explorer Cases Ethics is involved when decisions are made that affect the lives of others. © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -3
THE LEGAL ENVIRONMENT OF BUSINESS The Social Responsibility of Business Definition: Concern about business activities and their intended and unintended impact on groups and individuals other than owners or managers. Factors: q Complexity and interdependence of society q Political influence that translated public outcry into government regulations q Philosophical differences over the role of business © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -4
THE LEGAL ENVIRONMENT OF BUSINESS Social responsibility Exxon Valdes Facts: Jury awarded $5 B in punitive damages against Exxon Valdes because their oil tanker, captained by a known alcoholic, carrying 53 M gallons of crude oil, ran aground in Alaska, seeping 11 M gallons which disrupted all the fisheries. Issue: Was the $5 B excessive? Key factor: reprehensibility of the defendant’s conduct © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -5
THE LEGAL ENVIRONMENT OF BUSINESS Theories of Ethical Thought q Ethics: the study of good and bad behavior q Business ethics: the same study directed to business conduct q Theories: q Consequential or Utilitarian – focus on consequences q Deontological – focus on duties q Humanist – focus on improving human life © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -6
THE LEGAL ENVIRONMENT OF BUSINESS Utilitarianism Act Utilitarianism: Does the act bring net happiness? If not, don’t do it. Rule Utilitarianism: If the act were a general rule, would it bring net happiness? © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -7
THE LEGAL ENVIRONMENT OF BUSINESS Deontologists Immanuel Kant: “Categorical Imperative” q Actions are judged on the basis of their universal application: good or bad? q Everyone is rational, has free will, and is to be treated equally—never as a means to an end Actions are intrinsically good or bad, regardless of any consequences © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -8
THE LEGAL ENVIRONMENT OF BUSINESS Humanists Human Capacities: q Intelligence q Wisdom q Self-restraint Even bribery can be considered ethical if it achieves these human capacities. © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -9
THE LEGAL ENVIRONMENT OF BUSINESS Code of Ethics q Individual q Corporate q Industry q Professional q Accounting q Insurance and Finance q Law © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -10
THE LEGAL ENVIRONMENT OF BUSINESS Corporate Codes q Widely used q Apply to management q Include sanctions © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -11
THE LEGAL ENVIRONMENT OF BUSINESS Industry Codes q Adopted by associations q Inspirational statements Issue: Most associations are formed primarily to advance economic and political opportunities for their members, not to regulate themselves. © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -12
THE LEGAL ENVIRONMENT OF BUSINESS Professional Codes Professionals defined: q Educational requirements q Licensing requirements q Written and enforceable ethical standards q Formal status as organization q Formally recognized as such by public © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -13
THE LEGAL ENVIRONMENT OF BUSINESS Professional Codes q Professional codes may conflict with company or association codes. q Management must recognize that conformity with professional code will have priority. © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -14
THE LEGAL ENVIRONMENT OF BUSINESS Examples of Professional Codes q Accounting q AICPA Code of Professional Ethics and Interpretive Rules q Insurance q ASCLU Guides to Professional Conduct q Law q ABA Model Rules of Professional Responsibility and State Bar Associations © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -15
THE LEGAL ENVIRONMENT OF BUSINESS Schools of Social Responsibility q Profit-Oriented School q Managerial School q Institutional School q Professional Obligation School q Regulation School © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -16
THE LEGAL ENVIRONMENT OF BUSINESS Profit-Oriented School q The purpose of business is to increase value for shareholders. Managers who serve this goal are demonstrating social responsibility. q Unintended negative consequences are external to the corporate financial picture. q “Social costs” are matters for the government not corporations. q See State Farm v. Campbell –must determine the “degree of reprehensibilty of defendant’s conduct” in awarding punitive damages. © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -17
THE LEGAL ENVIRONMENT OF BUSINESS Managerial School q Many large businesses have stakeholders as well as stockholders. q Management should strive to serve both internal and external groups. q Management should also strive to maximize long-term as well as short-term goals. © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -18
THE LEGAL ENVIRONMENT OF BUSINESS Institutional School q Business has responsibility to benefit all of society. q Business should be held responsible for all actions, just as individuals presently are. © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -19
THE LEGAL ENVIRONMENT OF BUSINESS Professional Obligation School q Business managers should be ‘professionalized’ q Licensing based on state/national test q Codified responsibilities q License revocation sanction for violations © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -20
THE LEGAL ENVIRONMENT OF BUSINESS Regulation School Business is accountable to government regulators. Issue: How much regulation is enough? q Government seat on board of directors q Independent audits q Increased reporting requirements © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -21
THE LEGAL ENVIRONMENT OF BUSINESS Global Dimensions q U. N. Code of Conduct for Transnational Corporations q Respect for sovereignty q Adherence to sociocultural values q Respect for human rights q Anticorruption q Foreign Corrupt Practices Act q OECD Anti-Bribery Convention © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -22
THE LEGAL ENVIRONMENT OF BUSINESS Summary q Ethics q Business ethics q Ethical theories q Schools of Social Responsibility q Global dimensions and responses © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -23
THE LEGAL ENVIRONMENT OF BUSINESS All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 8 -24
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