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Module 01
Today’s Business Environment:
Law and Ethics
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Learning Objectives
Upon successful completion, the student will be able to:
Describe key functions of the Legal Systems;
Identify sources of law in the U.S.;
Compare classifications of Law;
Explain business ethics & social responsibility.
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Key functions of the Legal System
No Generally Best Accepted Definition of Law
Law: May be viewed as a collection of rules or principles that limit and
direct human behavior.
Productive for business if it creates predictability and some uniformity of
acceptable social conduct.
Improving Social Stability by Influencing Behavior – Legal system
helps define social behavior; restricts activities that damage “public
interest;” restricts business practices believed outside of ethical
norms; & encourages certain social and political goals.
Laws in different jurisdictions reflects other social norms.
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Key Functions of the Legal System
Improving Social Stability and Change – Law reflects the social
values and customs, which may change.
Ex: Growing & selling marijuana illegal under federal law; some states
now legalize production and use.
Ex: Sale of alcohol illegal in U.S. from 1919-1933. In Saudi Arabia,
alcohol production/sale/consumption violates Sharia law, which is part
of national law.
Conflict Resolution –
Courts are one mechanism for resolving disputes.
Businesses turning to formal private settlement techniques – alternative
dispute resolution systems outside the courts.
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Corrupt Nations And The Rule Of Law
After terrible 2010 earthquake in Haiti, the world was shocked by
the poverty and corruption of Haiti’s government and legal system.
Businessmen said that doing business in Haiti was nearly
impossible. The demands for bribes are endless. Providing help
very difficult.
Transparency International ranks Haiti 168th most corrupt in the
world.
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Corrupt Nations And The Rule Of Law (2)
Nepal, hit by massive earthquake in 2015 ranked 126th most
corrupt:
Official demanded bribes to give life-saving supplies for the people sent
by countries and people trying to help.
Least corrupt – New Zealand and Denmark – high income countries.
Strong relationship between less corruption, well-functioning legal
systems & economic development.
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Sources of Law in the United States
Constitutions
U.S. Constitution & State Constitutions
Federal & State Legislatures and Statutes
Administrative Agencies and Regulations
The Judiciary and Common Law
The Executive
International Sources of Law
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Fundamental law of the land
Establishes the limits and power of government
U.S. Constitution is the oldest written constitution in force in the
world.
Establishes Legislative, Executive and Judicial Branches of
government
Creates the “Separation of Powers”
U.S. Constitution
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State Constitutions
Like U.S. Constitution, they create Legislative, Judicial and
Executive Branches of state governments
Often long and detailed
Amending a state constitution usually much easier than amending
the U.S. Constitution.
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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
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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
Ex: environmental regulations
Agencies and Regulations – very important effect on the legal
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The Judiciary and Common Law
Comes from old English system.
Judge follow earlier decisions that resolved similar disputes.
Legal principles from cases is called “precedent.”
Cases published in case reporters.
Use of precedent is Stare Decisis.
A new issue? Judge makes new common law based on logic from
existing law.
Provides stability but allows change as technology and social
attitudes evolve.
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Davis v. Baugh Industrial Contractors, Inc.
(Changing the common law)
Glacier Northwest hired Baugh to build a facility that included an
underground pipe system.
3 years later, Glacier suspected a pipe leak. Davis assigned to uncover the
leak. While he was in a hole to get to the pipes, a wall collapsed, killing him.
Pipes should last 100 yrs. These were likely damaged during installation,
causing the leak. Davis’ daughter sued Baugh for negligence in her father’s
death.
Trial court used precedent: When a contractor finishes work and owner
accepts it, the contractor (Baugh) no longer liable; only the property owner
could be liable. But Glacier did nothing wrong. Suit dismissed by trial court.
Appealed to Supreme Court of Washington
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Davis v. Baugh Industrial Contractors, Inc.
(Changing the common law) (2)
HELD: Reversed and remanded. Court rejected previous common
law rule and adopted a new approach:
The contractor (Baugh) is liable for injury to 3rd parties as a result of
negligent work, even if the work was accepted by the property owner
(Glacier).
Construction has become highly complex. Landowners rely on a
contractor’s expertise. Property owners (Glacier) often do not know of
poor performance by the contractor.
Liability may be imposed on contractor when it is “reasonably
foreseeable” that injury could occur due to negligence in construction.
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Civil Law Systems
Civil law systems dominate in most countries:
Europe
Central & South America
Parts of Asia and Africa
Civil law roots are often from Roman Empire law.
3 major characteristics differentiate a civil law system from common
law; civil law systems:
are code-based rather than case-based.
are influenced more by academic experts than by practicing lawyers.
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President can create law through “Executive Orders”
Examples: Can order agencies to give preference to buying recycled
products; can restrict financial transactions by suspected terrorist
organizations.
Can require federal agencies to do things within the President’s
scope of authority
President has influence on administrative agencies – i.e., appoint
agency heads and order duties they undertake.
The Executive
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International Sources of the Law
Firms doing business in other countries are subject to those
countries’ laws.
Code Law: Most countries use codes not common law .
Courts strictly apply the codes to cases.
Treaties and Trade Agreements among countries affect some
business practices.
Ex: NAFTA (North American Free Trade Agreement)
Ex: World Trade Organization
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Classifications of Law
Public and Private
Public – Legal relationships between members of society and the
government
Imposes legal constraints
Bring about social change
Private – Legal relationships among members of society
Resolves disputes
Primarily common law
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Classifications of Law (2)
Civil & Criminal
Criminal
Most criminal statutes also have lesser civil charges resulting in fines
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
Requirement for guilt:“preponderance of the evidence”
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Substantive vs. Procedural
Substantive
Defines legal rights and regulates behavior
Procedural
How legal matters are processed through the court or other systems
and how it is to be enforced (the“nuts and bolts”)
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Business Ethics and the Law
Public perception of many businesses is low (i.e. big banks and Wall
Street).
Ethics: The rules or standards governing conduct of members of a
profession
Integrity: Living by a moral code and standards of ethics
International business and corruption – duping investors and bribing
government officials
Morality: Conformity to rules of correct conduct within the context of a
Campaign contributions to influence public officials
Practical consequence includes high jury awards against large
corporations in litigation.
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Ethics Codes and Compliance Programs
Organizations adopt compliance codes, combining ethics and legal
requirements.
Compliance Programs: management tools for avoiding legal
problems or reduce possible punishment.
Dept. of Justice (DOJ) emphasizes importance of corporate
“compliance programs”
Online legal and ethics training used by most companies.
out information.
Good compliance programs can result in civil rather than criminal
prosecution of offenders.
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Lamson v. Crater Lake Motors
Lamson was sales manager for car dealership. Good employee who
liked the company’s reputation for integrity.
Company hired sales firm, Real Performance Marketing (RPM) to
run a company 5-day sales promotion.
Lamson saw “unethical or unlawful” activities:
RPM video said “all vehicles” cut in price – but only video vehicles
were on sale. RPM tried to “pack the payments”– providing life
insurance and service contracts in purchase agreements without
customers’ knowledge.
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Lamson v. Crater Lake Motors (2)
Lamson complained to general Manager (GM). Was told “go home.”
GM told Lamson that another sales manager was making $600 profit
per sales. (Lied: Lamson found out it was only $100.)
GM hired RPM to run another sale; GM & Lamson argued. GM told
Lamson to cooperate with RPM. Lamson gave company owner a
letter saying RPM violated sales ethics and he needed to rethink
“profit at any cost mentality.”
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Lamson v. Crater Lake Motors (3)
Lamson did not cooperate and was fired. Sued for wrongful
discharge because he complained about violation of company’s
code of ethics.
Jury held for Lamson. Company appealed.
HELD: Reversed. Lamson lost.
No wrongful discharge.
Lamson was not directed to participate in unlawful activities.
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Lamson v. Crater Lake Motors (4)
Internal complaints (not external) of unethical sales practices are not
a societal duty protected at law. Lamson not discharged for fulfilling
a public duty protected at law.
No evidence that company tried to “silence” Lamson to conceal
illegal activities.
Lamson’s concerns about RPM’s tactics were laudable.
HOWEVER, wrongful discharge is narrowly defined – this discharge
was not unlawful.
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THE END
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