Legal and Ethical Environment of Business (Mgmt 518)

1. Legal and Ethical Environment of Business (Mgmt 518) Course Introduction; Today’s Business Environment: Law and Ethics (Meiners et al., Chapter 1; Halbert & Inguilli, Chapter 1)

2. Course Introduction • Introduce myself and course. • Call roll. • Review syllabus. • My e-mail – chsmith@fullerton • Best way to contact me. • My website – http://faculty.fullerton.edu/chsmith • Check regularly. • I will use TITANium for grades only. • Blackboard will be defunct as of June 1, 2012.

3. Disclaimer • Survey of law and ethics often involves some kind of wrongful conduct which is illegal, unethical or both. • Due to this wrongful conduct (or even just an accusation), cases and examples presented in class may deal with offensive matter. • All cases and examples are presented for educational value, not “shock” value.

4. Why Should MBA Students Be Required to Take a Law Course? • Why not? 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., Internal Revenue Code, who is entitled to it when company has multiple owners. • Marketing; e.g., false advertising, other misconduct. • Worker relations; e.g., employee or independent contractor, hiring/firing decisions. • Contracts; e.g., buying or renting premises or equipment. • More examples.

5. Bases of American law • Constitutions. • Statutes. • Common law. • Administrative law.

6. Constitutions • “The Constitution” usually refers to United States Constitution which governs entire U.S. • All laws in U.S. must comply with U.S. Constitution – 2 aspects • Any law conflicting with U.S. Constitution will be invalidated. • Any state law conflicting with federal law will be invalidated (preemption). • Each state has own state constitution which may provide additional rights; e.g., California Supreme Court decided same-sex marriage case based on state equal protection clause in 2008. • Constitutions usually worded in general – even vague – terms. • Two purposes of any constitution • Create government powers/structure. • Guarantee individual rights.

7. Statutes • Often very-detailed laws created by federal, state and local legislatures; examples include • Congress – Federal Arbitration Act. • California State Legislature – traffic regulations (California Vehicle Code). • Fullerton City Council – parking regulations. • “Statute” is generic term – also called codes, regulations and ordinances.

8. Common Law • U.S. legal system is a “common law” system which we got from England; sometimes called “case law.” • Judge is required to interpret constitutions, statutes and/or prior cases (precedent) in order to decide current dispute before the court. • Virtually any dispute can be decided by referring to precedent. • A “case” is the opinion of a court which decides a dispute • Usually comprised of introduction, recitation of facts, application of law to facts, conclusion. • Examples – Miranda v. Arizona, Brown v. Board of Education.

9. Administrative Law • Decisions and rules of federal, state and local administrative agencies that specialize in one area; examples include • Federal – EEOC (employment discrimination). • State – Division of Labor Standards Enforcement (wage claims). • Local – City Personnel Board (city employee contests adverse employment action). • Important since many statutes require hearing by administrative agency before being able to file lawsuit in court. • Also, great deference accorded to administrative decision if dispute eventually ends up in court so must take administrative proceedings seriously.

10. Categories of Law • Substantive law vs. procedural law – see Exhibit 1.5 (Meiners, page 15). • Substantive law defines legal rights and obligations • Most people just call this “the law.” • Examples – contract law, what damages (if any) are appropriate. • Procedural law provides methods for determining legal rights and obligations • Sometimes a procedural law is called a “technicality.” • Examples – statute of limitations and other deadlines.

11. Categories of Law cont. • Civil law vs. criminal law – see Exhibit 1.4 (Meiners, page 14) • Civil law relates to rights and obligations between individuals, businesses and/or government • Usually only money involved though court can issue non-monetary judgment. • Example – business partners sue each other for partnership money and equipment. • Criminal law relates to wrongs against society • Investigated, prosecuted and administered by government. • Examples – murder, identity theft. • One incident can give rise to civil and criminal cases; e.g., O.J. • About 99% of this course will deal with civil law.

12. Categories of Law cont. • Law vs. equity • Action at law is when plaintiff is seeking judgment of money; e.g., compensation for injuries suffered in accident. • Action in equity is when plaintiff is seeking non-monetary judgment; e.g., injunction. • Difference is important since constitutional right to jury trial in action at law but cannot have jury trial in action in equity.

13. Parties in a Civil Lawsuit • Parties in the trial court • Plaintiff vs. Defendant. • Cross-Complainant vs. 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 housing development.

14. Parties in a Civil Lawsuit • Appellant vs. Appellee (federal) or Respondent (California). • Cross-Appellant vs. Cross-Appellee (federal) or Cross-Respondent (California). • Again, party can be more than one but this is rare since an appeal almost always involves clear winner and clear loser in the trial court.

15. Business Ethics • Ethics is the study of what is right and wrong • Ethics can be standards based on religious doctrine/beliefs, cultural traditions, family upbringing, teachings of philosophers, etc. • Business ethics is a subset of ethics – not a separate subject – that is the study of what is right and wrong in the business world; small group discussions as to these case studies • “Does Regulation Improve Business Ethics?” (Meiners, page 19). • Lamson v. Crater Lake Motors (Meiners, page 21).

16. Business Ethics cont. • Should you have different ethics in your “personal life” as opposed to your “business life”? • Yes – the business world is highly competitive and giving away your advantage in the name of “ethics” could be costly; e.g., executive quickly agrees to family’s requests at home but is tough negotiator in the office. • No – ultimately, you will be accepted and valued for taking a stand in the name of “ethics”; e.g., Jim Edson office painting.

17. Setting the Right Ethical Tone • Two ways to set the right ethical tone • Ethical leadership • Owners/executives must be ethical “role model” – be an example for underlings to follow; e.g., boss refuses to lie to customer. • Owners/executives cannot “look the other way” when wrongdoing happens – ignoring it will only encourage more of the same; e.g., sexual harassment. • Ethics codes and training • Provides clarity and ethical awareness. • Shows company is serious.

18. Outcome-Based Ethics • Utilitarianism • Greatest good for the greatest number, or choosing the alternative that should give the greatest overall good. • Related to stakeholder theory (see later slides). • Example – how to make decision to reduce payroll. • End-Means • The end [good result] justifies the means [steps taken to achieve result]. • Often used to justify unethical or even illegal conduct. • Example – businessperson disregards unfavorable information when preparing report.

19. Duty-Based Ethics • Religion • Many view religion as providing set of rules to follow though these rules also support community. • Example – 10 Commandments. • Categorical imperative • Person must be willing to accept consequences of having his/her action/decision becoming the universal rule. • Examples – cheating on exam; punch in the face.

20. Ethics Case Studies • To be reviewed with small groups • Case Questions 2, 3, 4 and 5 (Meiners, pages 23-24). • Ethics Question 3 (Meiners, page 24). • Yania v. Bigan (Halbert, pages 3-4). • Chapter Problems 1 and 2 (Halbert, page 41).

21. Corporate Social Responsibility • Also known as CSR, corporate citizenship or philanthropy, stakeholder management, and sustainability. • Study of CSR usually involves company’s obligation to something beyond the minimum legal requirement. • Of course, much debate as to what “something beyond” means or even if company should be doing “something beyond.” • Query – what do you do when panhandler asks you for money? • Examples of CSR.

22. CSR cont. • Various CSR theories • Milton Friedman – profit maximization (aka free market) • Company has no obligations other than to follow law and maximize profits for owners’ benefit. • CSR as business strategy • Public relations. • Making crisis management proactive, not reactive.

23. Stakeholder Theory • Definition taken from Mgmt 440 textbook and slightly modified • “An entity that [or person who] is benefitted or burdened by the actions of a corporation [or person or other entity] or whose actions may benefit or burden the corporation [or person or other entity]. “

24. Primary Stakeholders • Stakeholder is “primary” is impact of relationship with entity or person is “mutually immediate, continuous, and powerful” (definition taken from Mgmt 440 textbook), including • Stockholders (owners). • Customers. • Employees. • Communities. • Governments. • More examples of all.

25. Secondary Stakeholders • Stakeholder is “secondary” when “the relationship is one of less immediacy, benefit, burden, or power to influence” (definition taken from Mgmt 440 textbook), including • Media. • Competitors. • Suppliers (vendors). • Trade associations. • Political interest groups. • Creditors. • More examples of all.

26. Secondary Stakeholders cont. • More secondary stakeholders – note there can be some overlap (e.g., future generations and educational institutions) • Unions. • Political parties. • Religious groups. • Earth’s biosphere. • Future generations. • The poor. • Educational institutions. • More examples of all.

27. Who are the Stakeholders? • Start with the people/entities on the previous slides – one of the big issues with this model is identifying stakeholders which makes this truly a “volume” issue. • Which stakeholders on these lists are more important to you generally? To the majority generally? Why? • Should any stakeholders on these lists be disregarded? Why?

28. Stakeholder Case Study • To be reviewed with small groups • Who/what are the stakeholders as Cal State Fullerton – would the stakeholders be different for different issues such as • Class cutbacks. • Tuition increases. • Addition/deletion of academic programs. • Campus construction projects?