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BA 385 - Business Environment

BA 385 - Business Environment

Week 3 Legal, Regulatory, and

Political Issues

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BA 385 - Business Environment

Government Influence on Business

• Laws derived from the Constitution and Bill of Rights influence business.– Provide underlying structure

• Laws are enforced through the judicial system.– Settle disputes and punishes criminals

• Corporations have the same legal status as a person.– Can sue– Can be sued– Can be held liable for debt

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BA 385 - Business Environment

Reasons for Regulation

• Failure of the “Invisible Hand” of competition

• Economic: Level the “playing field”– Preventing trusts and monopolies from using

their market dominance to negatively manipulate output, pricing, and quality.

– Eliminating unfair competition and anti-competitive practices.

• Social: Protecting the environment, supporting equality in the workplace, and ensuring product safety.

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BA 385 - Business Environment

Major Laws Affecting Business

• Sherman Antitrust Act– Supports free trade and restrains monopolistic

activities

• Clayton Act– Prohibits price discrimination

• Federal Trade Commission Act– Creates the FTC to prevent unfair competition

• Robinson-Patman Act– Prohibits price discrimination

• Lanham Act– Protects and regulates brand names/marks

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BA 385 - Business Environment

Law Enforcement Agencies

• Food & Drug Administration (1906)• Federal Reserve Board (1913)• Federal Trade Commission (1914)• Federal Communication Commission (1934)• Securities & Exchange Commission (1934)• National Labor Relations Board (1935)• Equal Employment Opportunity Commission

(1970)• Environmental Protection Agency (1970)• Occupational Safety & Health Administration

(1971)• Consumer Product Safety Commission (1972)

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BA 385 - Business Environment

Global Regulation Factors• Import barriers

– Tariffs and quotas– Minimum price levels– Port-of-entry taxes

• Varying local laws & regulation• North American Free Trade Agreement

(NAFTA)– Eliminates virtually all tariffs on goods produced and

traded between the U.S., Canada, and Mexico

• European Union (EU)– Promotes free trade between member European

nations

• World Trade Organization (WTO)

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BA 385 - Business Environment

Costs of Regulation

• Cost U.S. economy ~$1 trillion (hard to measure)

• Regulatory Agencies’ combined bugdets ~$25 billion

• Cost of social regulation exeeded economic by the early 1970’s

• Business expenditures to stay in compliance with regulations (hidden taxes)– Environmental – Workplace and hiring– Product quality and safety

• Self regulation much cheaper

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BA 385 - Business Environment

Deregulation• What: Removal of all regulatory authority• Belief that less government intervention

allows business markets to work more effectively

• Many industries have been deregulated.– Trucking– Airlines– Telecommunications– Media ownership

• Critics of deregulation cite higher prices and poorer service/quality (eg. Enron).

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BA 385 - Business Environment

Self-Regulation

• Companies attempt to regulate themselves to demonstrate social responsibility and preclude additional regulation.

• Firms may chose to join trade organizations with self-regulatory programs.

• Best-known self-regulatory association is the Better Business Bureau.

• Lower costs and more practical and realistic programs, but less strict and lacks enforement

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BA 385 - Business Environment

The Contemporary Political Environment

• Wave of reform starting in the 1960’s – Greater transparency in the

congressional committee process – Decreased influene of Political parties– Rise of special interest groups

• Pro-business in 1980’s• Increased self-regulation in1990’s • National Security is now diverting

attention from social regulation (i.e. environment)

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BA 385 - Business Environment

Special-Interest Groups

• Seek to influence the public and affect legislation and regulation of business

• Focus on getting candidates elected that further their political agenda

• Interested in issues such as deregulation, environmental issues, political reform, abortion, product liability caps, gun control, prayer in schools, etc.

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BA 385 - Business Environment

Corporate Approaches to Influencing Government

• Lobbying– Process of persuading public and/or government

officials to favor a particular position in decision making

– Takes place directly or through trade organizations

• Political Action Committees– Organizations that solicit donations from

individuals and then contribute to political parties (soft money) or candidates running for political office

• Campaign Contributions– Individual and corporate (state elections only)

donations

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BA 385 - Business Environment

Who Gives?

OREGON Total Per CapitaGeorge Bush $1,207,233 $0.47John Kerry $ 911,782 $0.35Howard Dean $ 270,953 $0.11All candidates raised an average of $12.18 per voter out

of 1,730,432 voters in this cycle.

Sources:http://colorofmoney.org

http:// followthemoney.org

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BA 385 - Business Environment

Legal & Ethical Compliance

1. Establish a code of ethics2. Appoint a high-level compliance

manager, usually an ethics officer3. Take care in delegation of authority4. Institute a training program and

communication system5. Monitor and audit for misconduct6. Enforce and discipline7. Revise program as needed

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BA 385 - Business Environment

Federal Sentencing Guidelines

for Organizations• Passed in 1991 to streamline the sentencing and

punishment of organizational crime• Provides an incentive for organizations to

establish due diligence ethics and compliance programs

• Assumes that good corporate citizens maintain compliance systems and internal governance controls that deter misconduct by their employees

• Bolsters prevention and detection by mitigating penalties for firms with compliance programs in the event that one of their employees commits a crime

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BA 385 - Business Environment

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BA 385 - Business Environment

Sarbanes-Oxley Act (SOX)• Legislation to protect investors by improving

accuracy and reliability of corporate disclosures– Requires an independent accounting oversight board– Requires CEOs and CFOs to certify financial

statements– Requires corporate board’s audit committee to be

independent– Prohibits corporations from making loans to officers

and board members– Requires codes of ethics for senior financial officers– Prohibits using the same firm for auditing and

consulting– Mandates whistleblower protection– Requires company attorneys to report wrongdoing

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BA 385 - Business Environment

Benefits of Sarbanes-Oxley

• Greater accountability by top management and boards to employees, communities, and society

• Renewed investor confidence• Required justification of executive

compensation packages• Greater protection of employee retirement

plans• Greater penalties and accountability of senior

management, auditors, and board members