Legal regulatory and political issues

8/20/2019 Legal regulatory and political issues

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CHAPTER 4

Legal, Regulatory, and Political Issues


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Government’s Influence onBusiness


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A. The Rationale for Regulation

.Many of the issues used to rationalizebusiness regulation can be categorized as

economic or social .


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Economic and Competitive Reasons for

RegulationA great number of regulations have been passed over the lastcentury in an effort to level the playing field on whichbusinesses operate.

a. Trusts are organizations generally established to gain

control of a product market or industry by eliminatingcompetition. If successful, a monopoly can result.

b. A monopoly occurs when ust one business provides agood or service in a given market.


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c. Because trusts and monopolies lack seriouscompetition, there are concerns that they may eitherexploit their market dominance to restrict their outputand raise prices or lower quality in order to gaingreater profts.

d. Society desires to restrict destructive or unaircompetition such as conspiring to fx prices, stealingtrade secrets, trademark and copyright inringement,alse advertising, and deceptive selling methods.

e. These economically based regulations allow thegovernment to punish frms that engage inanticompetitive practices.


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Social Reasons for Regulation

Regulation may also occur when marketing

activities result in undesirable conse!uences forsociety.

a. Regulation is necessary in manufacturing

industries to ensure that all firms within anindustry do their part to minimize the costs ofcontamination caused by pollution and to paytheir fair share of these costs.

b. Regulations have come about in response tosocial demands for e!uality in the workplace.


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c. Regulations have resulted from special"interest group crusades for safer products.

d. Issues arising from the increasing useof the Internet have led to demands for

new laws protecting consumers andbusiness.


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a!s and RegulationsThe federal government has passed many laws to regulatebusiness conduct.


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S"erman Antitrust Act# The #herman

Antitrust Act, passed in $%&', is theprincipal tool employed by the federalgovernment to prevent businesses fromrestraining trade and monopolizing

markets.


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Cla$ton Antitrust Act# (ongress enactedthe (layton Antitrust Act in $&$) to limitmergers and ac!uisitions that have thepotential to stifle competition.


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%ederal Trade Commission Act# (ongress alsoenacted the *ederal Trade (ommission Act in $&$)

to further strengthen the antitrust provisions ofthe #herman Act and to create the *ederal Trade(ommission +*T( to protect consumers andbusinesses from unfair competition.a. The *T( has the greatest influence on business

activities of all federal regulatory agencies.b. The *T( has the power to issue cease"and"

desist orders, re!uire companies to air correctiveadvertising, resolve disputes, and seek monetary

penalties.


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Enforcement of t"e a!s# These laws areenforced by state and federal authoritiesand through lawsuits by private citizens,

competitors, and special"interest groups.


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Glo&al Regulation


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$. A company that engages in commercebeyond its own country-s borders mustcontend with the potentially complerelationship among the laws of its own

nation, international laws, and the laws ofthe nation in which it will be trading, as wellas various trade restrictions imposed oninternational trade.


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/. Although there is considerable variationand focus among different nations- laws,many countries have antitrust laws that are

!uite similar to those in the 0nited #tates.


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1. The 2orth American *ree Trade

Agreement +2A*TA, which eliminatesvirtually all tariffs on goods produced andtraded among the 0nited #tates, (anada,and Meico, makes it easier for businessesof each country to make investments in theother countries.


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). The 3uropean 0nion +30, establishedin $&4% to promote free trade among itsmembers, now includes fifteen 3uropeannations.


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Costs and Benefits of Regulation


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Costs of Regulationsa. Regulation has numerous costs for

businesses, consumers, and society at large.b. It is difficult to find an accurate measuring

tool of these costs.c. The cost of administrative spending of

federal regulatory agencies, the cost of agencystaffing, and the costs incurred by businessesin complying with the regulations have all beenused to measure the costs of regulation.


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Benefits of Regulationa. 5espite business complaints about the

costs of regulation, it provides manybenefits to business, consumers, andsociety as a whole.

Regulator$ Reforma. Many businesses and individuals believethat the costs of regulation outweigh itsbenefits and desire deregulation, or

removal of all regulatory authority.


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Self'Regulationa. Many companies attempt to regulate themselves in

an effort to demonstrate social responsibility and topreclude further regulation by federal or stategovernment.

b. In addition to complying with all relevant laws andregulations, many firms choose to oin trade

associations that have self"regulatory programs.c. A well known self"regulatory association is the 6etter

6usiness 6ureau +666, a local organization supportedby local member businesses.

d. Although self"regulatory programs are usually less

costly than government programs and are able toreduce the need to epand government bureaucracy,these programs are limited by their lack of authorityover nonmembers and lack of tools to enforce theirguidelines.


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Business’s Influence on Government and Politics


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A#T"e Contemporar$ Political Environment$. Many factors have helped to shape the political environment

over the past forty years.

/. (hanges in (ongress. (hanges in (ongress during theseyears include eroding influence of the political environment.

a. The committee process was opened to public scrutiny, andthe power of senior members and committee leaders was

reduced. b. 7ther changes ultimately had the effect of reducing the

importance of political parties by decreasing members-dependence on their parties.

1. Rise of #pecial"Interest 8roups. The success of activists-

efforts in the $&9's and $&:'s spawned the rise of special"interest groups, which began to focus on getting candidateselected who could further the groups- own political agendas.


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B# Corporate Approac"es to InfluencingGovernment

.$.;obbying. Lobbying is the process of working topersuade public and


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/. =olitical Action (ommittees. Political ActionCommittees (PACs) are organizations that

solicit donations from individuals and thencontribute these funds to candidates runningfor political office.

1. (ampaign (ontributions. (orporatecampaign contributions eist, although federallaws restrict direct corporate contributions tocandidates- electoral campaigns. >owever,

donations from businesses and otherorganizations are fre!uently made to politicalparties.


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T"e Government’s Approac" foregal and Et"ical Compliance


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A. Although legal and regulatory forces have a stronginfluence on business operations, businesses canaffect these forces through the political process.

6. The most effective way for businesses to manage thelegal and regulatory environment is to establishvalues and policies that communicate and reward

appropriate conduct.

(. *ederal #entencing 8uidelines for 7rganizations. TheFederal Sentencing Guidelines for Organiations (FSGO)were established by the 0nited #tates #entencing

(ommission in $&&$ not only to streamline thesentencing and punishment for organizational crimes,but also to hold companies, as well as their employees,responsible for misconduct.


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$. (ompanies also have legal incentives forestablishing compliance programs.

a. If a court determines that a company-sorganizational culture rewarded or otherwisecreated opportunities that encouraged wrongdoing,the firm may be subect to stiff penalties in theevent that one of its employees breaks the law.

b. The underlying assumption is that goodcorporate citizens maintain compliance systems

and internal governance controls that deter misconduct by their employees.

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Legal regulatory and political issues