604210903-04thorne_bs_4e_ch04-1.docx

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CHAPTER 4

Legal, Regulatory, and

Political Issues



Government’s Influence on Business

• Laws derived from the U.S. Constitution and Bill

of Rights influence business.

• Laws are enforced through the judicial system. – Settles disutes and unishes criminals

• Cororations have the same legal status as

a erson.

– Can sue – Can be sued

– Can be held liable for debt



The Rationale for Regulation

• !reventing trusts and monoolies from using

their mar"et dominance to negatively maniulate

outut# ricing# and $uality

• %liminating unfair cometition and anti&cometitive ractices

• Suorting environmental initiatives# e$uality in

the wor"lace# and roduct safety• !rotecting consumers and business in e&

commerce activities



Major Laws Affecting Business

• Sherman 'ntitrust 'ct

– Suorts free trade and restrains monoolistic activities

• Clayton 'ntitrust 'ct

– !rohibits rice discrimination• (ederal )rade Commission 'ct

– Creates the ()C to revent unfair cometition

• Robinson&!atman 'ct

– !rohibits rice discrimination

• Lanham 'ct

– !rotects and regulates brand names*mar"s



Law Enforcement Agencies

• (ood + ,rug 'dministration -/012

• (ederal Reserve Board -/32

• (ederal )rade Commission -/42

• (ederal Communication Commission -/342

• Securities + %5change Commission -/342

• 6ational Labor Relations Board -/372



Law Enforcement Agencies (cont)

• %$ual %mloyment 8ortunity Commission

-/902

• %nvironmental !rotection 'gency -/902

• 8ccuational Safety + :ealth 'dministration

-/92

• Consumer !roduct Safety Commission -/9;2

• Commodity (utures )rading Commission -/942

• (ederal :ousing (inance <ndustry -;00=2



Gloal Regulation

• <mort barriers

– )ariffs and $uotas

– >inimum rice levels

– !ort&of&entry ta5es• !roduct $uality# safety# distribution# sales# and advertising

regulation

• 6orth 'merican (ree )rade 'greement -6'()'2

– %liminates virtually all tariffs on goods roduced and traded between the U.S.# Canada# and >e5ico

• %uroean Union -%U2

– !romotes free trade between member nations



!igns of "ossile Antitrust #iolation

• 'ny evidence that two or more cometing sellers of similar roducts have agreed to rice

their roducts a certain way# to sell only a certain amount of their roduct# or to sell only in

certain areas or to certain customers

• Large rice changes involving more than one seller of very similar roducts of different

brands# articularly if the rice changes are of e$ual amount and occur at about the same time

• Susicious statements from a seller suggesting that only one firm can sell to a articular

customer or tye of customer

• (ewer cometitors than normal submitting bids on a roject

• Cometitors submitting identical bids

• )he same comany reeatedly being the low bidder on contracts for a certain roduct or

service or in articular area

• Bidders winning bids on a fi5ed rotation• 'n unusual and une5lainable large dollar difference between the winning bid and all other

bids

• 8ne bidder bidding substantially higher on some bids than on others# and there is no logical

cost reason to e5lain the difference



$osts of Regulation

• 'dministrative sending atterns of federal

regulatory agencies

• Staffing levels of federal regulatory agencies

• Business e5enditures in comliance

with regulations

– %nvironmental

– ?or"lace and hiring

– !roduct $uality and safety



Benefits of Regulation

• @reater e$uality in the wor"lace

• Safer wor"laces

• Resources for disadvantaged societal members

• Safer roducts

• >ore information about roducts

• @reater roduct variety

• Cleaner air and water

• !reservation of wildlife



%eregulation

• Removal of all regulatory authority

• Belief that less government intervention allows

business mar"ets to wor" more effectively

• >any industries have been deregulated. – )ruc"ing

– 'irlines

– )elecommunications

– %lectric utilities

• Critics of deregulation cite higher

rices and oorer service*$uality.



!elf&Regulation

• Comanies attemt to regulate themselves to

demonstrate social resonsibility and reclude

additional regulation.

• (irms may chose to join trade organiAations withself&regulatory rograms.

• Best&"nown self&regulatory association is the Better

Business Bureau.

• Benefits include lower costs and more racticality

and realism in rograms.



!ocial Res'onsiilit

an "olitical Involvement



The $ontem'orar "olitical Environment

• @reater transarency in the congressional committee

rocess

– 8ening of committee rocess to ublic scrutiny

– Reducing the ower of senior members

– Rise in number and influence of secial interest grous

• Limiting camaign contributions from individuals#

olitical arties# and secial interest grous

-(ederal %lection Camaign 'ct2

• >any states have shifted their electoral rocess fromtraditional arty caucus to rimary elections.



!'ecial&Interest Grou's

• See" to educate the ublic about significant social

issues and to suort legislation and regulation of

business conduct they deem irresonsible

• <nterested in issues such as deregulation#environmental issues# olitical reform# abortion# gun

control# and rayer in schools

• (ocus on getting candidates elected

that further their olitical agenda



$or'orate A''roaches

to Influencing Government

• Lobbying

– !rocess of ersuading ublic and*or government officials

to favor a articular osition in decision ma"ing

– )a"es lace directly or through trade organiAations• !olitical 'ction Committees

– 8rganiAations that solicit donations from individuals and

then contribute to candidates running for olitical office

• Camaign Contributions – Cororate donations



"olitical $ontriutions Inustr

!ector

Industry Sector To Democrats To Republicans

Lobbyists /#/73#4/ 7#3#97

Lawyers and law firms =0#1#43 74#1;4#0/

:ealth !rofessionals 70#34;#// 47#=9#330

<nsurance ;0#//;#4;0 ;7#1=#/49

!harmaceuticals 4#74#;= 4#104#119

%ducation 41#=37#90 0#0=/#/17

Commercial Ban"s 9#9;4#/44 /#31#3;



*eeral !entencing

Guielines for +rgani,ations

• !assed in // to streamline the sentencing and unishment of

organiAational crime

• !rovides an incentive for organiAations to establish due

diligence ethics and comliance rograms

• 8erates on the underlying assumtion that good cororate

citiAens maintain comliance systems and internal governance

controls that deter misconduct by their emloyees

• (ocuses on crime revention and detection by mitigating

enalties for firms with comliance rograms in the event thatone of their emloyees commits a crime



!even !te's to Effective $om'liance

an Ethics "rogram

• %stablish a code of ethics.

• 'oint a high&level comliance manager# usually an

ethics officer.

• )a"e care in delegation of authority.

• <nstitute a training rogram and

communication system.

• >onitor and audit for misconduct.• %nforce and disciline.

• Revise rogram as needed.



!aranes&+-le Act

• Legislation to rotect investors by imroving accuracy and

reliability of cororate disclosures

– Re$uires an indeendent accounting oversight board

– Re$uires C%8s and C(8s to certify financial statements

– Re$uires cororate boards audit committee to be indeendent

– !rohibits cororations from ma"ing loans to

officers and board members

– Re$uires codes of ethics for senior financial officers

– !rohibits using the same firm for auditing and consulting – >andates whistleblower rotection

– Re$uires comany attorneys to reort wrongdoing



Benefits of !aranes&+-le

• @reater accountability by to management

and boards to emloyees# communities#

and society

• Renewed investor confidence• Re$uired justification of e5ecutive

comensation ac"ages

• @reater rotection of emloyeeretirement lans

• @reater enalties and accountability of senior

management# auditors# and board members

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