Skip to content
Class Notes

Managers and the Legal Environment: Strategies for the 21st Century, 8th Edition Lecture Notes

Managers and the Legal Environment: Strategies for the 21st Century, 8th Edition Lecture Notes provides clear, structured notes that transform lecture content into an easy-to-study format.

Preview 16 of 224 pages

See the first 16 pages exactly as they appear in the document.

  1. Page 1
    Read page 1 as text

    1 C H A P T E R 1 L AW , V ALUE C REATION , AND R ISK M ANAGEMENT Th is first chapter lays the foundation for the modern corporate manager who is swimming in a “sea of law.” It sets forth a framework for the legally astute manager to better understand the intersection between law and management , while introducing a systems approach to business, law, and society . And finally, this chapter, can help managers become more legally astute by understanding how to legally p rotect a company’s value, while managing legal risks. 1 - 1 T HE S YSTEMS A PPROACH TO B USINESS AND S OCIETY Because we live in a social system, m anagers must anticipate, understand, and respond to changing policy and social perceptions of ethical management. 1 - 1a Meeting Societal Expectations Business decisions are a series of interrelated economic and moral components , as well as systems of shareholders and community stakeholders. 1 - 1b Effect of Law on the Competitive Environment and Firm’s Resources (i) Law shapes competitive environment with five forces that determine a company’s attractiveness to customers: ( 1 ) buyer power, ( 2 ) supplier power, ( 3 ) the competitive threat posed by current rivals, ( 4 ) the ava ilability of substitutes, and (5 ) the threat of new entrants . (ii) R esource - based view (RBV) : firm’s resources can sustain competitive advantage if they are valuable, rare, and hard or expensive to imitate by competitors. (iii) Consider the corporate scandals beginning in 2000 with Enron, and continuing to the recent JP Morgan “London Whale Trades.” (iv) Legally astute management teams are proactive, and practice strategic compliance management . 1 - 1c Law and the Value Chain Each activity in the value chain has legal aspects: design, manufacturing, distribution, sales and warranties. 1 - 1d Law Is Dynamic Systems approach recognizes that the l aw is not static and changes based on court decisions, federal, or state laws. Managers should be proactively involved in

  2. Page 2
  3. Page 3
    Read page 3 as text

    BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT, 8 TH ED. — INSTRUCTOR'S MANUAL 2 lobbying for law that gives them competitive advantage, and be self - policing to avoid unnecessary regulations. 1 - 2 L AW AND P UBLIC P OLICY American law seeks to enhance economic activity, commerce, and for - profit corporations through the pursuit of four key public policy objectives: 1 - 2a Promoting Economic Growth P rotect s and enforce s private property rights, enforce s contracts, and develop s incentives. 1 - 2b Protecting Workers 1 - 2c Promoting Consumer Welfare 1 - 2d Promoting Public Welfare 1 - 2e Policy Conflicts CASE 1.1 Sorrell v. IMS Health, Inc. , 131 S. Ct. 2653 (2011). Vermont statute prohibited pharmacies from selling prescriber - identifying information for marketing prescription drugs without the prescriber’s consent. Vermont data miners and others challenged the statute as a violation of their free - speech rights under the First Amendment. HELD : F or the data miners. The statute violated the First Amendment because it was too broad and engaged in “content - based discrimination.” 1 - 3 T HE L EGALLY A STUTE M ANAGER Legally astute managers (LAMs) know how to communicate and work with counsel to solve legally complex problems. LAMs know how to: (1) negotiate contracts, (2) protect and enhance the firm’s value (3) create legal options, and (4) convert regulatory barriers into value. * * * * *

  4. Page 4
    Read page 4 as text

    CHAPTER 1 LAW, VALUE CREATION, AND RISK MANAGEMENT 3 T HE R ESPONSIBLE M ANAGER : Teaching Suggestions 1. How should the legally astute manager deal with gossip circulating around the company via emails about possible legal or ethical wrongdoing? 2. Discuss the cultural dilemmas that face managers in the global economy: Are gifts of money or services illegal or unethical, or culturally neutral? Discuss, for example, in China whether Guanxi is social networking, or is it mere bribery. Or, in Latin America, whether paying officials directly is a way to “expedite” service, or whether it is bribery. 3. Discuss the possible conflicts between legally doing business and selling fast - food, given the increasing evidence of how it is a significant contributing factor in public health, obesity, and diabetes facing many Americans. Do you agree with how McDona lds and the Disney Company are handling the issue? What ethical obligations, if any, do fast food companies have to consumers?

  5. Page 5
    Read page 5 as text

    1 C H A P T E R 2 E THICS AND THE L AW This chapter explains the basic concepts and dilemmas of the application of business ethics and social responsibility in business. The goal of the chapter is to provide the manager with an ethical framework to evaluate business decisions in the global legal environment. 2 - 1 T HE R ELATIONSHIP B ETWEEN L AW AND E THICS Law and ethics are interrelated. Creating a “good” organizational culture that strives to have the highest ethical standards will ultimately make it more f inancial healthy. But the law does not — indeed cannot — prohibit all “bad” behavior. In fact, unethical conduct can lead to more onerous regulation. See the Enron accounting scandal, which was a primary factor in the enactment of the Sarbanes - Oxley Act of 2002. 2 - 2 T HE E THICAL T ONE I S S ET AT THE T OP The chief officer has the most important role in instilling ethics in the organization. P ay disparities and the wealth gap between corporate executives compared to average workers and public scandals reduce public faith in the business community. 2 - 2a The Imperial CEO As of 201 3 , the average CEO in Standard and Poors’ 500 Index was paid $11. 7 million, more than 3 31 times what the average worker was paid. Consider Dennis Kozlo wski, CEO, Tyco International. In 2005 , Kozlowski was convicted of grand larceny, conspiracy, and fraud. He was sentenced up to 25 years in prison. 2 - 3 E THICAL B USINESS L EADER ' S D ECISION T REE See Exhibit 2.1 . To ensure success, managers must create a culture of socially responsibility by asking a series of questions: 2 - 3a Is the Action Legal? 2 - 3b Would It Maximize Shareholder Value? Maximization of shareholder value ( shareholder primacy ) is generally not legally required.

  6. Page 6
    Read page 6 as text

    BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT, 8 TH ED. — INSTRUCTOR'S MANUAL 2 2 - 3c Is the Action Ethical? What Is Ethical? The three main ethical frameworks use teleological , deontological , or comparative justice viewpoints . (i) A t eleological view of e thics is concerned about the consequences of decisions. Morality is measured by the effect a decision has on others. (ii) A d eontological view of ethics emphasizes the motivation and principle behind an action, not the consequences. Immanuel Kant emphasized the form of action (not the outcomes) and the reason for choosing said actions. Rawlsian justice seeks to maximize the plight of the worst - off person by developing principals behind a ‘veil of ignorance.’ Comparative Justice . Consequences of decisions can be compared between rule - based systems and outcome - oriented ( utilitarian ) frameworks . C onsider distributive , compensatory , and retrib utive justice . How Do Business Leaders Define Ethics? Many associate ethics with integrity, fairness, and honesty. Ex - CEO of HP, Carly F i orina, said “good leadership means doing the right thing when no one is watching.” H ISTORICAL P ERSPECTIVE : From Aquinas to Pope Francis . Thomas Aquinas believed that human laws were just only if they : (1) are consonant with universal good; (2) can be obeyed; (3) are unambiguous; (4) approved by the community; and (5) universal; and that immoral laws shou ld be disregarded or opposed. 2 - 3d Reaching a Decision If an action is legal, ethical, and would maximize shareholder value, the action should be taken. Action s T hat Might Maximize Shareholder Value but Would Be Unethical. Most shareholders would not want their managers to act unethically, even if it meant increasing shareholder value. Actions that Do Not Maximize Shareholder Value but Are Nonetheless Are Ethically Required . Managers must balance social responsibility with shareholder r eturns. If an action does not maximize shareholder value and the firm has no ethical reason to act, the action should not be taken. Otherwise, the action might result in liability for waste of corporate assets . Failure to meet social expectations of ethical behavior can tarnish a firm’s reputation and impact corporate good will and earnings.

  7. Page 7
    Read page 7 as text

    CHAPTER 2 ETHICS AND THE LAW 3 2 - 3e Finding the “Sweet Spot” Ideal courses of action are ethically sound and maximize corporate value. Managers should look for intersections of “shared value” that balance competitive advantage with social responsibility. Ralph Johnson, CEO of Johnson and Johnson says he will do both. And see General Electric, the Toyota Prius, Whole Food Markets, and Timberland. 2 - 3f Approaches to Resolving the Tension Between Short - Term Results and Long - Term Value Managers can take affirmative steps to resolve tensions between the short - term and long - term . Soften the Edges . Hiring and wage freezes, shortening workweeks, eliminating bonuses, buyout packages. Lobby for Changes in the Law or the Enactment of Codes of Conduct. Form coalitions with other companies to lobby state and federal lawmakers for favorable laws that help American companies compete in the global economy while maintaining ethical conduct. OECD and FCPA. Adopt an Ethics Program. Walk the Walk. Employees are watching. 2 - 4 I NDIVIDUAL R ESPONSIBILITY Acting ethically is always an individual choice. If the employee is asked to engage in a legal, but unethical action, she should review the company’s code of conduct and perhaps talk to coworkers. 2 - 5 F AILING TO M EET S OCIETAL E XPECTATIONS Public perception of a company’s socially irresponsible or unethical behavior might result in severe financial setbacks. Corporate social responsibility extends to many areas.

  8. Page 8
    Read page 8 as text

    BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT, 8 TH ED. — INSTRUCTOR'S MANUAL 4 2 - 5a Customers and Clients Gene ral Motors and Chevrolet Malibu’s E xploding Fuel Tank. Conflicts of Interest: Goldman Sachs . 2 - 5b Employees Public investigation reveals that clothing companies and retailers have used child labor, impose harsh work conditions, and pay substandard wages. Racial discrimination may still be prevalent in large corporations, e.g., Texaco. Discrimination costs more than money, it saps morale. 2 - 5c Investors : Managed Earnings and Other Types of Securities Fraud Case of JP Morgan Chase, the “London Whale,” and failure to ‘police’ the ponzi scheme of Bernie Madoff. 2 - 5d The E nvironment Petroleum and electronics industries must balance costs of environmental clean - up with profits. BP’s Deepwater Horizon Oil Spill. 2 - 5e Communities Companies must negotiate relations with foreign governments and local peoples, e.g., South Africa and Apartheid, Chevron in Burma . The p ublic has put pressure on companies doing bu siness with repressive regimes. 2 - 6 P OSITIVE A CTION Despite examples of corporate misconduct, many companies have underta ken socially responsible moves on customer and product safety, in treating employees fairly, for the environment and certain communities. 2 - 6a Customers and Product Safety: Johnson & Johnson and Tylenol 2 - 6b Employees: Auditing of Supplier Work Conditions 2 - 6c Environment : Socially Responsible Investment The Coalition for Environmentally Responsible Economics is a diverse network of investors, environmentalists , and labor unions that are committed to helping corporations promote environmental sound and sustainable practices.

  9. Page 9
    Read page 9 as text

    CHAPTER 2 ETHICS AND THE LAW 5 2 - 6d Communities: Coca - Cola Co.’s Sugar Supply Chain 2 - 7 P ROMOTING E THICAL B EHAVIOR Managers set the ethical tone of the corporation and play the most important role in creating an ethical environment. Companies need mission statements, a code of ethics and ethics training, regular channels of oversight to review company behavior , and should m ak e it easier for employees to blow the whistle. 2 - 7a Craft a Mission Statement 2 - 7b Adopt a Code of Ethics 2 - 7c Provide Ethics Training Boeing provide innovative online ethics training. Citigroup also requires mandatory online ethics training for all employees. 2 - 7d Align Incentives F inancially reward the ‘right’ actions. 2 - 7e Provide Oversight 2 - 7f Make It Easier to Blow the Whistle 2 - 8 H ONOR O R “T HE M ORALS OF THE M ARKETPLACE ” ? Law imposes a fiduciary duty on officers and partners to act in the best interests of the other party. What duties does a finder owe its client? CASE 2. 1 Northeast General Corp. v. Wellington Advertising, Inc. , 624 N.E.2 d 129 (N.Y. 1993). Wellington hired Northeast to “find” entities interested in buying or merging with Wellington. The finders agreement stated Northeast w ould be entitled to a finders fee if any of the “found” companies ultimately purchased or merged with Wellington within three years of being introduced to Wellington . Northeast found and introduced Sternau to Wellington but did not disclose Sternau’s reputation for ‘raiding’ the assets of the purchased company. The tran saction proceeded but Wellington cancelled the finders fee check after major shareholders al leged breach of fiduciary duty. Northeast sued. HELD : For Northeast. The agreement did not raise to a fiduciary level.

  10. Page 10
    Read page 10 as text

    BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT, 8 TH ED. — INSTRUCTOR'S MANUAL 6 * * * * * T HE R ESPONSIBLE M ANAGER : Teaching Suggestions 1. Research Martin Luther King’s view of law and theory of civil disobedience. What part can civil disobedience play in today’s corporate world? Analyze the recent housing market crisis in terms of race, ethics, and government regulations. What would Dr. King have done had he been CEO of Freddie Mac or Fannie Mae? 2. Have student - teams create a one page code of ethics for their own fictional company, along with the means to enforce and evaluate complaints. 3. Research the Texas Deceptive Trade Practices Act, see Chapter 17, Tex. Bus. Comm. Code (or any comparable state consumer protection law). After analyzing the law, list and describe all of the ethical considerations that went into the drafting and implementation of that law.

  11. Page 11
    Read page 11 as text

    1 C H A P T E R 3 S OURCES OF L AW , C OURTS , AND D ISPUTE R ESOLUTION This chapter explains federal and state court systems, how jurisdiction is determined, and various responses to litigation. It also examines common law and explains how to read case citations. 3 - 1 H OW TO R EAD A C ASE C ITATION 3 - 2 S OURCES OF L AW In order to decide how to rule on a case, courts look to federal and state constitutions, statutes, regulations, and common law (previous court rulings). 3 - 2a Constitutions 3 - 2b Statutes 3 - 2c Regulations 3 - 2d Common Law and the Doctrine of Stare Decisis Settled legal principles and case law, made by judges. Stare decisis is a doctrine in law used to guide judicial decisions. Reversing U.S. Supreme Court Precedent. The U.S. Supreme Court rarely overrules its previous decisions but set forth four primary questions in Planned Parenthood v. Casey to be considered when deciding whether an earlier decision should be overruled. Splits in the Circuits. 3 - 2e Restatements 3 - 3 T HE U.S. AND S TATE C OURT S YSTEMS The United States has two co - existing judicial systems, federal and state.

  12. Page 12
    Read page 12 as text

    BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT, 8 TH ED — INSTRUCTOR'S MANUAL 2 3 - 4 F EDERAL J URISDICTION 3 - 4a F ederal Question Jurisdiction Exists when the dispute concerns federal law, i.e. , U.S. Constitution, federal statute, federal common law, treaty , or federal administrative agency law. 3 - 4b Diversity Jurisdiction Between citizens of two different states or between citizen of one state and f oreign country, plus $75,000. Federal courts will apply conflict - of - law rules to determine which state’s law governs the dispute. Determining Citizenship. Citizenship (person or corporate) is determined by place of legal residence or domicile. Corporate citizenship is based upon state of incorporation and where it has its p rincipal place of business, using the nerve - center or the total activity tests ). 3 - 4c Jurisdiction in Cases in Which the United States Is a Party 3 - 5 F EDERAL C OURTS 3 - 5a U.S. District Courts Ninety - four trial courts of the federal system. 3 - 5b U.S. Courts of Appeal Thirteen courts of appeal. 3 - 5c Specialized Federal Courts Bankruptcy, tax, International Trade Commission, U.S. Courts of Appeal for Armed Forces and Veterans Claims. 3 - 5d U.S. Supreme Court Has discretionary review, writ of certiorari. 3 - 6 S TATE C OURTS State Courts handle the bulk of American cases, decide criminal matters, civil suits, and other specialized legal disputes . 3 - 6a State Trial Courts

  13. Page 13
    Read page 13 as text

    CHAPTER 3 SOURCES OF LAW, COURTS, AND DISPUTE RESOLUTION 3 3 - 6c State Appellate Courts 3 - 6c State Supreme Court 3 - 7 S TANDING Courts will not hear cases unless a party has standing : the party seeking relief is the proper party to file the case, has a personal interest in the outcome of the case, and will benefit from a favorable ruling. 3 - 8 P ERSONAL J URISDICTION State courts must have personal ( in personam ) jurisdiction, or legal authority, over the parties of the property ( in rem ) involved in the case. State courts acquire personal jurisdiction over out - of - state defendants through “long - arm” statutes when defendants have “mi nimum contacts” with the state . Service of process gives defendant formal notice of suit. 3 - 8a Personal Jurisdiction and the Internet Exercising personal jurisdiction over people or companies that do business on the Internet is directly proportionate to the nature and quality of the commercial activit y in question. T he Zippo case introduced the “sliding scale” standard, which is now in use in many jurisdictions. 3 - 9 C HOICE OF F ORUM , W AIVER OF R IGHT TO T RIAL BY J URY , AND C HOICE OF L AW 3 - 9a Choice of Forum and the Doctrine of Forum Non Conveniens Courts will honor clauses in valid contracts in which the parties have agreed upon a state or forum to hear a dispute concerning the contract, unless there was fraud, it would deny a party’s day in court, enforcement would be against public policy. In the event of a choice - of - forum clause, a defendant may request a change in forum on the grounds that the jurisdiction chosen by the plaintiff poses a hardship. 3 - 9b Waiver of Right to Jury Trial 3 - 9c Choice of Law In diversity cases, g enerally the law of the state having the most contacts to the litigants or most interest to the litigation will be applied.

  14. Page 14
    Read page 14 as text

    BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT, 8 TH ED — INSTRUCTOR'S MANUAL 4 3 - 10 A LTERNATIVES TO L ITIGATION 3 - 10a Application of Tort and Criminal Law to ADR As discussed more fully in Chapter 9, managers should be careful not to pursue settlement s without counsel. 3 - 11 C LASS A CTIONS (i) If the conduct of the defendant affected numerous persons in a common way, the case may be certified as a class action by a representative of the class of persons affected. Individuals may opt out of the class and pursue private or separate action. In federal courts, plaintiffs must have common questions that predominate over all plaintiffs, and the representatives of the class must have the same interests as all the plaintiffs. (ii) Defendant concerns : see class - action suits as a “strategic management tool” as they can reduce or limit the damages. CASE 3. 1 Wal - Mart Stores, Inc. v. Dukes , 131 S. Ct. 2541 (2011). One million female Wal - Mart employees sued Wal - Mart in a nationwide class action suit claiming Wal - Mart had violated Title VII of the Civil Rights Act by discriminating against them on the basis of their sex in both pay and promotions. The issue was whethe r the employees could sue as a class. HELD : The Supreme Court dismissed the case, because it was improperly certified as a class action case . 3 - 12 C IVIL P ROCEDURE : L ITIGATION S TEPS 3 - 12a Filing, Prosecuting, and Defending Against a Claim Complaint. Summons. Answer and Counterclaim. Default Judgment.

  15. Page 15
    Read page 15 as text

    CHAPTER 3 SOURCES OF LAW, COURTS, AND DISPUTE RESOLUTION 5 3 - 12b Pretrial Activity Pretrial Motions . Motion to dismiss, and summary judgment Pretrial and Status Conferences. 3 - 12c Trial Selection of Jury. Presentation of case — plaintiff, then defendant. Motion for a Directed Verdict. Jury Verdict. 3 - 12d Posttrial Motions Judgment Notwithstanding the Verdict ( j . n . o . v . ). New Trial. 3 - 12e Appeals 3 - 13 A LTERNATIVE D ISPUTE R ESOLUTION There are three types of ADR: negotiation , mediation , and arbitration . A manager can mix these with the formal judicial system and have additional options: minitrials, med - arb, arb - med, and summary jury trials. 3 - 14 N EGOTIATION T he give - and - take people engage in when coming to terms with each other. 3 - 14a Liability for Failed Negotiations The l iability for failed negotiations depends on the facts of each case.

  16. Page 16
    Read page 16 as text

    BAGLEY, MANAGERS AND THE LEGAL ENVIRONMENT, 8 TH ED — INSTRUCTOR'S MANUAL 6 3 - 15 M EDIATION Mediation o ccurs when the parties themselves agree to reach a mutually beneficial resolution with the assistance of a third person (the mediator). Need for privacy may make mediation attractive in some claims. There are dangers: lack of procedural protections, unequ al bargaining power, ensuring confidentiality. Choice of mediator is crucial in the process: make sure to hire someone who is certified and experienced. 3 - 15a Mediation Process 3 - 15b When to Use Mediation 3 - 15c Dangers of Using Mediation 3 - 15d Preserving Confidentiality 3 - 15e Selecting a Mediator 3 - 16 A RBITRATION T he resolution of a dispute by a neutr al third party, usually binding, and created by contract. 3 - 16a Arbitration Process 3 - 16b Choice of Arbitrator G enerally binding and cannot be ‘set aside.’ 3 - 16c Arbitration Clauses P arties should specify whether decision is binding or not binding. Managers should consider ‘mandatory arbitration.’ 3 - 16d Judicial Enforcement of Arbitration Clauses: Federal Arbitration Act (FAA) U.S. Supreme Court has enforced employment arbitration clauses, especially when there is consideration from the employer. CASE 3. 2 American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013). AmEx and various merchants agreed to s ubmit all claims to arbitration, expressly excluding class - action claims. The merchants sued claiming violation of, among other things, federal antitrust laws. AmEx moved to compel individual arbitration under the

208 more pages in the full document

Unlock it once and it stays in your library, ready to chat with or turn into flashcards.

Unlock the full document

More Business Law study materials

See all

Study this document with CramX

Once it is in your library, every tool can work from it.