Social Responsibility and Business

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 disputes and punishes criminals
• Corporations have the same legal status asa person.
• Can sue
• Can be sued
• Can be held liable for debt
The Rationale for Regulation
• Preventing trusts and monopolies from using their market
dominance to negatively manipulate output, pricing, and
quality
• Eliminating unfair competition and anti-competitive practices
• Supporting environmental initiatives, equality in the
workplace, and product safety
• Protecting consumers and business in e-commerce activities
Major Laws Affecting Business
• Sherman Antitrust Act
• Supports free trade and restrains monopolistic activities
• Clayton Antitrust 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
Global Regulation
• Import barriers
• Tariffs and quotas
• Minimum price levels
• Port-of-entry taxes
• Product quality, safety, distribution, sales, and advertising
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 nations
Signs of Possible Antitrust
Violation
• Any evidence that two or more competing sellers of similar
products have agreed to price their products a certain way, to
sell only a certain amount of their product, or to sell only in
certain areas or to certain customers
• Large price changes involving more than one seller of very
similar products of different brands, particularly if the price
changes are of equal amount and occur at about the same
time
• Suspicious statements from a seller suggesting that only one
firm can sell to a particular customer or type of customer
Continued…..
• Fewer competitors than normal submitting bids on a project
• Competitors submitting identical bids
• The same company repeatedly being the low bidder on
contracts for a certain product or service or in particular area
• Bidders winning bids on a fixed rotation
• An unusual and unexplainable large dollar difference between
the winning bid and all other bids
• One bidder bidding substantially higher on some bids than on
others, and there is no logical cost reason to explain the
difference
Costs of Regulation
• Administrative spending patterns of federal regulatory
agencies
• Staffing levels of federal regulatory agencies
• Business expenditures in compliance with regulations

• Environmental
• Workplace and hiring
• Product quality and safety
Benefits of Regulations
• Greater equality in the workplace
• Safer workplaces
• Resources for disadvantaged societal members
• Safer products
• More information about products
• Greater product variety
• Cleaner air and water
• Preservation of wildlife
Deregulation
• 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
• Electric utilities
• Critics of deregulation cite higherprices and poorer
service/quality.
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.
• Benefits include lower costs and more practicality and realism
in programs.
Social Responsibilityand
Political Involvement
The Contemporary Political
Environment
• Greater transparency in the congressional committee process
• Opening of committee process to public scrutiny
• Reducing the power of senior members
• Rise in number and influence of special interest groups
• Limiting campaign contributions from individuals, political
parties, and special interest groups(Federal Election Campaign
Act)
• Many states have shifted their electoral process from
traditional party caucus to primary elections.
Special-Interest Groups
• Seek to educate the public about significant social issues and
to support legislation and regulation of business conduct they
deem irresponsible
• Interested in issues such as deregulation, environmental
issues, political reform, abortion, gun control, and prayer in
schools
• Focus on getting candidates elected that further their political
agenda
Corporate Approachesto
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 candidates running for political office
• Campaign Contributions
• Corporate donations
Political Contributions by
Industry Sector
Federal SentencingGuidelines
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
• Operates on the underlying assumption that good corporate
citizens maintain compliance systems and internal governance
controls that deter misconduct by their employees
• Focuses on crime prevention and detection by mitigating
penalties for firms with compliance programs in the event that
one of their employees commits a crime
Seven Steps to Effective
Compliance and Ethics Program
• Establish a code of ethics.
• Appoint a high-level compliance manager, usually an ethics
officer.
• Take care in delegation of authority.
• Institute a training program andcommunication system.
• Monitor and audit for misconduct.
• Enforce and discipline.
• Revise program as needed.
Sarbanes-Oxley Act
• 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 toofficers 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
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 employeeretirement plans
• Greater penalties and accountability of senior management,
auditors, and board members