Social Responsibility and Business. 4 TH EDITION. FERRELL • THORNE • FERRELL. 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.
Social Responsibility and Business 4TH EDITION FERRELL • THORNE • FERRELL
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
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)
Law Enforcement Agencies (cont) Equal Employment Opportunity Commission (1970) Environmental Protection Agency (1970) Occupational Safety & Health Administration (1971) Consumer Product Safety Commission (1972) Commodity Futures Trading Commission (1974) Federal Housing Finance Industry (2008)
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 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 Regulation 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