Introduction to Class What we are covering this semester 1 Business Law 636 Professor Johnson.

Introduction to ClassWhat we are covering this semester

1

Business Law 636Professor Johnson

Today’s Agenda

Professor Introduction Class Introduction Review of Syllabus

– Paper (topic/assignment/partner)– Groups– Snack– Seating Chart

Review of Topic Coverage Ethics Quiz Ethics Discussion

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Student Majors

Accounting (3) (17% of class)

Business Project Management

Chemical Engineering Engineering Mechanical

Engineering (2) Finance (1 ½)

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Information Services International

Management Management Marketing (4) (22% of class)

Mathematics Music/Political

Science

4 E

ngin

eers

22

% o

f cla

ss

Class BreakdownBusiness Majors = 2/3 of classNon-Business Majors = 1/3 of class

Class Demographics

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Law Course 10 Students

(66%)

No Law Course 8

(44%)

Law Course

Yes

NoYes Law

Course

No Law

16

2

Business Experience

Yes

No

Business Experienced

88%

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Overview of U.S. Laws Covered in this class

NOT covered

directly but Important for MBAs

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1.5 Law Protects Workers

A lot of interest in “Employment” Law for paper.

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Important as a US citizen but comes up less often in business context

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Case 1.1 Image Technical Services v. Eastman Kodak, p7• Kodak stopped selling patented parts to independent service organizations that

serviced Kodak machines• ISOs sued under Sherman Act as Anticompetitive• Kodak held to be a monopoly but also to have a patent(s) on its products• Case illustrates pull of law between intellectual property rights and antitrust

laws (Can a patent holder refuse to license patent?) Yes, but not in this case because of reasoning -

Antitrust – Quick Review•Monopolization (attempt to or abuse of)•Combinations in Restraint of Trade

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Global View p. 13– EU blocked GE and Honeywell merger – read the review on page 13 and notice how much of it talks about influencing the decision makers – should influence matter? SHOW CHART ON GOOGLE/MICROSOFT SPENDING

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Update on Patent Law NTP v. RIM (2005)

• Patent for push email technology

• Settled for $600 million• 3 million users shut down

Antitrust – Quick Review•Monopolization (attempt to or abuse of)•Combinations in Restraint of Trade

eBay v. MercExchange (2006)

Recent Examples• AT&T & Tmobile• Google and Motorola Mobility

Antitrust – Quick Review•Monopolization (attempt to or abuse of)•Combinations in Restraint of Trade

Mircosoft

Now $2 million per quarter

Lobbying Expenses 2011• Tmobile increased

lobbying 30%• ATT spent $4.85 million in

second quarter ($6.94 million in first quarter)

• Facebook increased from $90k to $320K.

Leegin Creative Leather Products, Inc. v. PSKS, U.S. Supreme Court (2007)– Leegin produced women’s fashion accessories and sold to

Kay’s Kloset.– Kay’s Kloset refused to sell at price suggested. – Leegin stopped selling to Kay’s Kloset. Kay’s Kloset sued and

won $33.6 million in lower court based on a per se violation of antitrust law.

Leegin Wallet Belt

Antitrust – Quick Review of Current Case with Important Implications

Ethics

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Take Quiz #1

Ethical Question Re: Working with Other Cultures

Assume you are the executive of an international company, Widgets International. After a lot of work, you finally received approval to give a sales presentation before a buying committee of a Saudi Arabian based company, Arabia, Inc. If successful this opportunity will increase your overall sales by 20% (a very much needed 20% given that your other sales are slipping in an overall poor economy).

You explain to your contact at Arabia that Amanda Smith, your Vice President of Marketing, will give the presentation. The contact immediately tells you that the key members of the committee do not welcome women in business leadership roles and bringing Amanda will reflect badly on your company.

Although you do have others you could send, you know that Amanda is the best person you have for the presentation, she is the person with the job title to give it and that she will question the ethics of sending a man to do her job.

Fortunately, your company developed a code of ethics for you to turn to in these situations. The policy is on the next slide14

In groups, take a few minutes and work on answerHAND OUT GRADING RUBRIC – EXPLAIN ASSESSMENT

Ethical Question Cont. – Core Values Statement

Respect for Relationship with StakeholdersWe will respect our relationships with our stakeholders, including shareholders, investors, customers, consumers, vendors, suppliers, local communities and employees, and will strive to maintain relationships that are both appropriate and friendly.

Respect for Dignity of IndividualsIn all of our business activities, we will respect human rights, dignity and individuality. We will respect the dignity and individuality of our employees and strive to provide a safe and worker-friendly environment for them.

International Cooperation and Respect for Different CulturesAs our business activities become increasingly international, we will respect the integrity of the cultures and customs of the countries where we engage in business activities and comply with applicable laws and regulations.

Respect and Stress on Social JusticeAs good corporate citizens, we will comply with laws and regulations and demonstrate our commitment to social justice by taking action against anti-social behavior and organizations acting against the public interest.

Diversity.

We value diversity. We will not tolerate harassment or discrimination of any kind especially involving race, ethnicity, religion, color, sex, national origin, age, U.S. military veterans status, ancestry, sexual orientation, gender identity or expression, marital status, family structure, or disability.

Identify the ethical issues, identify alternative solutions, and select your approach to this situation.

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Ethical Decision Making FrameworkGrading Rubric for Ethics Question

TRAIT Unacceptable Acceptable Exemplary ScoreIdentifies Dilemma Has a vague idea of what the

dilemma is and is uncertain what must be decided

Identifies the dilemma, including pertinent facts, and ascertains what must be decided

Describes the dilemma in detail having gathered pertinent facts. Ascertains exactly what must be decided

Considers Personal Values Unable to identify personal values Identifies personal vales Articulates relevant personal values and evaluates how they influence the decision making

Considers Corporate Values and Stakeholders

Names the corporate values. Name stakeholders.

Identifies the relevant values. Determines who should be involved in the decision making process and accurately identifies all the stakeholders

Articulates the relevant corporate values, compares personal values to corporate values, and assesses how the values influence the decision making. Determines who should be involved in the decision making process and thoroughly reflects on the viewpoints of the stakeholders

Analyzes Alternatives and Consequences

Begins to appraise the relevant facts and assumptions and identifies some alternatives.

Clarifies at least two alternatives and predicts their associated consequences in detail.

Clarifies a number of alternatives and evaluates each on the basis of the values and whether or not there is interest and concern over the welfare of all stakeholders

Chooses an Action Has difficulty identifying and appropriate course of action from among alternatives

Formulates an implementation plan that delineates the execution of the decision

Formulates an implementation plan that delineates the execution of the decision and that evidences a thoughtful reflection on the benefits and risks of action

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Do you send Amanda?

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Stakeholders to Consider in Corporate Social Responsibility

Corporations are perceived to hold duties to the following groups, duties that often come into conflict:

ShareholdersShareholders

EmployeesEmployees

ConsumersConsumers

CommunityCommunity

SocietySociety

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– Related Case in Book

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Northeast General Corp v. Wellington Advertising, p. 49 – Fiduciary Duty?• Northeast entered into a contract to present buyers for Wellington • If Northeast referred someone who bought company – Wellington to pay 3%• Wellington Owner told Northeast owner he was terrified of a bad merger• Northeast forwarded Sternau as buyer for Wellington – Northeast knew Sternau had a reputation

for buying companies, removing assets and leaving minority shareholders unprotected.• Sternau bought company and did cause minority shareholders to lose power/money.• Wellington refuses to pay Northeast

Wall Street Reform and Consumer Protection Act of 2010• Imposes fiduciary duty on securities brokers that give investment advice (well

it gives the SEC the power to do this).• prohibits brokers from selling mortgages consumers cannot repay

The Nature Of Business Ethics

Law does not codify all ethical responsibility Business ethics are created from moral

values The law reflects society’s convictions on what

constitutes right or wrong behavior.

SCSU Employee Code of Ethics• Cell Phone Use• Gifts• Nepotism • Influence staff/students• Frequent Flyer Miles• Use of SCSU name• Can’t sell textbooks

Discussion of values, policy, law….

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Milton Friedman – On “greed”

Ethics in the Global Context

P52 – When Ethics Travel P16 – “Guanxi: Networking or

Bribery? The Foreign Corrupt Practices

Act of 1977 (FCPA), prohibits the bribery of foreign officials through such side payments.

Aug 16, 2010 National Law JournalTwo Hollywood producers paid $1.8 million in bribes to secure a $13.5 million contract for the Bangkok International Film Festival. They got 6 months in prison and 6 months home suspension (prosecution wanted 10 years – even though one defendant was 78 years old with health problems). Plus $250,000 in restitution.

Michael Douglas, Actor

JailJail

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Winning Legally

Research has found a statistically significant between a country’s GDP and:– Judicial independence.– Adequacy of legal recourse.– Police protection of business.– Demanding product standards.– Stringent environmental regulations.– Information technology laws.– Extent of intellectual property protection.– Effectiveness of antitrust laws.

Managers must be “legally astute” to maximize shareholder wealth.

Sources of Ethical Standards

Duty-based Ethics(Deontological theory) :

– Ends never justify means– Ethics based on religious beliefs

and philosophical reasoning, such as that of Immanuel Kant.

– What if everyone acted that way – categorical imperative

– Example: Ten Commandments Individual Rights Theory Natural Law Theory

Outcome-based ethics (Teleological theory) :

–Concerned with consequences–Ethics based on philosophical reasoning, such as that of John Stuart Mill.

– Example: utilitarianism Cost/Benefit

Hypothetical?Do you make citizens get an immunization if you know you will save 100,000 people, but 100 will die from the vaccine? Duty-Based Ethical Standard v. Outcome-Based Ethical Standard?

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Is it ethical for a business to donate a percentage of profits to charity? (e.g.Target donates 5% to charity)

Does it matter why? To make company look good versus actually helping?

The Nature Of Business Ethics

Unethical Behavior May Be Legal. Law does not codify all ethical responsibility

Moral Values. Business ethics are created from moral values Law Reflects Society. The law reflects society’s convictions on

what constitutes right or wrong behavior.

Do you agree with attempts to introduce “anti-gouging” laws for

gas stations?

Examples Ethical Unethical

Legal OK Price Gouging

Illegal “Blue” Laws Deceptive Advertising

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Relationship Between Law & Ethics The law does not, and cannot, address all

unethical conduct.– CASE 2.1 Bammert v. Don’s Super Valu, Inc.

(2002). Wisconsin Supreme Court declined to expand employment-at-will doctrine.

Super Value Employee with Police Officer Husband. Karen Bammert worked at Super Value in Menomonie WI

Wife of Super Value Owner Caught Drunk Driving. Bammert’s husband worked as a police office administered a breathalyzer test to Nora Williams, wife of Don William’s, the owner of Don’s Super Valu. She failed.

Fired as Result. Super Value fired Karen as a result

Should law punish all unethical behavior? Why? Why Not?

Why not protect police officers?

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Relationship Between Law & Ethics Continued

(1) Judge/Jury Ethics May Influence Decision.

(2) Law Reflects Ethics. The law reflects society’s consensus about appropriate behavior.

Case Problem 5: Competitive Research Question, P. 57

Calling competing businesses for a study Ok to not inform that you work for a

competitor? What about not saying anything?

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HP – Pre-texting Case• Patricia Dunn – Chairman of the Board

Obstacles To Ethical Business Behavior

The corporate structure: Collective decision making

tends to deter individual ethical assertiveness.

The corporate structure tends to shield corporate actors from personal responsibility and accountability.

Management: Uncertainty on the part of

employees as to what kind of behavior is expected of them makes it difficult for them to behave ethically.

Unethical conduct by management shows employees that ethical behavior is not a priority.

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Ethical Tone Set at the Top

CEO sets ethical tone. The “Imperial” CEO.

– Dennis Kozlowski.– Rigas Family.– Jacob Alexander.– Conrad Black.

More Recent Examples– Tom Petters– Bernard Madoff

80% of businesses have value statements

Business Leaders Definition of Ethicsp. 31 in book

• Golden Rule – JC Penny

• “Good leadership means doing the right thing when no one is watching.” Carly Fiorina, Former CEO Hewlett-Packard

• Assume decision you make ends up on the front page of local newspaper, CEO of Scandinavian company

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Except

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Mission statements.Codes of ethics and training.Oversight committees.Make it easier to blow the whistle.

Promoting Ethical Behavior

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1. Striving for Products and Services of the Best QualityWe will strive to provide our customers with satisfying products and services of the highest quality.

2. Respect for Relationship with StakeholdersWe will respect our relationships with our stakeholders, including shareholders, investors, customers, consumers, vendors, suppliers, local communities and employees, and will strive to maintain relationships that are both appropriate and friendly.

3. Fair, Transparent and Free CompetitionWe will engage in fair, transparent and free competition in the market and will maintain sound and appropriate business relationships with our competitors.

4. Respect for Dignity of IndividualsIn all of our business activities, we will respect human rights, dignity and individuality. We will respect the dignity and individuality of our employees and strive to provide a safe and worker-friendly environment for them.

5. Disclosure of Information and Proper Handling of Confidential and Personal Information We will disclose information regarding our business activities and management that is genuinely required by society in a timely and appropriate fashion. At the same time, we will exercise due care in the acquisition, use and disclosure of important proprietary information, trade secrets, personal information and customer information.

6. International Cooperation and Respect for Different CulturesAs our business activities become increasingly international, we will respect the integrity of the cultures and customs of the countries where we engage in business activities and comply with applicable laws and regulations.

7. Positive Approach to Safety and Environmental MattersBased upon our understanding that addressing safety and environmental issues is critical to our corporate existence and activities, we will make safety our goal and strive actively to protect the environment.

8. Respect and Stress on Social JusticeAs good corporate citizens, we will comply with laws and regulations and demonstrate our commitment to social justice by taking action against anti-social behavior and organizations acting against the public interest.

9. Penetration and Full Execution of this Policy Based upon our understanding that realization of the goals described in this Policy is essential to the management, existence and prosperity of the MRC group companies, our top management will take the initiative in establishing internal organizations that will have responsibility for the execution of the Policy and will keep people throughout the MRC group informed regarding the Policy. 32

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Ethics Question

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Anheuser-Busch accused of unethical behavior this fall for selling college football themed beer cans.

Is this ethical?Legal? What would you do?

Stakeholders to Consider in Corporate Social Responsibility

Corporations are perceived to hold duties to the following groups, duties that often come into conflict:

ShareholdersShareholders

EmployeesEmployees

ConsumersConsumers

CommunityCommunity

SocietySociety

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Selling Off-Label Uses for Drugs

Pfizer and Off-Label Drug Aspirin – doctors began prescribing to lower risk of

heart attach in 60s and 70s – not until 1998 did the FDA approve it – thousands of lives saved/prolonged.

Beta-Blockers approved for high blood pressure in the 80s some studies and doctors thought it would work against angina and heart attack – the doctors were right. Large studies proved this but it took years to get the FDA to approve.

73% of off-label prescriptions were for a use that lacked any scientific evidence.

Talk about in group

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Sell Drug Overseas?

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Bridgestone/Firestone, Ford and Tire Failures.– Ford Explorer – 6.5 million tires replaced – in 2000 and 2001– Firestone knew in 1996 that 10% of its tires had tread separation defects

General Motors and Malibu.– Ruptured fuel tanks – ordered to pay $4.8 billion in punitive damages– Could have reduced risk by spending $8.59 per car– Calculated death at $200,000 per death and that would cost $2.40 per

car.

Duty to Consumers – Product Safety

A Manager’s Dilemma (handled differently than the above situations)• 350 people died on crash of Euro-Air airplane• Check for $150,000 each to avoid lengthy waits for families in need of money. –

some recommended waiting because it would cost less• Pay Americans more than other nationalities?

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Duty to Consumers and Society Advertising

Marketing Tobacco and Beer to Children. – Joe Camel – stopped in US but continued in other countries

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Duty to Consumers

Legal Duty. Corporate directors and officers have a legal duty to the users of their products.

Ethical Duty. Most feel that corporations also have an ethical duty that goes beyond what the law requires.

Conflict with Personal Responsibility. Controversy exists over the point at which corporate responsibility for consumer safety ends and consumer responsibility begins.

Consumer Protection Law Generally. QUICK overview of consumer protection law– Can you name some?

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Duty to the Community/Society

Most people believe a corporation has a duty to the community in which it operates.

The corporation should consider the needs of the community when making decisions that substantially affect the welfare of the community.

Environment – Mercury example

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Georgia-Pacific paper company was a member in Business for Affordable Medicine (BAM).

Eli-Lilly, & Co., a good customer of Georgia-Pacific pressued Georgia-Pacific to withdraw from BAM.

Should Georgia-Pacific withdraw? Is it ethical for Eli-Lilly to ask for this?

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Case Problem 7 – p. 57 – Conflict of Interest

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Duty to Employees and Investors

Sweatshops and Child Labor. Child Labor at Wal-Mart. Jobs and Pensions: Enron. Discrimination: Texaco, Coca-Cola. Investors: Managed Earnings.

– Rite-Aid: cover up of financials.– Strong Financial: rapid trading.

Question 4 (and 3) p. 57. Re: Free football tickets

Duty to Employees

Employers have numerous legal duties to employees, including providing employees with a safe workplace and refraining from discriminating against employees on the basis of race, color, national origin, gender, religion, age, or disability.

These duties often come into conflict. Many believe that employers hold ethical duties to their employees that

go beyond those prescribed by law.

UAS v. Johnson Controls• Battery Division• Lead Exposure

• No Women of Child Bearing Age

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Duty to Communities

Union Carbide and Bhopal. In Dec. 1984, forty tons of methyl isocyanate gas was emitted from the plant outside Bhopal, India. At least 200,000 victims from death or illness.

Doing business with Repressive Regimes – Myanmar –Total is one of the companies so is Chevron.

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Because the shareholders are the owners of the corporation, directors and officers have a duty to act in the shareholders’ interest (maximize profits).

Duty to Shareholders

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Case Problem 6: Win prize at Trade Show, P. 57

Indra Wu attended a trade show at company expense and won a $12,000 TV.

What should she do?

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One day of coffee sales to pay for poor kids summer camp

“social responsibility is a way for a company to differentiate itself from its competition

Socially Responsible Investment

Company called “Ethos” formed 4 years ago to help companies develop social responsibility claims

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Non-Legal Risks to Unethical Behavior

#1: increased risk of doing business and the possibility of bankruptcy and severely damaged company brand and image.

#2: decreased productivity.

#3: increased misconduct and conflict internally.

#4: decreased performance levels of employees.

#5: increased employee turnover and more challenging employee recruitment.

#6: decreased productivity.

#7: increased absenteeism and “presenteeism.”.

#8: decreased probability of reporting misconduct and unethical behavior of others.

#9: increased dysfunctional behaviors such as not paying attention to details, scapegoating, withholding information, under delivering & over promising, not giving credit to others, lowering goals, misrepresenting results, etc.

#10: decreased value of the company. “Ten Most Significant Risks and Costs of Unethical Behavior in Business, According To Your Strategic Thinking Business Coach”

By: J. Glenn Ebersole, Jr., Chief Executive of J. G. Ebersole Associates and The Renaissance Group ™49

Ethics Video – Fake Firm Wormwood Bayne

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