Thorne B&S 4e Student Ch04

CHAPTER 4

Legal, Regulatory, and Political Issues

Chapter Objectives • To understand the rationale for government regulation of  business • To examine the key legislation that structures the legal environment for business • To analyze the role of regulatory agencies in the enforcement of public policy • To compare the costs and benefits of regulation • To examine how business participates in and influences public  policy • To describe the government’s approach for legal and ethical compliance

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. • Corporations have the same legal status as a person.

Major Laws Affecting Business • Sherman Antitrust Act • Clayton Antitrust Act • Federal Trade Commission Act • Robinson-Patman Act • Lanham Act

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

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• 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 • Product quality, safety, distribution, sales, and regulation •  North American Free Trade Agreement (NAFTA) • European Union (EU)

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Costs of Regulation • Administrative spending patterns of federal regulatory agencies • Staffing levels of federal regulatory agencies • Business expenditures in compliance with regulations

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. • Critics of deregulation cite higher  prices 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.

The Contemporary Political Environment • Greater transparency in the congressional committee  process • 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

Corporate Approaches to Influencing Government • Lobbying • Political Action Committees • Campaign Contributions

Federal Sentencing Guidelines 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

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 and communication 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 • Many benefits