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Business Law - Definities
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Lecture 1: Regulatory EnvironmentSelf-regulation: self-made rules by companies by industry organizations. Because they are self-made, you voluntarily
submit yourself to it → lot of it in advertising.
Corporate strategic planning as a basis for integrating law and business.
• A situation of no regulation is generally speaking not the ideal situation for business.
• Soft law: a set of rules created by an important organization (United Nations, European Union), which is not
binding. But, because it comes from an important organization, companies take it seriously.
• Self-regulation: your company/industry makes rules and you submit yourself to it voluntarily.
o For example: Unilever’s code of Business principles. Also known as code of conduct, ethical
statement.
o They are rules of which they say we respect the rules, we make these rules, we communicate these
rules on our website and that is how we will do our business.
o From a promotional perspective a good thing: you show the world you want to operate in a
responsible manner and that you inform your stakeholders about your own commitment to your own
rules.
• Co-regulation: legislator (wetgever), government and business cooperate in creating rules, they do it together.
• Acts/statutes: something is written down somewhere in a book or an act, and the rules which we have to
follow/we can make use of can be retrieved by us/can be consulted by us/will be applied in court, and, if
necessary, the court will help you in enforcing the rules.
Self-regulation is not only beneficial for companies from a promotional perspective, but it’s also having benefits for
consumers and governments.
Governments: need to spend less time and less money on making rules when the companies make the rules
themselves. Also, when the rules are made by companies, they have a legitimacy and an acceptance (by the business
community, since they made the rules themselves). They also come into effect faster, since it takes a lot of time
through the government (making rules by legislation [wetgeving] can take a long time), which is why they may be
inclined to support regulation by self-regulation (higher efficiency, effectiveness and legitimacy).
Companies also see the advantages: if there is no legislation, it allows them to make their own rules. If companies
cooperate on the rules, they create own level playing field, they create rules which all of them have to abide to in an
industry. It’s a promotional instrument, you can show the world and your stakeholders that you are exactly doing
what they expect from you. Lastly, you can create a body which among you/industries enforces the rules.
It can also have advantages for consumers. The rules might be clearer (in normal language), since it is not formulated
in difficult law language. The processes to have the rules enforced might be easy. It can avoid the cost of having to go
to court, because companies will generally create easy processes for consumers to complain, because the companies
also have an interest in avoiding litigation (geschillen).
So, for all parties there are benefits in it. However, it can be abused. A good starting point for inspiration is soft law,
because it expresses (for a big part) what society expects from you as a company.
,The three big legal traditions
• Civil Law countries have law books, statues (have written down the
rules)
• Common Law countries created a legal system because the
prevailing philosophy was that “you should not give too much
power to the state, because the state can abuse you, so the state
should not make rules”. Rules were made in court by judges,
because the judges are the voice of the people. The people should make the rules, not the state. The rules are
in cases and not primarily in law books.
• Muslim law/Islamic Law countries have a very close link between religion and law. The religious principles are
incorporated in the law, and the law will not accept anything that is against religious principles. The division
between law and state might not be as we are used to.
What does it mean for business?
1. It is a reality, not to be neglected, but to be accepted and respected. Nothing is strange, it is just different.
EMEA: Three legal families
Who makes the rules?
In Common Law, court judges make the rules.
In Civil Law, a legislator makes the rules. It is a body in the state (in the Netherlands, the government and the
parliament) that has the power and the authority to create rules, which is called legislative power.
In Islamic Law, the rules are made by the prophet, the creator of mankind and are written down in the holy book and
some other sources.
What is the function of these rules?
In Common Law, the function of rules is to protect people against the state.
In Civil Law, the function of rules is to regulate the relationship between people and the state with rules.
In Islamic Law, the function of rules is to regulate the relationship with the prophet; the relationship of the people
with the creator.
Sources of law: the places where the rules can be found. In all sorts of law, these sources have a hierarchy. Some
sources are more important, and therefore prevail over other sources.
In Civil Law, the highest type of rules are treaties: the international contracts of countries. Then legislation: the rules
as they are written down in law books. Then, the decisions of courts in which they apply the rules, known as case law.
We can also use customary law and general principles of law as so-called unwritten sources of law.
In Common Law, the hierarchy is different. Case law is the main source, judges’ decisions. Legislation comes after case
law. Treaties do not automatically prevail over national law, as generally is the case in Civil Law. The equity law system
is a supplementary type of law which can help out if applying Common Law would lead to an unacceptable decision. A
correction mechanism is then available in the law of equity.
In Islamic Law, we have the Quran. We have saying of the prophet. We have a method to arrive at a decision by
analogical reasoning, for if the answer cannot be found in the two preceding sources. Finally, something that
compares to equity law the Istihsan. Used if applying the three preceding principles would lead to an undesired
outcome.
,From a strategic management perspective, law has two relevant dimensions:
• The legal function (Legal department) is the internal dimension
• Regulation, as a factor in the external environment, is the external dimension.
Analysis of the two regulatory environments constitutes a legal situational analysis that provides input for corporate
and functional strategy development process.
Linking Legal and Business
Strategic input: the information the internal dimension (legal) provides us with, about what’s happening in the world.
If we will use this information in Strategic management, it is called strategic input.
If Legal can help with developing options and the choice of strategy, they help in creating and protecting value.
Strategies have to be implemented and controlled, where legal can help with risk management (specifically the legal
risks), as well as in avoiding making mistakes and managing the reputation of the company.
Issue for a manager: how can I link the developments in the regulatory environment to create value and making
money for the company by effectively and efficiently using resources?
Who analyzes? You, Legal department, will you hire consultants, mix?
The analysis structure: 6 S’s. It provides you with a structure to get a grip on the analysis of the regulatory
environment. → You must find out what is relevant to you, not all legal areas are relevant to all companies.
Consultants
Lobbying: trying to influence a legislative process.
Analyzing Legal: 5 C’s
→ How well is Legal doing?
, Business → Managing Resources → Profit
Focus on C of
Contribution!
Strategic input: finding out what’s happening; developments in the external environment. They can create value by
ensuring that certain rights can become available to you (copyright, patent). They can protect value by protecting your
rights (patent, copyright, warding off infringements [overtredingen afweren], litigating [procederen]). In case of
violations, the legal department can protect value. They can support you in risk management, since legal risks are
difficult to detect for managers. They can help to protect the reputation and reduce the costs.
The compliance function – what does a compliance manager do?
A compliance manager is a professional that keeps the legal and ethical integrity of a company intact through policy
enforcement and program planning. He or she makes sure all departments of a business are complying with the rules
and regulations the company upholds.
Compliance managers are responsible for keeping up-to-date with changing laws that affect the corporate world, and
are responsible for preparing reports to present to their upper management detailing these laws and how the
employees of the company are following them.
→ Manager tries to map all rules that are relevant for the company, and tries to communicate those rules into the
company, tries to train people with respect to the new rules, tries to update all policies to the new rules so that the
compliance manager can ensure the CEO that the company has implemented all applicable rules properly so that the
company is fully compliant and is not at risk of prosecution by supervision authorities or the risk of claims from
competitors.
Integration: International Business Perspective
We must have a system that ensures that we get the right information delivered to us.
Supranational: EU
International Business – Multi-level Legal/Compliance risks
The treats from a legal
perspective.
If we’re not aware of the new rules, we may violate them. Technology changes fast, legislation changes slowly, so
some areas may not be regulated yet. Litigation may lead to negative publicity. We might be present in countries
where the judicial system is not as perfect as we like it to be, which makes it impossible to protect the value of your
company.
Internally, we may have to pay when breaching a contract. It is easy to accidently violate others’ rights. Another
problem is that a legal function does not have the competencies you want it to have, or the costs of Legal are very
high.
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