INSTRUCTOR MANUAL FOR
MANAGERS AND THE LEGAL ENVIRONMENT STRATEGIES FOR
THE 21ST CENTURY 8TH EDITION CONSTANCE E. BAGLEY
CHAPTER 1-24
CHAPTER 1
LAW, VALUE CREATION, AND RISK MANAGEMENT
This first chapter lays the foundation for the modern corporate manager who is swimming in a
―sea of law.‖ It sets forth a framework for the legally astute manager to better understand the
intersection between law and management, while introducing a systems approach to business,
law, and society. And finally, this chapter, can help managers become more legally astute by
understanding how to legally protect a company‘s value, while managing legal risks.
1-1 THE SYSTEMS APPROACH TO BUSINESS AND SOCIETY
Because we live in a social system, managers must anticipate, understand, and respond to
changing policy and social perceptions of ethical management.
1-1a Meeting Societal Expectations
Business decisions are a series of interrelated economic and moral components, as
well as systems of shareholders and community stakeholders.
1-1b Effect of Law on the Competitive Environment and Firm’s Resources
(i) Law shapes competitive environment with five forces that determine a
company‘s attractiveness to customers: (1) buyer power, (2) supplier
power, (3) the competitive threat posed by current rivals, (4) the
availability of substitutes, and (5) the threat of new entrants.
(ii) Resource-based view (RBV): firm‘s resources can sustain competitive
advantage if they are valuable, rare, and hard or expensive to imitate by
competitors.
(iii) Consider the corporate scandals beginning in 2000 with Enron, and
continuing to the recent JP Morgan ―London Whale Trades.‖
(iv) Legally astute management teams are proactive, and practice strategic
compliance management.
1-1c Law and the Value Chain
Each activity in the value chain has legal aspects: design, manufacturing,
distribution, sales and warranties.
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, 1-1d Law Is Dynamic
Systems approach recognizes that the law is not static and changes based on court
decisions, federal, or state laws. Managers should be proactively involved in
lobbying for law that gives them competitive advantage, and be self-policing to
avoid unnecessary regulations.
1-2 LAW AND PUBLIC POLICY
American law seeks to enhance economic activity, commerce, and for-profit corporations
through the pursuit of four key public policy objectives:
1-2a Promoting Economic Growth
Protects and enforces private property rights, enforces contracts, and develops
incentives.
1-2b Protecting Workers
1-2c Promoting Consumer Welfare
1-2d Promoting Public Welfare
1-2e Policy Conflicts
CASE 1.1 Sorrell v. IMS Health, Inc., 131 S. Ct. 2653 (2011).
Vermont statute prohibited pharmacies from selling prescriber-
identifying information for marketing prescription drugs without
the prescriber‘s consent. Vermont data miners and others
challenged the statute as a violation of their free-speech rights
under the First Amendment.
HELD: For the data miners. The statute violated the First
Amendment because it was too broad and engaged in ―content-
based discrimination.‖
1-3 THE LEGALLY ASTUTE MANAGER
Legally astute managers (LAMs) know how to communicate and work with counsel to
solve legally complex problems. LAMs know how to: (1) negotiate contracts, (2) protect
and enhance the firm‘s value (3) create legal options, and (4) convert regulatory barriers
into value.
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, THE RESPONSIBLE MANAGER: Teaching Suggestions
1. How should the legally astute manager deal with gossip circulating around the company via
emails about possible legal or ethical wrongdoing?
2. Discuss the cultural dilemmas that face managers in the global economy: Are gifts of money
or services illegal or unethical, or culturally neutral? Discuss, for example, in China whether
Guanxi is social networking, or is it mere bribery. Or, in Latin America, whether paying
officials directly is a way to ―expedite‖ service, or whether it is bribery.
3. Discuss the possible conflicts between legally doing business and selling fast-food, given the
increasing evidence of how it is a significant contributing factor in public health, obesity, and
diabetes facing many Americans. Do you agree with how McDonalds and the Disney
Company are handling the issue? What ethical obligations, if any, do fast food companies
have to consumers?
CHAPTER 2
ETHICS AND THE LAW
This chapter explains the basic concepts and dilemmas of the application of business ethics and
social responsibility in business. The goal of the chapter is to provide the manager with an
ethical framework to evaluate business decisions in the global legal environment.
2-1 THE RELATIONSHIP BETWEEN LAW AND ETHICS
Law and ethics are interrelated. Creating a ―good‖ organizational culture that strives to
have the highest ethical standards will ultimately make it more financial healthy. But the
law does not—indeed cannot—prohibit all ―bad‖ behavior. In fact, unethical conduct can
lead to more onerous regulation. See the Enron accounting scandal, which was a primary
factor in the enactment of the Sarbanes-Oxley Act of 2002.
2-2 THE ETHICAL TONE IS SET AT THE TOP
The chief officer has the most important role in instilling ethics in the organization. Pay
disparities and the wealth gap between corporate executives compared to average
workers and public scandals reduce public faith in the business community.
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, 2-2a The Imperial CEO
As of 2013, the average CEO in Standard and Poors‘ 500 Index was paid $11.7
million, more than 331 times what the average worker was paid. Consider Dennis
Kozlowski, CEO, Tyco International. In 2005, Kozlowski was convicted of grand
larceny, conspiracy, and fraud. He was sentenced up to 25 years in prison.
2-3 ETHICAL BUSINESS LEADER'S DECISION TREE
See Exhibit 2.1. To ensure success, managers must create a culture of socially
responsibility by asking a series of questions:
2-3a Is the Action Legal?
2-3b Would It Maximize Shareholder Value?
Maximization of shareholder value (shareholder primacy) is generally not legally
required.
2-3c Is the Action Ethical? What Is Ethical?
The three main ethical frameworks use teleological, deontological, or
comparative justice viewpoints.
(i) A teleological view of ethics is concerned about the consequences of
decisions. Morality is measured by the effect a decision has on others.
(ii) A deontological view of ethics emphasizes the motivation and principle
behind an action, not the consequences. Immanuel Kant emphasized the
form of action (not the outcomes) and the reason for choosing said actions.
Rawlsian justice seeks to maximize the plight of the worst-off person by
developing principals behind a ‗veil of ignorance.‘
Comparative Justice.
Consequences of decisions can be compared between rule-based systems and
outcome-oriented (utilitarian) frameworks. Consider distributive, compensatory,
and retributive justice.
How Do Business Leaders Define Ethics?
Many associate ethics with integrity, fairness, and honesty. Ex-CEO of HP, Carly
Fiorina, said ―good leadership means doing the right thing when no one is
watching.‖
HISTORICAL PERSPECTIVE: From Aquinas to Pope Francis. Thomas Aquinas
believed that human laws were just only if they: (1) are consonant with universal
good; (2) can be obeyed; (3) are unambiguous; (4) approved by the community;
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