The Modern Environment of
Business
Chapter Issues
• Key functions of the Legal Systems
• Sources of Law
• Classifications of Law
• Ethics and Business
• Corporate Social Responsibility
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Key functions of the
Legal Systems
• Enhancing social stability - limit actions that are
detrimental to the “public interest” and encourage
beneficial actions
• Conflict resolution - courts are one mechanism
for resolving disputes
• Social maintenance - reflect the social values and
customs of a society
• Social change - effective way to change what is
“acceptable” behavior
Sources of Law
• Common Law
• Constitutions
• Legislatures
• Administrative Agencies
• Judiciary
• Executive
COMMON LAW
• Came from old English system
• Judge usually followed earlier decisions that
resolved similar disputes
• Legal principle from these cases is called
precedent
• Use of this precedent is Stare Decisis
• New issue?? Judge makes new common law
• Common law varies by state
• Provides stability but allows change
Constitutional Law
• Fundamental law of the land
• Establishes limits and power of government
• US constitution, the oldest written
constitution in force in the world,
establishes legislative, executive and
judicial branches of government
• Also have state constitutions
Statutory Law
• Legislatures create statutory
law
– Federal Laws
– State Laws
– Municipal Laws
• Judges interpret
• Must pass Constitutional
muster
Administrative Regulations
• Congress Creates
Statute
• Statute names
Administrative
Agency
• Agency makes
Regulations
• see also chapter 6
International Sources of
the Law
• Religious Law Countries
• Civil Law Countries • Middle East, India
• France, Germany, Italy, • Islam, Hinduism,
Spain, Japan
• Communist Law
• Code Law Tradition
• Statutory Interpretation • China, Cuba
• Common Law Countries • Political Agenda part of
• U.S., Britain, Nigeria the law
• Judge-Made Law • State ownership
Classifications of Law
• Public and Private
– public- legal relationships between members of
society and the government
• influence behavior
• bring about social change
– private- legal relationships among members of
society
• resolves disputes
• primarily common law
Classifications of Law
• Civil and Criminal
• Criminal
– guilty can be fined, imprisoned or both
– felony or misdemeanor
– beyond a reasonable doubt
• Civil
– wrongdoer pays money, but no jail time!
– preponderance of the evidence
• Substantive and Procedural
• Substantive
– defines legal rights and regulates behavior
• Procedural
– how it is to be enforced (the “nuts and bolts”)
Ethics and Business
• Public perception of business leaders
has fallen, probably from increased
expectations
• More and more focus is on ethics
• Not to be confused with rules of law
• see Soldano v. O’Daniels
• see also United States v. Stanley
Soldano v. O’Daniels
(1983) p.20
- Gunman enters saloon - pulls gun and threatens
to kill Soldano.
- Patron runs across the street and asks bartender -
- O’Daniels to call police or let him call.
- O’Daniels refuses and Soldano is killed.
- Ethics or legal violation?
- What duties do we have to assist others?
United States v. Stanley
(1987) p.22
• Stanley, in Army, volunteers to test special
clothing
• Instead, Army gives him LSD!
• Years later, Stanley finds out and sues Army
under Federal Tort Claims Act
• Court says No Go- you were in the Army, so
government not liable
Corporate Social
Responsibility
• Narrow view- agents-of-capital view
– social responsibility is to “make as much money
as possible while conforming to the basic rules
of society… in law…and ethical custom.”
– Corporations may do things that look like
altruism, but are really self-interest
• Broad view- “social contract”
– social responsibility includes more than just
profit, must also consider interests of others
Grimshaw v. Ford Motor
Company (1981) p.25
• Ford makes a Pinto vehicle which is highly susceptible to fuel tank
damage and explosion even at low level impacts
• Despite cost of only about $15 per car to greatly improve these faults,
Ford proceeds to make Pintos without the extra safety features
• Grimshaw sues after being injured in a Pinto rear-end collision which
resulted in a fire
• Jury awards $3 million in compensatory and $125 million in punitive
damages, which were reduced to $3.5 by the trial judge
• Ford appealed claiming that the punitive damages were excessive
• Damages were upheld on appeal
