CHAPTER Govt. Regulation of Business and Ethics Govt. Regulation of Business and Ethics 6.

CHAPTER

Govt. Regulation

of

Business and Ethics

6

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McGraw-Hill/IrwinLegal Environment of Business in the Information Age

© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

Govt. Regulation and EthicsGovt. Regulation and Ethics

Much of the legal environment is based on govt. agencies, e.g., EPA, EEOC and so on

There are few constraints on the subject matter of the fed. govt. regulation

Just about everything “affects” interstate commerce

Still self-regulation is a potent force that is important in many professions

The extent of govt. regulation of cyberspace probably depends how responsible or irresponsible participants are

Certainly there have been a number cyberspace statutes passed already

Much of the legal environment is based on govt. agencies, e.g., EPA, EEOC and so on

There are few constraints on the subject matter of the fed. govt. regulation

Just about everything “affects” interstate commerce

Still self-regulation is a potent force that is important in many professions

The extent of govt. regulation of cyberspace probably depends how responsible or irresponsible participants are

Certainly there have been a number cyberspace statutes passed already

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Administrative LawAdministrative Law

Enabling statutes create and define administrative agencies

Regulations issued by administrative agencies first appear in the Federal Register

And are later codified in the Code of Federal Regulations

Total regulations at the fed. level are massive—19 feet of shelf space

Enabling statutes create and define administrative agencies

Regulations issued by administrative agencies first appear in the Federal Register

And are later codified in the Code of Federal Regulations

Total regulations at the fed. level are massive—19 feet of shelf space

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Admin. AgenciesAdmin. Agencies

The Occupational Safety and Health Administration is one of many govt. agencies

Obviously OSHA is directed towards achieving greater worker safety

In order to promulgate new substantive regulations, admin. agencies have to comply with the Administrative Procedures Act (APA)

The APA requires advance notice of proposed new regulations appear in the Federal RegisterThe APA also requires that the agency must provide an opportunity for interested parties to make their views known

The Occupational Safety and Health Administration is one of many govt. agencies

Obviously OSHA is directed towards achieving greater worker safety

In order to promulgate new substantive regulations, admin. agencies have to comply with the Administrative Procedures Act (APA)

The APA requires advance notice of proposed new regulations appear in the Federal RegisterThe APA also requires that the agency must provide an opportunity for interested parties to make their views known

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New RegulationsNew Regulations

For new regulations that are not substantive, but rather interpretative or procedural

The agency does not have to provide notice in the Fed. Register and provide for hearing to receive comments

Interpretative regulations refer to how the agency interprets the laws it enforces

Procedural regulations relate to the requirements parties have to follow to complain about or appeal decisions of the agency

For new regulations that are not substantive, but rather interpretative or procedural

The agency does not have to provide notice in the Fed. Register and provide for hearing to receive comments

Interpretative regulations refer to how the agency interprets the laws it enforces

Procedural regulations relate to the requirements parties have to follow to complain about or appeal decisions of the agency

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Independent Admin. Agencies Independent Admin. Agencies

The heads of most agencies serve at the pleasure of the president and can be removed for any or no reason

The heads of “independent” agencies have fixed terms and cannot be removed before the expiration of their terms unless there is a showing of malfeasance

All agencies do various things to carry out their responsibilities

Investigations—they must determine if the laws they are supposed to enforce are being violated

Issue subpoenas—agencies are entitled to subpoena records from businesses

– Must be relevant to their authority

The heads of most agencies serve at the pleasure of the president and can be removed for any or no reason

The heads of “independent” agencies have fixed terms and cannot be removed before the expiration of their terms unless there is a showing of malfeasance

All agencies do various things to carry out their responsibilities

Investigations—they must determine if the laws they are supposed to enforce are being violated

Issue subpoenas—agencies are entitled to subpoena records from businesses

– Must be relevant to their authority

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These agencies have a lot discretionIt is best for businesses to cooperate with govt. regulators when possible

– In some cases litigation will take place but in other instances compromises can be worked out

If an agency decides to take action against a business they can take a number of sanctions

– Fines or penalties,

– Denial or revocation of licenses

– Seizure of property

– Lawsuits against the company in federal courts

These agencies have a lot discretionIt is best for businesses to cooperate with govt. regulators when possible

– In some cases litigation will take place but in other instances compromises can be worked out

If an agency decides to take action against a business they can take a number of sanctions

– Fines or penalties,

– Denial or revocation of licenses

– Seizure of property

– Lawsuits against the company in federal courts

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When agencies first take actions against a business they take the business before Admin. Law Judges (ALJs)

ALJs are employees of the agency and they make factual findings

Either the agency or the business can appeal decisions of the ALJs

Ultimately the business an appeal the fed. courts if the disagree with agency actions

When agencies first take actions against a business they take the business before Admin. Law Judges (ALJs)

ALJs are employees of the agency and they make factual findings

Either the agency or the business can appeal decisions of the ALJs

Ultimately the business an appeal the fed. courts if the disagree with agency actions

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Often agencies have to decide whether to prosecute individual businesses for violations of law or

Promulgate a regulation if the problem is sufficiently broad

The FTC sometimes prosecutes a business for unfair and deceptive trade practices but it also writes industry wide regulations such as Guides for Advertising Allowances--what a business can and cannot do in this regard

Often agencies have to decide whether to prosecute individual businesses for violations of law or

Promulgate a regulation if the problem is sufficiently broad

The FTC sometimes prosecutes a business for unfair and deceptive trade practices but it also writes industry wide regulations such as Guides for Advertising Allowances--what a business can and cannot do in this regard

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Judicial ReviewJudicial Review

Part of the checks and balances is the ability of fed. judges to review and reverse decisions of admin. agencies

There are several grounds for reversing decisions of admin. Agencies– The action of the agency was arbitrary and capricious

• There was no scientific or technical basis for the actions of the agency

– The agency exceeded its authority under the enabling statute(s)

– The agency violated a constitutional protection

• Generally contained in the Bill of Rights

Part of the checks and balances is the ability of fed. judges to review and reverse decisions of admin. agencies

There are several grounds for reversing decisions of admin. Agencies– The action of the agency was arbitrary and capricious

• There was no scientific or technical basis for the actions of the agency

– The agency exceeded its authority under the enabling statute(s)

– The agency violated a constitutional protection

• Generally contained in the Bill of Rights

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Judicial ReviewJudicial Review

In many cases advocacy groups are looking for a hook to get into court to challenge actions of admin. agencies

E.g., environmental groups regularly sue the EPA for not being tough enough on polluters or not enacting regulations that are strict enough

In order to get into court the advocacy group must show that it has standing to sue,that it has exhausted all internal appeals within the agency and that the dispute is ripe for resolution

In many cases advocacy groups are looking for a hook to get into court to challenge actions of admin. agencies

E.g., environmental groups regularly sue the EPA for not being tough enough on polluters or not enacting regulations that are strict enough

In order to get into court the advocacy group must show that it has standing to sue,that it has exhausted all internal appeals within the agency and that the dispute is ripe for resolution

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Power of InformationPower of Information

Information is power in today’s economyFederal agencies keep lots of files, which are threatening to many people

Also fed. agencies have sought to squelch public access

Recognizing these problems, Congress has passed reform legislation

Many of the Congressional reform statutes have numerous exceptions

Information is power in today’s economyFederal agencies keep lots of files, which are threatening to many people

Also fed. agencies have sought to squelch public access

Recognizing these problems, Congress has passed reform legislation

Many of the Congressional reform statutes have numerous exceptions

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Power of InformationPower of Information

Freedom of Information Act (FOIA)In general, citizens have a right to access to information about their govt.

– Among the exceptions to the FOIA are:• Records that relate to national defense, personnel files, records that

are required to be kept secret, trade secrets that are in possession of a govt. agency, law enforcement records, and internal memoranda that reveals decision making.

Govt. in Sunshine Act requires public notice of meetings by an agency along with the agenda

– Again there is a lengthy list of exceptions that enable govt. officials to hold meetings that are not announced and are closed to the public

Freedom of Information Act (FOIA)In general, citizens have a right to access to information about their govt.

– Among the exceptions to the FOIA are:• Records that relate to national defense, personnel files, records that

are required to be kept secret, trade secrets that are in possession of a govt. agency, law enforcement records, and internal memoranda that reveals decision making.

Govt. in Sunshine Act requires public notice of meetings by an agency along with the agenda

– Again there is a lengthy list of exceptions that enable govt. officials to hold meetings that are not announced and are closed to the public

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Information and PrivacyInformation and Privacy

The Federal Privacy Act of 1974 Relates only to actions of fed. Agencies

Essentially the Privacy Act makes illegal non-consensual secondary use of information disclosed to an agencyFor example, medical records obtained by the VA hospital should not be shared with the FBI unless there is permission by the patientThere are numerous exceptions the Act, so the protection offered is leaky at best

The Federal Privacy Act of 1974 Relates only to actions of fed. Agencies

Essentially the Privacy Act makes illegal non-consensual secondary use of information disclosed to an agencyFor example, medical records obtained by the VA hospital should not be shared with the FBI unless there is permission by the patientThere are numerous exceptions the Act, so the protection offered is leaky at best

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Other Controls on the Fed. BureaucracyOther Controls on the Fed. Bureaucracy

Congress and the President can reduce or eliminate an agency’s budgetSunset legislation has occasionally been effective

The bill that creates the agency calls for its demise after a fixed period, unless Congress reauthorizes the agencyRequirements by Congress that an agency justify new regulations with cost-benefit analysis has slowed creation of new regulations by some agencies

Congress and the President can reduce or eliminate an agency’s budgetSunset legislation has occasionally been effective

The bill that creates the agency calls for its demise after a fixed period, unless Congress reauthorizes the agencyRequirements by Congress that an agency justify new regulations with cost-benefit analysis has slowed creation of new regulations by some agencies

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Ethics in BusinessEthics in Business

Ethics is the study of right and wrong

Some cynical or anti-business types believe that business ethics are a sham

Many claim that the Enron debacle took place in part because of lack of ethical training by high level executives

Of course ethics has attracted some of the best minds and they do not agree

Ethics is the study of right and wrong

Some cynical or anti-business types believe that business ethics are a sham

Many claim that the Enron debacle took place in part because of lack of ethical training by high level executives

Of course ethics has attracted some of the best minds and they do not agree

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Kantian EthicsKantian Ethics

Immanuel Kant—18th Century German philosopher

Categorical ImperativeRules of conduct should be universal and reversiblePeople should never be used as a means to an endOrigin of the notion of inalienable rights—there are some rights that should not be accessible by government

Immanuel Kant—18th Century German philosopher

Categorical ImperativeRules of conduct should be universal and reversiblePeople should never be used as a means to an endOrigin of the notion of inalienable rights—there are some rights that should not be accessible by government

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UtilitarianismUtilitarianism

Utilitarianism is the major competing ethical system to the Kantian system

In essence, policies that result in the greatest good for the greatest number of people are judged as good and ethical under utilitarian way of thinking

Utilitarians could justify testing AIDS drugs even though they know that more of the control group will die if they do not receive treatment

– Kantians say never use people as means to an end

Utilitarianism is the major competing ethical system to the Kantian system

In essence, policies that result in the greatest good for the greatest number of people are judged as good and ethical under utilitarian way of thinking

Utilitarians could justify testing AIDS drugs even though they know that more of the control group will die if they do not receive treatment

– Kantians say never use people as means to an end

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UtilitarianismUtilitarianism

Is the fundamental tool used by economists to do cost-benefit analysisAlthough it is possible to imagine situations in which Kantian ethics yields different prescriptions that those of utilitarianism, in most cases it is possible both systems yield the same answerModern discussions of business ethics usually revolve around corporate obligations to various stakeholders

– Customers, employees, the neighborhood, shareholders,

Is the fundamental tool used by economists to do cost-benefit analysisAlthough it is possible to imagine situations in which Kantian ethics yields different prescriptions that those of utilitarianism, in most cases it is possible both systems yield the same answerModern discussions of business ethics usually revolve around corporate obligations to various stakeholders

– Customers, employees, the neighborhood, shareholders,

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Business EthicsBusiness Ethics

Most people would agree that the following are ethical:

Protecting the environment—businesses can use recycled paperPreventing fraud as much as possible—certainly it would be unethical to profit based on deceiving people—people are being usedIncreasing tolerance for diversity—although homosexuals are not legally protected, they could be protected by a company’s code of ethics

Most people would agree that the following are ethical:

Protecting the environment—businesses can use recycled paperPreventing fraud as much as possible—certainly it would be unethical to profit based on deceiving people—people are being usedIncreasing tolerance for diversity—although homosexuals are not legally protected, they could be protected by a company’s code of ethics

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Ethical Business Actions Ethical Business Actions

Providing a Social Safety NetOccasionally the rules need to be made less rigid so that some people do not fall through the cracks of a social safety net

Companies should be concerned about their customersEspecially if there is evidence some are misusing the products

Some of the legitimate wine makers also put out highly sugared rot gut wines favored by winos

Providing a Social Safety NetOccasionally the rules need to be made less rigid so that some people do not fall through the cracks of a social safety net

Companies should be concerned about their customersEspecially if there is evidence some are misusing the products

Some of the legitimate wine makers also put out highly sugared rot gut wines favored by winos

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Ethical Business ActionsEthical Business Actions

Shareholder Interests—There have been conflicts between SH’ers and top level corporate officersTwo unethical practices

Insider trading—in the Enron scandal top corporate officers sold their shares of Enron before the news of the inflated revenues was made publicThe Anderson accounting firm, which audited the books of Enron, also made millions in consulting fees

Community Interests—Some claim relocating production overseas is unethical, even though companies save money

Shareholder Interests—There have been conflicts between SH’ers and top level corporate officersTwo unethical practices

Insider trading—in the Enron scandal top corporate officers sold their shares of Enron before the news of the inflated revenues was made publicThe Anderson accounting firm, which audited the books of Enron, also made millions in consulting fees

Community Interests—Some claim relocating production overseas is unethical, even though companies save money

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Ethics and Govt. RegulationEthics and Govt. Regulation

In industries where ethics are much in evidence, sometimes there is less govt. regulation

Industries that will not clean up their acts are inviting govt. regulation

When free rider problems are severe, such as with air pollution, ethics is very unlikely to substitute for govt. regulation

The firms that do not pollute will incur higher costs and their contribution to cleanup is minuscule.

In industries where ethics are much in evidence, sometimes there is less govt. regulation

Industries that will not clean up their acts are inviting govt. regulation

When free rider problems are severe, such as with air pollution, ethics is very unlikely to substitute for govt. regulation

The firms that do not pollute will incur higher costs and their contribution to cleanup is minuscule.

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Business Ethics and Combating FraudBusiness Ethics and Combating Fraud

There are many examples of self-regulation that combats fraud

Individual firms will take measures to combat consumer frustration as long as they receive recognitionTrade associations use collective trademarks to signify quality

Also third parties such as Underwriters Laboratories (UL) license their TMs to firms that meet their quality standards

Licenses are used in a number of industries to weed out fraudulent practitioners

There are many examples of self-regulation that combats fraud

Individual firms will take measures to combat consumer frustration as long as they receive recognitionTrade associations use collective trademarks to signify quality

Also third parties such as Underwriters Laboratories (UL) license their TMs to firms that meet their quality standards

Licenses are used in a number of industries to weed out fraudulent practitioners

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Business Ethics and Govt. RegulationBusiness Ethics and Govt. Regulation

Typically govt. regulation takes two formsFull disclosure requirements—cuts down on fraud, and

SEC, FTC type regulation where agency staff are constantly searching and prosecuting fraud

In many cases, govt. regulation is a factor that harms small business more than large businesses

Typically govt. regulation takes two formsFull disclosure requirements—cuts down on fraud, and

SEC, FTC type regulation where agency staff are constantly searching and prosecuting fraud

In many cases, govt. regulation is a factor that harms small business more than large businesses

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Third WorldThird World

Many actions that are illegal in this country are legal in the Third World

Because minimum wages, worker safety and environmental standards are much lower in the Third World, it often makes economic sense for companies to relocate production thereSome claim it is unethical for a company to relocate for these reasons or that a company should do something in the country to raise wages, working conditions or public infrastructure

Many actions that are illegal in this country are legal in the Third World

Because minimum wages, worker safety and environmental standards are much lower in the Third World, it often makes economic sense for companies to relocate production thereSome claim it is unethical for a company to relocate for these reasons or that a company should do something in the country to raise wages, working conditions or public infrastructure

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Product LiabilityProduct Liability

Are companies always required to make products as safe as possible?

Safer products may cost more and may be priced out of the market

Do consumers have any responsibility to be responsible for their own actions?—to be careful?

Are companies always required to make products as safe as possible?

Safer products may cost more and may be priced out of the market

Do consumers have any responsibility to be responsible for their own actions?—to be careful?

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Internet EthicsInternet EthicsThere are a number of ethical challenges that are unique to the Internet

Among the ethical challenges that arise in cyberspace are:– Acquisition of information from users and customers,

with and without their consent– Acquisition of information from children– Combining online and off-line databases

It seems clear that if web sites do not organize themselves better, more govt. regulation will take place

– P3P seems to be an interesting experiment in self-regulation

There are a number of ethical challenges that are unique to the Internet

Among the ethical challenges that arise in cyberspace are:– Acquisition of information from users and customers,

with and without their consent– Acquisition of information from children– Combining online and off-line databases

It seems clear that if web sites do not organize themselves better, more govt. regulation will take place

– P3P seems to be an interesting experiment in self-regulation

CHAPTER Govt. Regulation of Business and Ethics Govt. Regulation of Business and Ethics 6.

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Transcript of CHAPTER Govt. Regulation of Business and Ethics Govt. Regulation of Business and Ethics 6.