Introduction to ClassWhat we are covering this semester

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Business Law 612Professor Johnson

Today’s Agenda

Professor Introduction Class Introduction Review of Syllabus

– Seating Chart (hand out) – Groups for Negotiation (8 groups of two)– Snack (see if we want to do a snack rotation)

Review of Topic Coverage Ethics Discussion – Parable of Sadhu

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Class Survey Results – Who Are You?

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Question Yes No

Business Law

5 11

Question Engineering Business Science Liberal Arts/Other

Undergraduate Major

4 2 2 8

Question 1-5 5-10 10+

Years of Experience

5 3 7

Class Survey Results

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Job Titles • Continuous Improvement Manager• MLB Technology • Product Line Manager• Business Analyst/Tenured Professor • Administrative Assistance/Invoicing

Coordinator• Correctional Officer• Inside Sales• Software Engineer • Communications Consultant • Software Engineer• Short-Term Disability Care Manger• Regional HR Manager• Production Supervisor • Sales Operation Analyst

Employers • Medtronic• Twins• Cargill• IHCC/Express Scrips• Avery Pipeline• Ramsey County Sheriff’s Office• Rimage• Physical Electronics• United Health Group• Reed Group• Amazon• Boston Scientific• Thomson Reuters

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Overview of U.S. Laws

Covered in this class

NOT covered directly

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Exhibit 1.6: How Law Protects Workers

Exhibit 1.7: How Law Promotes Consumer Welfare

8Important as a US citizen but comes up less often in business context

Exhibit 1.8: How Law Promotes Public Welfare

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Winning Legally

Research has found a statistically significant between a country’s GDP and:– Judicial independence.– Adequacy of legal recourse.– Police protection of business.– Demanding product standards.– Stringent environmental regulations.– Information technology laws.– Extent of intellectual property protection.– Effectiveness of antitrust laws.

Managers must be “legally astute” to maximize shareholder wealth.

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Divide into four groups: (1) Uber, (2) Solar City, (3) VRBO, (4) Netflix (or Tesla) – find two real or hypothetical examples of laws that would help or hinder these companies. Is the law “ethical?”

Example – Protect Worker Interests - Allow Collusion Among Workers

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Seattle enacted an ordinance that would allow taxi and other drivers who work as independent contractors to form unions. Antitrust issue.

Example – Protect Public Welfare – Direct Competition – Allow for Subsidies to Desired Industry

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Government Subsidies • Carpool Lane = $3,000• Direct Fed Subsidy= $7,500• State = $2,500 CA, $6,000 CO• Zero Emission Vehicles Credit

= $35,000 per vehicle (sold to other car manufacturers)

• CAFÉ Standards (reason for high value of ZEV)

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Lobbying in the EU, p. 12

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EU blocked GE and Honeywell merger – read the review and notice how much of it talks about influencing the decision makers – should influence matter?

“Even though GE had hired Finsbury International Political and Regulatory Advisers to present its position to regulators in individuals nations, GE did not make concerted efforts to influence the outcome until after the competition commission, a branch of the European Commission had released a preliminary draft opinion opposing the combination.” “… but by then the die had been cast.”

A Manger’s Dilemma: JP Morgan and Its Hiring Practices in China, p. 14

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• “Sons and Daughters” hiring program• Hiring children of China’s ruling elite• One bank kept track of its record for

converting hires into business deals• Guanxi is common in China• Foreign Corrupt Practices Act

Ethics

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The Nature Of Business Ethics

Unethical Behavior May Be Legal. Law does not codify all ethical responsibility

Moral Values. Business ethics are created from moral values Law Reflects Society. The law reflects society’s convictions on

what constitutes right or wrong behavior.

Do you agree with attempts to introduce “anti-gouging” laws for

gas stations?

Examples Ethical UnethicalLegal OK Price Gouging

Illegal “Blue” Laws Deceptive Advertising

16Milton Friedman – On “greed”

Should law punish all unethical behavior? Why? Why Not?

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Sources of Ethical Standards Duty-based focuses on the motivation and principle behind an action rather than on the consequences. Ethics(Deontological theory) :

– Ends never justify means– Ethics based on religious beliefs and

philosophical reasoning, such as that of Immanuel Kant.

– What if everyone acted that way – categorical imperative

– Example: Ten Commandments– Rawlsian Moral Theory. Aims to

maximize the plight of the worst-off person.

Outcome-based the ethical good of an action is to be judged by the effect of the action on others. ethics (Teleological theory) :

–Concerned with consequences–Ethics based on philosophical reasoning, such as that of John Stuart Mill.

– Example: utilitarianism Cost/Benefit

Hypothetical?Do you make citizens get an immunization if you know you will save 100,000 people, but 100 will die from the vaccine? Duty-Based Ethical Standard v. Outcome-Based Ethical Standard?

Fiduciary Duty and EthicsNortheast General Corp. v. Wellington p. 37

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• Broker Contract to Sell Business – 3% Commission.

• Seller Comment to Broker – “terrified of a bad merger”

• Sternau As “Bad” Buyer. Northeast forwarded Sternau as buyer for Wellington – Northeast knew Sternau had a reputation for buying companies, removing assets and leaving minority shareholders unprotected.

• Buyer = “Bad” & Reduced Value for Sellers. Sternau bought company and did cause minority shareholders to lose power/money.

• Seller Refuses to Pay 3% Commission.

2016 Rule: Should financial advisors be fiduciaries? New fiduciary standard for financial advisors of retirement accounts – DOL

Ethical Giving – Tax deduction, name on building, giving for elite, giving to one person’s direction, changing moral standards regarding the giver, giving to change reputation…

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Ethical to Give to Improve Your Reputation? • Rhodes Scholar – “symbol of colonizer”• Nobel – “The merchant of death is dead” read his obituary while

he was still alive to read it – the paper confused him with his brother

• Gates Foundation – Future problems ? Profits made through monopoly?

Ethical to Give Tax Break?

• Knight Foundation - $400 million tax break

• Inheritance – 40% or $160,000,000 paid in tax.

• Capital Gains – 20% or $80,000,000 paid in tax.

• Government Could Collect Both.

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Is it ethical for a business to donate a percentage of profits to charity? (e.g.Target donates 5% to charity)

Does it matter why? To make company look good versus actually helping?

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One day of coffee sales to pay for poor kids summer camp

“social responsibility is a way for a company to differentiate itself from its competition

Socially Responsible Investment

Company called “Ethos” formed 4 years ago to help companies develop social responsibility claims

End-of-Chapter Q2.5: Competitive Research Question, P. 44

Calling competing businesses for a study Ok to not inform that you work for a

competitor? What about not saying anything?

23HP – Pre-texting Case• Patricia Dunn – Chairman of the Board

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Mission statements.Codes of ethics and training.Oversight committees.Make it easier to blow the whistle.

Promoting Ethical Behavior

Business Leaders Definition of Ethics

• Golden Rule – JC Penny

• “Good leadership means doing the right thing when no one is watching.” Carly Fiorina, Former CEO Hewlett-Packard

• Assume decision you make ends up on the front page of local newspaper, CEO of Scandinavian company

SCSU Employee Code of Ethics• Cell Phone Use• Gifts• Nepotism • Influence staff/students• Frequent Flyer Miles• Use of SCSU name• Can’t sell textbooks

Parable of Sadhu

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Ethical Takeaways

Stress Objective/Goal Time sensitivity Group Dynamics – Poor Role

Models Not Unique – Can Pass Off

Obligation Results Uncertain (Lost Cause) Justification to Get Out Critical Juncture

Potter BoxFacts/Situation/Definition

Loyalties

Values/World View

Mode of Ethical Reasoning – Principles

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Personal Moral Risk Factors

1. Gather facts2. Identify values. What do you

value? What is the law/do you value the law? What perspective are you coming from? Other values?

3. Duty based/outcome based…4. Who should you be loyal to? Law?

Parties?

Discuss all of this to reach decision - use to support decision

Stakeholders to Consider in Corporate Social Responsibility

Corporations are perceived to hold duties to the following groups, duties that often come into conflict:

Shareholders

Employees

Consumers

Community

Society

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Duty to Consumers/Society

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Anheuser-Busch accused of unethical behavior this fall for selling college football themed beer cans.

Is this ethical?Legal? What would you do?

Duty to Consumers: Selling Off-Label Uses for Drugs

Pfizer and Off-Label Drug Aspirin – doctors began prescribing to lower risk of heart attach in 60s

and 70s – not until 1998 did the FDA approve it – thousands of lives saved/prolonged.

Beta-Blockers approved for high blood pressure in the 80s some studies and doctors thought it would work against angina and heart attack – the doctors were right. Large studies proved this but it took years to get the FDA to approve.

73% of off-label prescriptions were for a use that lacked any scientific evidence.

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Duty to Employees

Employers have numerous legal duties to employees, including providing employees with a safe workplace and refraining from discriminating against employees on the basis of race, color, national origin, gender, religion, age, or disability.

These duties often come into conflict. Many believe that employers hold ethical duties to their employees that

go beyond those prescribed by law.

UAS v. Johnson Controls• Battery Division• Lead Exposure

• No Women of Child Bearing Age

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Because the shareholders are the owners of the corporation, directors and officers have a duty to act in the shareholders’ interest (maximize profits).

Duty to Shareholders

End-of-Chapter Question 2.5 p. 44. First Year Associate. Ginny is a first-year associate with McBain Consulting. Competitive Research Project. Her boss asks her to call competitors of a major client to

learn competitive data. She is asked to connect with low-level employees. Keep Client Name Confidential. Her boss asks her not to introduce her clients name, but

instead just to use the McBain name and that she is doing an analysis of the shipping industry.

Information Not Released if Client’s Name Known. Executives in the competitive companies would not talk to he at all if they knew she was hired by a competitor to do competitive research.

Can she make the calls?

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End-of-Chapter Question 2.6 p. 44.

Wu Attended Trade Show. Indra Wu attended a trade show representing her company and the trip was paid for by the company.

Won $12,000 TV . She won a $12,000 TV in a vendor drawing. What should she do?

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Non-Legal Risks to Unethical Behavior

#1: increased risk of doing business and the possibility of bankruptcy and severely damaged company brand and image.

#2: decreased productivity.

#3: increased misconduct and conflict internally.

#4: decreased performance levels of employees.

#5: increased employee turnover and more challenging employee recruitment.

#6: decreased productivity.

#7: increased absenteeism and “presenteeism.”.

#8: decreased probability of reporting misconduct and unethical behavior of others.

#9: increased dysfunctional behaviors such as not paying attention to details, scapegoating, withholding information, under delivering & over promising, not giving credit to others, lowering goals, misrepresenting results, etc.

#10: decreased value of the company. “Ten Most Significant Risks and Costs of Unethical Behavior in Business, According To Your Strategic Thinking Business Coach”By: J. Glenn Ebersole, Jr., Chief Executive of J. G. Ebersole Associates and The Renaissance Group ™

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Ethics Video – Fake Firm Wormwood Bayne

Ethical Question Re: Working with Other CulturesAssume you are the executive of an international company, Widgets International. After a lot of work, you finally received approval to give a sales presentation before a buying committee of a Saudi Arabian based company, Arabia, Inc. If successful this opportunity will increase your overall sales by 20% (a very much needed 20% given that your other sales are slipping in an overall poor economy).

You explain to your contact at Arabia that Amanda Smith, your Vice President of Marketing, will give the presentation. The contact immediately tells you that the key members of the committee do not welcome women in business leadership roles and bringing Amanda will reflect badly on your company. Although you do have others you could send, you know that Amanda is the best person you have for the presentation, she is the person with the job title to give it and that she will question the ethics of sending a man to do her job.

Fortunately, your company developed a code of ethics for you to turn to in these situations. The policy is on the next slide35

In groups, take a few minutes and work on answerHAND OUT GRADING RUBRIC – EXPLAIN ASSESSMENT

1. Striving for Products and Services of the Best QualityWe will strive to provide our customers with satisfying products and services of the highest quality.

2. Respect for Relationship with StakeholdersWe will respect our relationships with our stakeholders, including shareholders, investors, customers, consumers, vendors, suppliers, local communities and employees, and will strive to maintain relationships that are both appropriate and friendly.

3. Fair, Transparent and Free CompetitionWe will engage in fair, transparent and free competition in the market and will maintain sound and appropriate business relationships with our competitors.

4. Respect for Dignity of IndividualsIn all of our business activities, we will respect human rights, dignity and individuality. We will respect the dignity and individuality of our employees and strive to provide a safe and worker-friendly environment for them.

5. Disclosure of Information and Proper Handling of Confidential and Personal Information We will disclose information regarding our business activities and management that is genuinely required by society in a timely and appropriate fashion. At the same time, we will exercise due care in the acquisition, use and disclosure of important proprietary information, trade secrets, personal information and customer information.

6. International Cooperation and Respect for Different CulturesAs our business activities become increasingly international, we will respect the integrity of the cultures and customs of the countries where we engage in business activities and comply with applicable laws and regulations.

7. Positive Approach to Safety and Environmental MattersBased upon our understanding that addressing safety and environmental issues is critical to our corporate existence and activities, we will make safety our goal and strive actively to protect the environment.

8. Respect and Stress on Social JusticeAs good corporate citizens, we will comply with laws and regulations and demonstrate our commitment to social justice by taking action against anti-social behavior and organizations acting against the public interest.

9. Penetration and Full Execution of this Policy Based upon our understanding that realization of the goals described in this Policy is essential to the management, existence and prosperity of the MRC group companies, our top management will take the initiative in establishing internal organizations that will have responsibility for the execution of the Policy and will keep people throughout the MRC group informed regarding the Policy. 36

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Ethical Question Cont. – Core Values Statement

Respect for Relationship with StakeholdersWe will respect our relationships with our stakeholders, including shareholders, investors, customers, consumers, vendors, suppliers, local communities and employees, and will strive to maintain relationships that are both appropriate and friendly.

Respect for Dignity of IndividualsIn all of our business activities, we will respect human rights, dignity and individuality. We will respect the dignity and individuality of our employees and strive to provide a safe and worker-friendly environment for them.

International Cooperation and Respect for Different CulturesAs our business activities become increasingly international, we will respect the integrity of the cultures and customs of the countries where we engage in business activities and comply with applicable laws and regulations.

Respect and Stress on Social JusticeAs good corporate citizens, we will comply with laws and regulations and demonstrate our commitment to social justice by taking action against anti-social behavior and organizations acting against the public interest.

Diversity. We value diversity. We will not tolerate harassment or discrimination of any kind especially involving race, ethnicity, religion, color, sex, national origin, age, U.S. military veterans status, ancestry, sexual orientation, gender identity or expression, marital status, family structure, or disability.

 Identify the ethical issues, identify alternative solutions, and select your approach to this situation.

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Ethical Decision Making FrameworkGrading Rubric for Ethics Question

TRAIT Unacceptable Acceptable Exemplary ScoreIdentifies Dilemma Has a vague idea of what the

dilemma is and is uncertain what must be decided

Identifies the dilemma, including pertinent facts, and ascertains what must be decided

Describes the dilemma in detail having gathered pertinent facts. Ascertains exactly what must be decided

Considers Personal Values Unable to identify personal values Identifies personal vales Articulates relevant personal values and evaluates how they influence the decision making

Considers Corporate Values and Stakeholders

Names the corporate values. Name stakeholders.

Identifies the relevant values. Determines who should be involved in the decision making process and accurately identifies all the stakeholders

Articulates the relevant corporate values, compares personal values to corporate values, and assesses how the values influence the decision making. Determines who should be involved in the decision making process and thoroughly reflects on the viewpoints of the stakeholders

Analyzes Alternatives and Consequences

Begins to appraise the relevant facts and assumptions and identifies some alternatives.

Clarifies at least two alternatives and predicts their associated consequences in detail.

Clarifies a number of alternatives and evaluates each on the basis of the values and whether or not there is interest and concern over the welfare of all stakeholders

Chooses an Action Has difficulty identifying and appropriate course of action from among alternatives

Formulates an implementation plan that delineates the execution of the decision

Formulates an implementation plan that delineates the execution of the decision and that evidences a thoughtful reflection on the benefits and risks of action

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Group DebateA Manager’s Dilemma p. 41: (1) take advantage of tax savings v. (2) unethical to take advantage of tax savings.

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End-of-Chapter Q: 2.7

“Friending” of employees to access more data on employee.

Asking job interviewees to open pages during interviews.

Ok to act based on information found? Ok to record a performance review –

secretly.

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