THE LEGAL ENVIRONMENT
OF BUSINESS
A Critical Thinking Approach
Fourth Edition
Nancy K. Kubasek
Bartley A. Brennan
M. Neil Browne
© 2006 Prentice Hall
Ch. 2-1
THE LEGAL ENVIRONMENT OF BUSINESS
CHAPTER 2
Introduction to Law and the Legal
Environment of Business
© 2006 Prentice Hall
Ch 2-2
THE LEGAL ENVIRONMENT OF BUSINESS
Chapter 2 Overview
Definition of the legal environment of business
Definition of law and jurisprudence
Sources of law
Classifications of law
International dimensions of the legal environment
of business
© 2006 Prentice Hall
Ch. 2-3
THE LEGAL ENVIRONMENT OF BUSINESS
Why study the legal environment of law?
It develops critical thinking skills.
It helps to establish legal literacy.
It develops an understanding that the law is
dynamic not static.
It deals with real-world problems.
It is interdisciplinary.
© 2006 Prentice Hall
Ch. 2-4
EXHIBIT
2-1
Top Ten Reasons for Studying the Legal
Environment of Business
1. Becoming aware of the rules of doing business.
2. Familiarizing yourself with the legal limits on business
freedom.
3. Forming an alertness to potential misconduct of
competitors.
4. Appreciating the limits of entrepreneurship.
5. Being able to communicate with your lawyer.
6. Making you a more fully informed citizen.
7. Developing an employment-related skill.
8. Exploring the fascinating complexity of business decisions.
9. Providing a heightened awareness of business ethics.
10. Opening your eyes to the excitement of the law and
business.
© 2006 Prentice Hall
Ch 2-5
THE LEGAL ENVIRONMENT OF BUSINESS
Definition of the Legal Environment of Business
It develops critical thinking skills.
The study of legal reasoning, critical thinking skills, ethical
norms, and schools of ethical thought that interact with the
law.
The study of the legal process and our present legal
system, as well as alternative dispute resolution systems.
The study of the administrative law process and the role of
businesspeople in that process.
The study of selected areas of public and private law,
consumer law, and environmental law.
The examination of the international dimensions of the
legal environment of law.
© 2006 Prentice Hall
Ch. 2-6
THE LEGAL ENVIRONMENT OF BUSINESS
Definition of Law and Jurisprudence
Jurisprudence is the science or philosophy of
law, or law in its most generalized form.
We have been told by:
Plato that law is a form of social control;
Aristotle that it is a rule of conduct, a contract, an ideal of reason;
Cicero that it is the agreement of reason and nature, the
distinction between the just and the unjust;
Aquinas that it is an ordinance of reason for the common good;
Bacon that certainty is the prime necessity of law;
Hobbes that law is the command of the sovereign;
Hegel that it is an unfolding or realizing of the idea of right.
© 2006 Prentice Hall
Ch. 2-7
TABLE
2-1
Schools of Jurisprudence
SCHOOL
SOME CHARACTERISTICS
Natural Law
Source of law is absolute (Nature, God, or Reason).
Positivist
Source of law is the sovereign.
Sociological
Source of law is contemporary community opinion and customs.
American Realist
Source of law is actors in the legal system and scientific analysis
of their actions.
Critical Legal Theory
Source of law is a cluster of legal and nonlegal beliefs that must
be critiqued to bring about social and political change.
Feminist
Jurisprudence reflects a male-dominated executive, legislative,
and judicial system in which women’s perspectives are ignored
and women are victimized.
Law and Economics
Applies classical economic theory and empirical methods to all
areas of law in order to arrive at decisions.
© 2006 Prentice Hall
Ch 2-8
THE LEGAL ENVIRONMENT OF BUSINESS
Natural Law School
For adherents of the natural law school, which has existed
since 300 B.C., law consists of the following concepts:
(1) There exist certain legal values or value judgments
(e.g., a presumption of innocence until guilt is proved);
(2) these values or value judgments are unchanging
because their source is absolute (e.g., Nature, God, or
Reason);
(3) these values or value judgments can be determined by
human reason; and
(4) once determined, they supersede any form of human
law.
© 2006 Prentice Hall
Ch. 2-9
Martin Luther King Jr.
There are just laws and there are unjust laws. I
would be the first to advocate obeying just laws.
One has not only a legal but moral responsibility
to obey just laws. Conversely, one has a moral
responsibility to disobey unjust laws. I would
agree with Saint Augustine that “An unjust law is
no law at all.”
© 2006 Prentice Hall
Ch. 2-10
THE LEGAL ENVIRONMENT OF BUSINESS
Positivist School
Early in the 1800s, followers of positivism developed a
school of thought in opposition to the natural law school.
Its chief tenets are:
(1) Law is the expression of the will of the legislator or
sovereign, which must be followed;
(2) morals are separate from law and should not be
considered in making legal decisions (thus judges
should not take into consideration extralegal factors
such as contemporary community values in
determining what constitutes a violation of law); and
(3) law is a “closed logical system” in which correct legal
decisions are reached solely by logic and the use of
precedents (previous cases decided by the courts).
© 2006 Prentice Hall
Ch. 2-11
THE LEGAL ENVIRONMENT OF BUSINESS
Sociological School
Followers of the sociological school propose three steps in
determining law:
(1) A legislator or a judge should make an inventory of
community interests;
(2) judges and legislators should use this inventory to
familiarize themselves with the community’s
standards and mores; and
(3) they should rule or legislate in conformity with those
standards and mores.
© 2006 Prentice Hall
Ch. 2-12
THE LEGAL ENVIRONMENT OF BUSINESS
American Realist School
The American realist school, though close to the
sociological school in its emphasis on people, focuses on
the actors in the judicial system instead of on the larger
community to determine the meaning of law.
This school sees law as a part of society and a means of
enforcing political and social values. In a book entitled The
Bramble Bush, Karl Llewellyn wrote:
“This doing of something about disputes, this doing it reasonably,
is the business of the law. And the people who have the doing of it
are in charge, whether they be judges, or clerks, or jailers, or
lawyers, they are officials of the law. What these officials do
about disputes is, to my mind, the law itself.”
© 2006 Prentice Hall
Ch. 2-13
THE LEGAL ENVIRONMENT OF BUSINESS
Critical Legal Studies School
A contemporary extension of American legal realism,
critical legal studies seeks to connect what happens in
the legal system to the political-economic context
within which it operates.
Adherents of critical legal jurisprudence believe that
law reflects a cluster of beliefs that convinces human
beings that the hierarchal relations that they live and
work under are natural and must be accommodated.
According to this school, this cluster of beliefs has
been constructed by elitists to rationalize their
dominant power.
© 2006 Prentice Hall
Ch. 2-14
THE LEGAL ENVIRONMENT OF BUSINESS
Feminist School
Most adherents of this school, believing that significant
rights have been denied to women, advocate lobbying
legislatures and litigating in courts for changes in laws
to accommodate women’s views.
They argue that our traditional common law reflects a
male emphasis on individual rights, which at times is at
odds with women’s views that the law should be more
reflective of a “culture of caring.”
To other adherents of this school of jurisprudence, the
law is a means of male oppression.
© 2006 Prentice Hall
Ch. 2-15
TABLE
2-2
Where to Find the Law
Level of
Government
Legislative
Law
Executive
Orders
FEDERAL
• United States Code
(U.S.C.)
• United States Code
Annotated (U.S.C.A.)
• United States Statutes
at Large (Stat.)
• Title 3 of the
Code of Federal
Regulations
• Codification of
Presidential
Proclamations
and Executive
Orders
STATE
LOCAL
© 2006 Prentice Hall
Common
Law/Judicial
Interpretations
Administrative
Regulations
• United States Reports (U.S.)
• Supreme Court Reporter (S.
Ct.)
• Federal Reporter (F., F.2d)
• Federal Supplement (F.
Supp.)
• Federal agency reports (titled
by agency; e.g., F.C.C.
Reports)
• Regional reporters
• State reporters
• Code of Federal
Regulations (C.F.R.)
• Federal Register
(Fed. Reg.)
• State code or state
statutes (e.g., Ohio
Revised Code
Annotated, Baldwin’s)
• Regional reporters
• State reporters
• State administrative
code or state
administrative
regulations
• Municipal ordinances
• Varies; often difficult to find.
Many municipalities do not
publish case decisions but do
preserve them on microfilm.
Interested parties usually
must contact the clerk’s office
at the local courthouse.
• Municipality
administrative
regulations
Ch. 2-16
EXHIBIT
2-2
How a Bill Becomes a Law
Committee Action
Introduction
Introduction
Committee Action
Referred to House
committee
HR 1
Introduced
in House
S2
Introduced
in Senate
Referred to
Senate committee
Referred to
subcommittee
Referred to
subcommittee
Reported by full
committee
Reported by full
committee
Compromise
Version
Rules committee
action
Floor
Action
House debate,
vote on passage
© 2006 Prentice Hall
Rules committee
action
Floor
Conference Action
Action
Senate debate,
vote on passage
Ch. 2-17
THE LEGAL ENVIRONMENT OF BUSINESS
Sources of U.S. Law
The Judicial Branch
The Executive Branch
Treaty Making
Executive Orders
Administrative Agencies
© 2006 Prentice Hall
Ch. 2-18
THE LEGAL ENVIRONMENT OF BUSINESS
Classifications of Law
Statutory Law - made by the legislative branch of
government.
Case Law - results from judicial interpretations of
constitutions and statutes.
Criminal Law - composed of federal and state statutes
prohibiting wrongful conduct ranging from murder to
fraud.
Civil Law - governs litigation between two private parties.
Public Law - deals with the relationship of government to
individual citizens.
Private Law - deals with the enforcement of private duties.
© 2006 Prentice Hall
Ch. 2-19
THE LEGAL ENVIRONMENT OF BUSINESS
Global Dimensions of the Legal Environment
of Business
Variables that have an impact on business
decision making:
Legal
Financial
Economic
Legal
© 2006 Prentice Hall
Ch. 2-20