Introduction to Class
What we are covering this semester
Business Law 636
Professor Johnson
1
Today’s Agenda



Professor Introduction
Class Introduction
Review of Syllabus
–
–
–
–



2
Paper (topic/assignment/partner)
Groups
Snack
Seating Chart
Review of Topic Coverage
Ethics Quiz
Ethics Discussion
Student Majors


4 Engineers
22% of class

3



Accounting (3)
Business Project
Management
Chemical Engineering
Engineering
Mechanical
Engineering (2)
Finance (1 ½)
(17% of class)
Class Breakdown
Business Majors = 2/3 of class
Non-Business Majors = 1/3 of class






Information Services
International
Management
Management
Marketing (4)
Mathematics
Music/Political
Science
(22% of class)
Class Demographics
Business Experience
2
Yes
Business
Experienced
88%
16
No
Law Course
No Law
Course
8
(44%)
4
No
Law
Yes
Law
Course
Law
Course
10
Students
(66%)
Yes
No
Overview of U.S. Laws
Covered
in this
class
NOT
covered
directly but
Important
for MBAs
5
A lot of interest in “Employment” Law for paper.
1.5 Law Protects Workers
6
Important as a US citizen but comes up less often in business context
8
Antitrust – Quick Review
•Monopolization (attempt to or abuse of)
•Combinations in Restraint of Trade
Case 1.1 Image Technical Services v. Eastman Kodak, p7
•Kodak stopped selling patented parts to independent service organizations that
serviced Kodak machines
•ISOs sued under Sherman Act as Anticompetitive
•Kodak held to be a monopoly but also to have a patent(s) on its products
•Case illustrates pull of law between intellectual property rights and antitrust
laws (Can a patent holder refuse to license patent?) Yes, but not in this case because
of reasoning -
9
Global View p. 13– EU blocked GE and Honeywell merger – read the review on
page 13 and notice how much of it talks about influencing the decision makers –
should influence matter? SHOW CHART ON GOOGLE/MICROSOFT
9
SPENDING
Recent Examples
• AT&T & Tmobile
•Google and Motorola Mobility
Antitrust – Quick Review
•Monopolization (attempt to or abuse of)
•Combinations in Restraint of Trade
Update on Patent Law
NTP v. RIM (2005)
•Patent for push email technology
•Settled for $600 million
•3 million users shut down
10
eBay v. MercExchange (2006)
Antitrust – Quick Review
•Monopolization (attempt to or abuse of)
•Combinations in Restraint of Trade
Lobbying Expenses 2011
•Tmobile increased lobbying
30%
•ATT spent $4.85 million in
second quarter ($6.94 million
in first quarter)
•Facebook increased from
$90k to $320K.
Now $2
million per
quarter
Mircosoft
Antitrust – Quick Review of Current Case with Important
Implications
Leegin Creative Leather Products, Inc. v. PSKS, U.S.
Supreme Court (2007)
–
–
–
Leegin produced women’s fashion accessories and sold to
Kay’s Kloset.
Kay’s Kloset refused to sell at price suggested.
Leegin stopped selling to Kay’s Kloset. Kay’s Kloset sued and
won $33.6 million in lower court based on a per se violation of
antitrust law.
Leegin Wallet Belt
Take Quiz #1
Ethics
13
In groups, take a few minutes and work on answer
HAND OUT GRADING RUBRIC – EXPLAIN ASSESSMENT
Ethical Question Re: Working with
Other Cultures
Assume 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.
14
Fortunately, your company developed a code of ethics for you to turn to in these
situations. The policy is on the next slide
Ethical Question Cont.
– Core Values Statement





Respect for Relationship with Stakeholders
We 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 Individuals
In 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 Cultures
As 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 Justice
As 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.
15
Ethical Decision Making Framework
Grading Rubric for Ethics Question
16
TRAIT
Identifies Dilemma
Unacceptable
Has a vague idea of what the
dilemma is and is uncertain what
must be decided
Acceptable
Identifies the dilemma,
including pertinent facts, and
ascertains what must be
decided
Exemplary
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
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.
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
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
Score
Do you send Amanda?
17
Stakeholders to Consider in
Corporate Social Responsibility
Corporations are perceived to hold duties to the
following groups, duties that often come into conflict:
Shareholders
Consumers
Employees
Community
Society
18
– Related Case in Book
Northeast General Corp v. Wellington Advertising, p. 49 – Fiduciary Duty?
•Northeast entered into a contract to present buyers for Wellington
•If Northeast referred someone who bought company – Wellington to pay 3%
•Wellington Owner told Northeast owner he was terrified of a bad merger
•Northeast forwarded Sternau as buyer for Wellington – Northeast knew Sternau had a reputation for
buying companies, removing assets and leaving minority shareholders unprotected.
•Sternau bought company and did cause minority shareholders to lose power/money.
•Wellington refuses to pay Northeast
•
19
•
Wall Street Reform and Consumer Protection Act of 2010
Imposes fiduciary duty on securities brokers that give investment advice (well it
gives the SEC the power to do this).
prohibits brokers from selling mortgages consumers cannot repay
The Nature Of
Business Ethics



SCSU Employee Code of Ethics
• Cell Phone Use
• Gifts
• Nepotism
• Influence staff/students
• Frequent Flyer Miles
• Use of SCSU name
• Can’t sell textbooks
Discussion of values, policy, law….
Law does not codify all ethical responsibility
Business ethics are created from moral
values
The law reflects society’s convictions on what
constitutes right or wrong behavior.
Milton Friedman – On “greed”
20
Ethics in the
Global Context



P52 – When Ethics Travel
P16 – “Guanxi: Networking or
Bribery?
The Foreign Corrupt Practices
Act of 1977 (FCPA), prohibits
the bribery of foreign officials
Aug 16, 2010 National Law Journal
Two Hollywood producers paid $1.8 million
in bribes to secure a $13.5 million contract
for the Bangkok International Film Festival.
They got 6 months in prison and 6 months
home suspension (prosecution wanted 10
years – even though one defendant was 78
years old with health problems). Plus
$250,000 in restitution.
Michael Douglas, Actor
through such side payments.
Jail
Jail
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.
22
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. OutcomeBased Ethical Standard?
Sources of Ethical Standards
Duty-based
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
Individual Rights Theory
Natural Law Theory
Outcome-based
ethics (Teleological theory) :

–Concerned
with consequences
–Ethics based on philosophical
reasoning, such as that of John
Stuart Mill.
– Example: utilitarianism
Cost/Benefit
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?
24
The Nature Of Business Ethics



25
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.
Examples
Ethical
Unethical
Legal
Illegal
OK
Price Gouging
“Blue” Laws
Deceptive Advertising
Do you agree with
attempts to introduce
“anti-gouging” laws for
gas stations?
Relationship Between Law &
Ethics

The law does not, and cannot, address all
unethical conduct.
–
CASE 2.1 Bammert v. Don’s Super Valu, Inc.
(2002). Wisconsin Supreme Court declined to
expand employment-at-will doctrine.

Should law
punish all
unethical
behavior? Why?
Why Not?
Why not protect
police officers?


Super Value Employee with Police Officer Husband. Karen
Bammert worked at Super Value in Menomonie WI
Wife of Super Value Owner Caught Drunk Driving.
Bammert’s husband worked as a police office administered a
breathalyzer test to Nora Williams, wife of Don William’s, the
owner of Don’s Super Valu. She failed.
Fired as Result. Super Value fired Karen as a result
26
Relationship Between Law &
Ethics Continued
(1)
Judge/Jury Ethics May Influence
Decision.
(2) Law Reflects Ethics. The law reflects
society’s consensus about appropriate
behavior.
27
Case Problem 5: Competitive
Research Question, P. 57



28
Calling competing businesses for a study
Ok to not inform that you work for a
competitor?
What about not saying anything?
HP – Pre-texting Case
•Patricia Dunn – Chairman of the Board
skip
Obstacles To Ethical Business
Behavior
The corporate structure:
 Collective decision making
tends to deter individual ethical
assertiveness.
 The corporate structure tends to
shield corporate actors from
personal responsibility and
accountability.


Management:
Uncertainty on the part of
employees as to what kind of
behavior is expected of them
makes it difficult for them to
behave ethically.
Unethical conduct by management
shows employees that ethical
behavior is not a priority.
skip
Except
Ethical Tone Set at the Top


CEO sets ethical tone.
The “Imperial” CEO.
–
–
–
–

–
p. 31 in book
•Golden Rule – JC Penny
•“Good leadership means doing the right
thing when no one is watching.” Carly
Fiorina, Former CEO Hewlett-Packard
More Recent Examples
–

Dennis Kozlowski.
Rigas Family.
Jacob Alexander.
Conrad Black.
Business Leaders Definition of Ethics
•Assume decision you make ends up on
the front page of local newspaper, CEO of
Scandinavian company
Tom Petters
Bernard Madoff
80% of businesses have value statements
30
skip
Promoting Ethical Behavior
Mission statements.
 Codes of ethics and training.
 Oversight committees.
 Make it easier to blow the whistle.

31
skip
1. Striving for Products and Services of the Best Quality
We will strive to provide our customers with satisfying products and services of the highest quality.
2. Respect for Relationship with Stakeholders
We 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 Competition
We 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 Individuals
In 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 Cultures
As 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 Matters
Based 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 Justice
As 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.
32
skip
33
Ethics Question
Anheuser-Busch accused of unethical behavior this
fall for selling college football themed beer cans.
Is this ethical?
Legal?
What would you do?
34
Stakeholders to Consider in
Corporate Social Responsibility
Corporations are perceived to hold duties to the
following groups, duties that often come into conflict:
Shareholders
Consumers
Employees
Community
Society
35
skip
Talk about in group
Selling Off-Label Uses for Drugs




36
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.
skip
Sell Drug Overseas?
37
skip
Duty to Consumers
– Product Safety

Bridgestone/Firestone, Ford and Tire Failures.
–
–
–

Ford Explorer
6.5 million tires replaced – in 2000 and 2001
Firestone knew in 1996 that 10% of its tires had tread separation defects
General Motors and Malibu.
Ruptured fuel tanks – ordered to pay $4.8 billion in punitive damages
– Could have reduced risk by spending $8.59 per car
– Calculated death at $200,000 per death and that would cost $2.40 per
car.
A Manager’s Dilemma (handled differently than the above situations)
•350 people died on crash of Euro-Air airplane
•Check for $150,000 each to avoid lengthy waits for families in need of money. –
some recommended waiting because it would cost less
38
•Pay Americans more than other nationalities?
–
skip
Duty to Consumers and Society
Advertising

Marketing Tobacco and Beer to Children.
–
Joe Camel – stopped in US but continued in other countries
39
skip
Duty to Consumers




Legal Duty. Corporate directors and officers have a legal duty
to the users of their products.
Ethical Duty. Most feel that corporations also have an ethical
duty that goes beyond what the law requires.
Conflict with Personal Responsibility. Controversy exists
over the point at which corporate responsibility for consumer
safety ends and consumer responsibility begins.
Consumer Protection Law Generally. QUICK overview of
consumer protection law
– Can you name some?
skip
Duty to the Community/Society



Most people believe a corporation has a duty
to the community in which it operates.
The corporation should consider the needs of
the community when making decisions that
substantially affect the welfare of the
community.
Environment – Mercury example
Case Problem 7 – p. 57 – Conflict of Interest




42
Georgia-Pacific paper company was a
member in Business for Affordable Medicine
(BAM).
Eli-Lilly, & Co., a good customer of GeorgiaPacific pressued Georgia-Pacific to withdraw
from BAM.
Should Georgia-Pacific withdraw?
Is it ethical for Eli-Lilly to ask for this?
Question 4 (and 3) p. 57. Re: Free football tickets
Duty to Employees and Investors





Sweatshops and Child Labor.
Child Labor at Wal-Mart.
Jobs and Pensions: Enron.
Discrimination: Texaco, Coca-Cola.
Investors: Managed Earnings.
–
–
Rite-Aid: cover up of financials.
Strong Financial: rapid trading.
43
skip
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
skip
Duty to Communities


Union Carbide and Bhopal. In Dec. 1984,
forty tons of methyl isocyanate gas was
emitted from the plant outside Bhopal, India.
At least 200,000 victims from death or illness.
Doing business with Repressive Regimes –
Myanmar –Total is one of the companies so
is Chevron.
45
skip
Duty to Shareholders

Because the shareholders are the owners of
the corporation, directors and officers have a
duty to act in the shareholders’ interest
(maximize profits).
46
skip
Case Problem 6: Win prize at
Trade Show, P. 57


47
Indra Wu attended a trade show at company
expense and won a $12,000 TV.
What should she do?
skip
Socially Responsible
Investment
Company called
“Ethos” formed 4
years ago to help
companies
develop social
responsibility
claims
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
48
skip
Ethics Video – Fake Firm
Wormwood Bayne
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.
49
#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 ™