The Political and Legal Environment of Business (LAW 750)
Fall 2012
Prof. Kevin Stack
Prof. Alan E. Wiseman
MW: 3:25-4:40 PM
Law School MOR
Office (Stack): 250 Law
Office Hours: Tuesday, 2-3:30
Phone: (615) 343-9220
Email: kevin.stack@vanderbilt.Law.edu
Office (Wiseman): 336 Commons Center
Office Hours: Wednesday, 9:30-10:30 AM
Phone: (615) 322-6242
Email: alan.wiseman@vanderbilt.edu
Course Overview
For many businesses, non-market forces are as significant as market factors: the interaction
between government institutions, elected officials, policy-oriented activists and NGOs shape the
legal environment for firms in ways that have direct implications for their bottom line. Lawyers
are frequently involved in developing and implementing strategies in the non-market
environment to advocate and realize the interests their clients. This class introduces a set of
analytic tools that rest upon a foundation of economic principles, political analysis, social
psychology and risk management to help students identify patterns of behavior and outcomes in
the non-market environment, methods of analysis that facilitate understanding and prediction,
and, ultimately, the shaping of strategies to improve the non-market environment for clients.
The class is conducted on a lecture and case discussion basis. A typical class section will contain
a short lecture that addresses a theoretical approach or conceptual tool and provides a setting for
the material being discussed. The class session will also involve discussion of cases that serve as
vehicles for application of the material. These cases involve issues of how the private sector
(e.g., firms, activist groups, etc.) interact with nonmarket forces such as the media, public
interest groups, regulatory agencies, etc. For a number of the class sessions, a group of students
will present the case details along with their own analyses. This will help the students better
understand the viewpoints of the leaders in the public and private sectors.
Broadly speaking, the environment of business is composed of related market and nonmarket
components. The nonmarket environment is characterized by the social, political, and legal
arrangements that structure interactions outside of—but in conjunction with—markets. This
course will focus on nonmarket factors that, like markets, have important consequences for the
performance of companies, organized under the following general topics:
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1.
Nonmarket Issues and Strategy
2.
Nonmarket Strategy in Governmental Arenas
3.
Government and Markets
4.
Politics of the Private Sector Worldwide
5.
Ethics and nonmarket strategy
Readings
The course uses Business and its Environment (Seventh Edition, Prentice-Hall, 2013) by David
P. Baron as its principal text. The book was written specifically for the case study approach
taken by this class, and has been adopted in business schools, public policy schools, and law
schools, as well as in various undergraduate curricula-. It is broad in its outlook and in the range
of topics covered; and it is structured around a flexible but consistent framework. Several
handouts will also be delivered throughout the quarter and posted on OAK.
Course Requirements and Grading
Students are expected to master the content of the readings, to make constructive contributions to
class discussions, to make occasional presentations, and to perform adequately or better on
examinations and class projects. Grades in the course will be based on three components: (1) a
midterm in-class examination which will count for 40% in the determination of your grade; (2) a
final group case analysis which will count for 30%, (3) group presentations and simulations
which will count for 20%; and (4) class attendance and participation, which will count for 10%.
We will also distribute a peer evaluation survey at the end of the class which gives students an
opportunity to convey their own assessments of the work of members of their groups.
MIDTERM EXAM: The midterm will be an individual, in-class, “open book” exam
consisting of short questions that will cover the assigned readings, cases, and lecture material for
all classes prior to the midterm.
FINAL GROUP PROJECT: For the final case analysis you are to assume the role of a
consultant who is hired to develop an integrated strategy for his or her client. You are free to
choose any case you like. Cases may be based on your current or past work environment, or you
may simply use newspapers and other public sources. However, any case you choose must have
a strong non-market component and needs to be analyzed from the point of view of a particular
firm (just as we did in class). If, for example, you want to analyze antitrust concerns in the
software industry your paper should develop a strategy for, say, Microsoft in its confrontation
with the Department of Justice.
The final case analysis will be a group paper. The length of your paper should be at most 25
pages (double-spaced; 12 point font; standard margins – at least one inch on all sides). A title
page, exhibits, graphs or references do not count towards the page requirement. However, we
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strongly encourage you to restrict these to the necessary minimum. Your work will be evaluated
based on the analysis in the main body of the paper. You are encouraged to discuss possible
paper topics with Professors Stack and/or Wiseman well in advance. However, your paper must
be handed in on Monday, November 12 at the beginning of class and an electronic copy
emailed to Professors Stack and Wiseman. Each group will present a 10-minute overview of its
case to the class in the final class sessions, which will serve as the foundation for group
discussion and analysis.
One possible structure for a paper would start with a concise statement of the challenge facing
the firm, your client. You then should briefly analyze the particular problem. In your analysis
you main emphasis should be on the nonmarket aspect of the case, paying particular attention to
the specific legal constraints (if any) that your firm faces. You may then discuss a few strategic
options and recommend your preferred option to your client. Alternatively, you can discuss and
critique the strategy chosen by some business based on your analysis. Whatever structure you
choose, your paper must include a sound analysis of a nonmarket environment and a clear
recommendation for your client. A successful group paper should be usable as a possible future
case for this class.
GROUP WORK: Group assignments are an integral part of class discussion. We encourage you
to meet with your study group on a regular basis, but you are not required to do so. However, we
will ask you to prepare group presentations for many of our sessions. For those sessions, each
group is required to analyze the case and develop an integrated strategy for the respective
business, usually from the point of view of a manager or consultant, and be prepared to present
their case to the class. At the outset of the class, Professor Stack and/or Wiseman will randomly
choose one group to present and defend their analysis. The presenting group will be responsible
for all aspects of the presentation, including keeping time, handling questions, etc. All other
students are expected to take the role of clients, directors, or partners (depending on the
governance structure of the firm and the detail of the assignment). Group assignments are inclass simulations of real world tasks. It is thus important that you take the role-playing aspect
seriously. You may use powerpoint or other media. Before each class (by 9:00 AM the day of
class), each group is to email in a one-page executive summary of its analysis and strategy (1.5
spaced; standard margins; no title page) to both Professors Stack and Wiseman, as a Word
attachment. The one-page limit will be strictly enforced. Grading will be based on the executive
summary. Do not hand in copies of transparencies or power point presentations unless explicitly
instructed to in the syllabus.
PARTICIPATION, ATTENDANCE, and LAPTOP POLICY: Attendance, preparation, and
participation are essential for this class to be value-adding. If you have to miss class, please let
us know in advance. Much of the learning in this course comes from class discussion of cases or
homework assignments. Learning opportunities are maximized when a student is actively
engaged in the class discussion. Active engagement means that you are listening carefully to the
comments of other students and seeking opportunities to make relevant comments that move the
class discussion forward. To minimize distractions in class, laptop use will not be permitted in
the classroom (this is mostly a product of student demand).
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Since case discussion constitutes most of class time, there is ample opportunity for you to
participate. Do not be discouraged if, after the first couple of classes, you have yet to participate.
To increase opportunities for effective participation, we may cold call a student or a study group
to open the class discussion. We may also occasionally cold call students during the course of a
discussion. If you feel that you are preparing well but that we are not calling on you sufficiently
often, please let us know so that we can address the problem.
No late work will be accepted unless previously arranged with Professors Stack and Wiseman.
Such arrangements require well-substantiated and sound reasons, and will result in progressively
lowered grades depending on how late the work is finally produced.
Academic Honesty: We expect all of the work you do in this course to be your own. We will
tolerate absolutely no cheating or plagiarism (using someone else’s words or ideas without
proper citation). We will report any cases of cheating or plagiarism to the Vanderbilt University
Honor Council and the Associate Dean for Academic Affairs.
Course Outline
Part I. Nonmarket Issues and Strategy
1. Mon. Aug. 20: INTRODUCTION TO THE COURSE
The reading for this session illustrates the types of issues to be considered in the course and
presents approaches for organizing your analysis of the non-market environment. Future
sessions will examine these components in more detail with an increasing emphasis on the
development of analytic concepts and the formulation of non-market strategies. These
concepts will be discussed in the context of the Consumer Financial case.
Reading:
Case:
Chapter 1 (1-16)
Consumer Financial (On OAK)
Assignment:
It is December 10, 2002. You are the engagement team of the consulting company NonMarket Strategy, Inc., the leader in non-market strategy consulting. Your client is Consumer
Financial Services, the nation's largest independent mortgage lender. You need to familiarize
yourself thoroughly with the documents provided by the client. During class you will have
your first meeting as a team. (Groupings for this exercise can be informal and needn’t be
your group for the semester.) Your senior partner is expecting a report on how to address
Consumer Financial’s challenges as she needs to meet with client later that day. Your task is
to develop a 5-10 minute presentation that your partner can then present to the client.
Professors Stack and Wiseman will select one group randomly to present their analysis. The
rest of the class will assume the role of senior partner.
2. Wed. Aug 22: INTRODUCTION TO THE NONMARKET ENVIRONMENT (CONT.)
We will continue our discussion of the Consumer Financial case. We will also discuss
organizational issues and logistics.
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After class, you need to form study groups of 5 members. Please send your list of group
members to Professors Stack and Wiseman by Thursday, August 23 (5pm).
3. Mon. Aug 27: THE EMERGENCE OF ISSUES
The focus of this session is the impact of the media on private sector constituencies.
Nonmarket environments not only are complex but also involve people with quite different
interests and reasoning about issues. The case discussed during this session provides specific
managerial issues in which the media and public opinion played a part. To prepare for
discussion of the case in this session, consider how you would act if you were involved in the
management of General Motors.
Reading:
Cases:
Chapter 2 (30-38, 43-47) and Chapter 3 (52-58)
General Motors: Like a Rock (A) (69-71)
4. Wed. Aug. 29: PRIVATE NONMARKET ACTION
This session examines the interactions among different entities in the private sector, such as
between firms and activist groups. The case is not intended to be representative of typical
activist involvement, nor is it intended to show how companies should manage their
encounters with these groups generally. Rather, the session raises questions about how
leaders might anticipate the actions and effects of political activists. To prepare for
discussion of this case, think of yourself first in the role of Greenpeace activists and then in
the role of the management of Shell.
Reading:
Case:
Chapter 4 (74-91)
Shell, Greenpeace, and Brent Spar (92-95)
Part II. Nonmarket Strategy and Government Institutions
5. Mon. Sep. 3: MOBILIZATION OF INTERESTS
This session and the next introduce frameworks for political analysis based on
microeconomic principles. The frameworks provide ways to think about the role of interest
groups in forming coalitions and dealing with nonmarket issues. Additionally, these tools
will aid in understanding the results of actions taken by legislative decision-makers. The
frameworks are intended to help form educated expectations about political activity. They
provide a foundation for strategy formation, which will be the focus of future sessions. Be
prepared to discuss the Repeal of the Luxury Tax case.
Reading:
Cases:
Assignment:
Chapter 6 (132-140)
Repeal of the Luxury Tax (160-161)
Tobacco Politics (157-158)
Each group turns in a summary of their project idea. The summary should
include a one-page description of the business-government issue being
confronted, along with a concise list of the 4Is.
6. Wed. Sep. 5: INTEREST GROUP ANALYSIS
This session continues the exploration of political analyses of nonmarket actions. One of the
frameworks introduced in this session is the Distributive Politics Spreadsheet (DPS). This
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tool helps analysts think about the possible ways to bring together (or break apart) coalitions
in the political arena. Although difficult to master at first, this framework will become more
intuitive and useful with practice. Students should pay close attention to the Boeing case and
should formulate their own DPS for the Internet Taxation case.
Reading:
Case:
Assignment:
Chapter 6 (140-151), Chapter 7 (166-172, 184-187)
Internet Taxation (214-218)
(Group Presentation-2 Groups)
Each study group is to prepare a distributive politics spreadsheet for the
Internet Taxation case, plus a single powerpoint slide of the spreadsheet.
At the end of the class, groups will turn in a copy of their powerpoint
slides.
7. Mon. Sept. 10: ANALYSIS OF VOTING INSTITUTIONS (I)
This session introduces conceptual foundations for analysis and strategy formulation in
institutional contexts with an emphasis on legislatures. The focus is on concepts and
methods of analysis pertaining to agenda setting, pivotal voters, building majorities, and
predicting outcomes in majority rule institutions. These concepts will be applied in the
context of the Federal Express Case.
Reading:
Cases:
Assignment:
Chapter 6 (152-156), Chapter 7 (171-182)
Krehbiel, Keith. 1999. “Pivotal Politics: A Refinement of Nonmarket
Analysis for Voting Institutions.” Business and Politics. 1 (1): 63-81.
(OAK)
Federal Express and Labor Organization (188)
Questions at the End of Federal Express
8. Wed. Sept. 12: LOBBYING
This session focuses on the strategic use of information in the context of non-market
strategies decided by government institutions. The case describes a complex set of threats to
the competitive advantages of several pharmaceutical companies that were working on the
HPV vaccine in the earl mid-2000s.
Reading:
Case:
Chapter 8 (195-213), and materials posted on OAK.
“Responsible Lobbying” (220-224)
9. Mon. Sept. 17: REGULATORY INSTITUTIONS: THEORY AND PRACTICE
This session will focus on various market and nonmarket strategies undertaken by firms as
they engage institutional arenas for which there is no clear electoral connection: namely,
regulatory bodies. The readings will review the competing economic theories and rationales
underlying regulatory activity, and the case will serve as a foundation for the discussion of
the efficacy of these competing approaches.
Reading:
Case:
Chapter 6 (152-156, review if needed), Chapter 8 (195-201), and Chapter
10 (264-285)
Enron Power Marketing, Inc., and the California Market (289-290)
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Part III. Government and Markets
10. Wed. Sept. 19: ANTITRUST (I)
Antitrust policy and governmental regulation are powerful public policy constraints on
market strategies and tactics in the United States and other industrialized countries. Antitrust
policy evolves as a function of court interpretations of existing statutes, new legislation,
enforcement policies of the current administration, and schools of thought about the role and
nature of government intervention in the private sector. In the first of three sessions on
antitrust, we will focus on the competing legal perspectives on antitrust enforcement.
Reading:
Chapter 9 (230-252)
11. Mon. Sept. 24: ANTITRUST (II)
In our second of three sessions on Antitrust policy, we will conclude our discussion of
competing legal perspectives on antitrust enforcement, and address the evolution of
economic theory, as applied to antitrust enforcement in the United States.
Reading:
Chapter 9 (230-252) (review, if needed)
12. Wed. Sept. 26: ANTITRUST (III)
In our third of three sessions on Antirust policy, groups will engage in a policy debate
regarding the virtues of Antirust enforcement in a particular (and noteworthy) case.
Reading:
Cases:
Assignment:
Chapter 9 (230-252) (review, if needed)
The Microsoft Antitrust Case (257-263)
Study groups will prepare for a debate on antitrust in internet/software
industry, taking either the side of Microsoft or Netscape.
(Group Presentation—2 Groups)
13. Mon. Oct. 1: REGULATORY AND PRODUCT SAFETY (I)
Government regulation interacts with the civil justice system. The issue of product safety
provides an opportunity to consider institutions dealing with both regulation and product
liability and the guidance these institutions provide for attorneys and managers faced with
such issues. This is the first of two sessions that will engage these topics.
Reading:
Case:
Chapter 14 (392-407)
California Space Heaters, Inc. (407-409)
(Group Presentation)
14. Wed. Oct. 3: REGULATORY AND PRODUCT SAFETY (II)
In the second session on product safety, we will address the complex and timely issue of
preemption—that is, when federal law (or federal administrative approvals) preempt state
regulation or even state tort liability regimes. This session will focus on the dynamics among
the firms, federal and state regulators, the plaintiff’s and defense bars, and other interest
groups over preemption and product safety.
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Reading:
Case material to be posted on OAK
15. Mon. Oct. 8: MIDTERM EXAMINATION
16. Wed. Oct. 10: REGULATION OF FINANCIAL INSTITUTIONS
We will continue our discussion of regulation, focusing on the particularly timely topic of
financial institutions. In doing so, we will revisit several themes from our initial two classes,
paying special attention to the application of frameworks and tools that we have developed
thus far.
Reading:
Case:
Chapter 11 (291-308)
Citigroup and Subprime Lending (318-320)
17. Mon. Oct. 15: INTELLECTUAL PROPERTY
Laws and regulations define the playing field for market activities, with firms often seeking
to maximize profits within legal constraints. In many cases, business leaders are involved in
the formulation of laws, and may use their political influence to advance their self-interests.
Such activities are especially evident in industries for which intellectual property is a
valuable asset.
Reading:
Case:
Assignment:
Chapter 14 (380-387)
Mickey Mouse Politics and Law (386); other materials to be posted on
OAK.
Each study group is to prepare a distributive politics spreadsheet for the
consideration of HR 2589. One group will be picked at random to present
their spreadsheet to the class. At the end of the class, groups will turn in a
copy of their powerpoint slides.
Part IV: Politics of the Private Sector Worldwide
18. Wed. Oct. 17: NONMARKET ANALYSIS IN GLOBAL MARKETS
While there are similar concerns across countries, business leaders and government officials
must remain aware of the significance of cross-national differences in management in the
nonmarket environment, especially regarding institutions and the organization of interests.
Although countries differ on these dimensions as well as in culture, the basic approach taken
to political strategy and public policy in other countries is not fundamentally different than
that for the United States. This session gives an overview of political and economic
institutions of the European Union and its member countries.
Reading:
Case:
Chapter 15: (417-439)
Toys ‘R’ Us and Globalization (552-556)
19. Mon. Oct. 22: NONMARKET STRATEGY IN THE EUROPEAN CONTEXT (I)
In the first of two sessions we will consider how the lessons developed in the class, thus far,
apply to a particular institutional environment: the European Union. This session will
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involve a broad overview of EU law and the political and economic integration of the EU
community.
Reading:
Background material on the EU governance structure to be posted on
OAK.
20. Wed. Oct. 24: NONMARKET STRATEGY IN THE EUROPEAN CONTEXT (II)
Issues involving the natural environment are often difficult to address because they have both
social efficiency consequences and distributive consequences that generate non-market
activity. This session considers these two dimensions in the context of the European Union’s
consideration of a carbon tax to address the global warming issue. The readings also provide
information on European Union institutions and non-market strategies.
Reading:
Case:
Chapter 15 (417-439) (Review)
The European Union Carbon Tax (439-442)
21. Mon. Oct. 29: SOCIAL, ECONOMIC AND POLITICAL CHANGE IN CHINA
China presents tremendous opportunities for companies, yet its particular political context
gives rise to a host of strategic and ethical issues. The opportunities for direct marketers have
been quite attractive with an ample supply of labor, rising incomes, and an evolving social
and political situation. Yet, government regulations pose a set of challenges for firms
operating in China, and the direct marketing industry is no exception. This case presents an
issue arising in part from social and political change in China and the abrupt action by the
government in response to the problems associated with that change.
Reading:
Case:
Chapter 16 (448-470)
Direct Selling in China (471-472)
(Group Presentation)
Part V. Ethics, Corporate Social Responsibility and Nonmarket Strategy
22. Wed. Oct. 31: CORPORATE RESPONSIBILITY (I)
Individuals, activists, journalists, and government officeholders may be motivated by moral
concerns about a firm’s actions. Since individuals have a range of ethical intuitions and
concerns, it is necessary to view issues from the perspective of a number of ethical systems.
Ethical analysis helps to understand the moral implications of managerial decisions and to
estimate the likelihood of morally motivated action. In our introductory session to these
topics, we will engage competing perspectives on the concept of corporate responsibility.
Reading:
Chapter 20 (557-576), and materials to be posted on OAK.
23. Mon. Nov. 5: CORPORATE RESPONSIBILITY (II)
We will continue our discussion of corporate responsibility, focusing on a particular firm that
is doing business in a developing economy.
Reading:
Chapter 18: (502-512)
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Case:
Advanced Technologies Laboratories, Inc. (517-518)
(Group Presentation)
24. Wed. Nov. 7: ENVIRONMENTAL POLITICS AND POLICY
We will revisit the topics of environmental regulation that served as the backdrop for the case
in Session 20 (“European Carbon Tax”) and consider how the implementation of one
potential policy solution for environmental management comports with competing
perspectives of distributive justice.
Reading:
Case:
Chapter 12 (321-348), Chapter 22 (638-652)
Environmental Justice and Pollution Credits Trading Systems (353-356)
25. Mon. Nov. 12: STUDENT PRESENTATIONS (I)
26. Wed. Nov. 14: STUDENT PRESENTATIONS (II)
November 17-25: THANKSGIVING BREAK
27. Mon. Nov. 26: STUDENT PRESENTATIONS (III)
28. Wed. Nov. 28: NORMATIVE AND STRATEGIC ANALYSIS AND CONCLUSION
This session will serve as a synthesis of the different lessons that have been engaged across
the course of the semester. We will consider a case that raises specific legal, strategic, and
ethical issues that class members will be expected to analyze, while being sensitive to the
relevant market and nonmarket considerations.
Reading:
Case:
Chapter 16 (448-470, review if necessary), Chapter 21 (594-612), Chapter
22 (622-638), Chapter 23 (659-675, 688-698)
Fresenius Medical Care in China (679-680)
(Group Presentation)
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