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CHAPTER 4

Legal, Regulatory, and

Political Issues

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Chapter Objectives

To understand the rationale for government regulation of

business

To examine the key legislation that structures the legal

environment for business To analyze the role of regulatory agencies in the enforcement

of public policy

To compare the costs and benefits of regulation

To examine how business participates in and influences publicpolicy

To describe the governments approach for legal and ethical

compliance

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Governments Influence on Business

Laws derived from the U.S. Constitution and Bill

of Rights influence business.

Laws are enforced through the judicial system. Corporations have the same legal status as

a person.

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Major Laws Affecting Business

Sherman Antitrust Act

Clayton Antitrust Act

Federal Trade Commission Act

Robinson-Patman Act

Lanham Act

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Law Enforcement Agencies

Food & Drug Administration (1906)

Federal Reserve Board (1913)

Federal Trade Commission (1914) Federal Communication Commission (1934)

Securities & Exchange Commission (1934)

National Labor Relations Board (1935)

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Law Enforcement Agencies (cont)

Equal Employment Opportunity Commission (1970)

Environmental Protection Agency (1970)

Occupational Safety & Health Administration (1971)

Consumer Product Safety Commission (1972)

Commodity Futures Trading Commission (1974)

Federal Housing Finance Industry (2008)

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Global Regulation

Import barriers

Product quality, safety, distribution, sales, and advertising

regulation

North American Free Trade Agreement (NAFTA) European Union (EU)

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Costs of Regulation

Administrative spending patterns of federal

regulatory agencies

Staffing levels of federal regulatory agencies

Business expenditures in compliance

with regulations

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Benefits of Regulation

Greater equality in the workplace

Safer workplaces

Resources for disadvantaged societal members

Safer products

More information about products

Greater product variety

Cleaner air and water

Preservation of wildlife

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Deregulation

Removal of all regulatory authority

Belief that less government intervention allows

business markets to work more effectively Many industries have been deregulated.

Critics of deregulation cite higher

prices and poorer service/quality.

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Companies attempt to regulate themselves to

demonstrate social responsibility and preclude

additional regulation.

Firms may chose to join trade organizations withself-regulatory programs.

Best-known self-regulatory association is the Better

Business Bureau.

Benefits include lower costs and more practicality

and realism in programs.

Self-Regulation

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The Contemporary Political Environment

Greater transparency in the congressional committee

process

Limiting campaign contributions from individuals,

political parties, and special interest groups

(Federal Election Campaign Act)

Many states have shifted their electoral process from

traditional party caucus to primary elections.

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Special-Interest Groups

Seek to educate the public about significant social

issues and to support legislation and regulation of

business conduct they deem irresponsible

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Corporate Approaches

to Influencing Government

Lobbying

Political Action Committees

Campaign Contributions

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Federal Sentencing

Guidelines for Organizations

Passed in 1991 to streamline the sentencing and punishment of

organizational crime

Provides an incentive for organizations to establish due

diligence ethics and compliance programs

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Seven Steps to Effective Compliance

and Ethics Program

Establish a code of ethics.

Appoint a high-level compliance manager, usually an

ethics officer.

Take care in delegation of authority.

Institute a training program and

communication system.

Monitor and audit for misconduct. Enforce and discipline.

Revise program as needed.

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Sarbanes-Oxley Act

Legislation to protect investors by

improving accuracy and reliability of

corporate disclosures

Many benefits