Law and Ethics in Global Business

How to Integrate Law and Ethics into Corporate Governance Around the World

Brian Nelson

• Publisher: Routledge
• Year: 2013
• eBook ISBN: 9781134183647
• Topic: Business
• Subtopic: Business General
• Index: Business

This book provides comprehensive and, above all, business focused guidance on the fundamentals of business law and how they should be integrated into ethical and effective business decisions. It concentrates on legal principles and thereby is able to articulate the impact of global business law and its international applications providing a comprehensive overview of the legal and ethical principles which both facilitate and regulate corporate business. This is an ambitious undertaking, yet arguably no more ambitious than the projects undertaken by global business leaders making business decisions around the world.

The author combines the expertise of a long-term blue chip law background with the insights of an experienced business educator. Law and Ethics in Global Business is both a comprehensive course book for MBA study and an invaluable business reference source for any executive involved in global business.

Part One

Introduction

Integrating law and ethics into corporate governance

1

A Global Framework

A Global Framework for Integrating Law and Ethics into Business Conduct

This book provides corporate executives with a comprehensive framework for integrating law and ethics into business conduct. Integrating applicable law and community ethical norms into business conduct enables executives

1. to take fuller advantage of the opportunities available to their businesses, and
2. to manage the risks inherent in pursuing those opportunities.

The framework provided in this book consists of both

1. techniques for making and implementing business decisions which give due consideration to legal and ethical concerns, and
2. an overview of the legal principles and ethical norms applicable to business.

The techniques, principles and norms are all explained in terms generally applicable around the world.

Having such a framework is desirable

Obviously, it would be useful for every corporation to have a single framework for integrating law and ethics into all of its decisions and operations. Such a framework for legal principles would be useful because the law provides the fundamental institutions making business possible: private property, contracts, markets and corporations. In addition, such a framework for ethical norms would be useful because corporations can promote their business goals by observing the ethical norms of the many communities in which they operate. Violating legal and ethical norms, on the other hand, can have significant negative consequences for businesses.

Moreover, it is useful for corporations conducting business internationally to have such a framework on a global basis. Giving managers throughout a corporation a common understanding of legal principles and ethical norms in terms generally applicable around the world provides those corporations with a single starting point for integrating law and ethics into their worldwide business operations, thereby enhancing the quality of decisions made and implemented throughout the corporation.

Finally, such a framework is feasible because managers in corporations around the world are similarly situated. Corporate managers around the world make and implement decisions on behalf of corporations. They all seek to provide goods and services in return for revenues which exceed costs. They are all faced with the challenge of obtaining those returns while giving due consideration to legal principles and community ethical norms.

Having such a framework is feasible

Providing corporations with a single framework for integrating law and ethics into business conduct is an ambitious challenge, but providing such a framework is no more ambitious than the challenges facing corporate leaders every day. After all, legal and ethical considerations are only two aspects of the multi-faceted decisions corporate leaders regularly make and implement.

Providing such a framework on a global basis is feasible because there are significant commonalities among legal principles and ethical norms applicable to business around the world. The commonalities are significant because, even in the absence of contact between separate markets in different parts of the world, all markets were – with some exceptions – conducted for centuries on the basis of the same fundamental legal institutions, i.e., private property rights and contracts, and on the basis of common customs and conventions among merchants. The commonalities are significant also because, from an early date, markets were “international,” with merchants from different parts of the world relying on private property rights, contracts and a single set of customs and conventions to conduct business. With the rise of the modern era, national governments have slowly and surely, but – to a surprising extent – simply incorporated those common customs and conventions into their business laws. As a result, the business laws of the various nations are surprisingly homogeneous. In fact, business laws around the world were, to a great extent, specifically intended to be similar so as to facilitate trade.

Corporate Governance

Structures and procedures

For the purposes of this book, corporate governance shall mean the internal structures and procedures within a corporation intended to provide reasonable assurances that corporate directors, officers and employees make and implement decisions in accordance with their duties of care and loyalty to their corporations.

The term “internal controls” is sometimes used by some persons for some purposes to refer to the internal structures and procedures encompassed by the term “corporate governance” as used in this book. For example, the United States’ Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) uses the term “internal controls” in its Section 404 to designate corporate governance structures and procedures for the limited purpose of reliable financial reporting.

Governance structures: who makes and implements decisions?

The “structures” comprising one aspect of corporate governance systems are the formal delegations of authority within a corporation for making and implementing decisions. Generally speaking, the formal structures prescribe “who” makes and implements decisions. The authority to make and implement decisions is delegated among individuals organized, for example, as shareholders, boards of directors, corporate officers, other employees and other positions. This definition of “structures” obviously excludes entities from outside the corporation. Accordingly, the role of market intermediaries such as stock market analysts and rating agencies is excluded from this definition of corporate governance. The term “structures” within the definition of corporate governance is roughly analogous to the term “constitution” in the governmental sphere.

Governance procedures: how are decisions made and implemented?

“Procedures,” comprising the other element of corporate governance systems, is quite simply the supervision of individuals who have been delegated authority for making and implementing decisions. Generally speaking, procedures prescribe “how” decisions are made and implemented. Procedures consist of direction, instruction, ongoing assistance and monitoring for individuals within a corporation as they exercise their delegated authorities. Procedures can take the form of, for example, corporate mission statements, statements of business principles, codes of conduct, announcements about corporate goals, reviews and approvals. Procedures can include general instructions concerning the factors and criteria to be considered in making and implementing decisions. In addition, procedures include the arrangements for communicating those general instructions and to monitor and enforce compliance with them. The term “procedures” does not, of course, include the specific decisions made and implemented pursuant to such supervision. The term “procedures” included within the definition of corporate governance is roughly analogous to the two terms, “substantive law” and “procedural rules,” in the governmental sphere.

Opportunity and Risk Management

Workable procedures for corporate governance systems

In order to provide workable procedures, corporate governance systems need more than a framework for reconciling law and ethics with decisions previously made on the basis of commercial and financial considerations. Corporate executives need a single framework for making and implementing business decisions which include due consideration for all relevant factors, including legal principles and ethics norms as well as commercial interests and financial returns. “Opportunity and risk management” provides such a framework.

The key to ORM is to view all factors affecting business conduct, including legal principles and community ethical norms, from the perspective of opportunities and risks to corporations as they select and pursue goals to fulfill their corporate missions. “Opportunities” are possible future events – both events brought about by corporations themselves and events brought about by other actors – which potentially contribute to fulfilling a corporation’s mission. “Risks” are possible future events – again brought about by corporations themselves or by other actors – which potentially constitute impediments to fulfilling a corporate mission. “Goals” are the opportunities management decides to pursue from among the available opportunities for the purpose of fulfilling a corporate mission. “Missions” are the reason for the corporations’ existence. For business corporations, the reason for existence – and, therefore, their “mission” – is enhancing stakeholder value.

Various opportunities need to be evaluated in terms of their inherent risks before one or more of the opportunities can be selected as goals. After senior management selects goals, the risks inherent in achieving them need to be managed at all corporate levels (i.e., avoided, reduced, shared or accepted). Within the ORM framework, the role of corporate executives can be defined as setting corporate goals consistent with their corporations’ missions in light of the opportunities and risks presented by possible future events and managing the risks inherent in pursuing those goals.

Existing law and ethics present opportunities and risks

Even if there are no changes in the factors relevant to a corporation’s operations, its executives can select new corporate goals and the means to achieve them from among existing opportunities. Selecting a new goal or instrumentality from among available opportunities necessarily leads to a reassessment of the entire range of factors affecting business operations in terms of the opportunities and risks they present for achieving the new goal or for achieving existing goals in better ways.

Existing laws clearly present opportunities for business. After all, the facilities most fundamental to business (private property, contracts and markets and corporations) are also fundamental legal institutions. Accordingly, the correct understanding and proper use of basic business laws (and other laws facilitating business) creates business opportunities. As an illustration, the success of companies such as Microsoft Corporation – indeed, the structure of the entire software industry – would be very different if Microsoft had used purchase-and-sales contracts for the purpose of commercializing its software programs rather than seizing the opportunity presented by licensing contracts.

Existing laws, on the other hand, clearly present risks for business. No one can doubt that violating other persons’ legal rights and violating government regulations typically constitute ongoing risks in doing business. Again using Microsoft as an example, violating the various official interpretations of “antitrust law” in the United States – and of “competition law” in the European Union – has clearly constituted a significant risk over a long period of time for Microsoft. More precisely, governmental interpretations of applicable antitrust in the United States and competition law in the European Union have constituted a risk for Microsoft’s commercial policies regarding source codes and product bundling.

Similarly, as illustrated by companies such as the Body Works and Shell Oil Company, respecting community ethical norms can create business opportunities, while offending community ethical norms can constitute risks to achieving business goals.

Changes in law and ethics present opportunities and risks

Of course, changes in the factors relevant to business operations also present corporations with opportunities and risks. Such changes can, of course, include modifications in legal principles and in community ethical norms, just as those events can include technical innovation, evolutions in consumer tastes and fluctuations in available supplies (i.e., labor, raw materials or capital). All of these possible modifications, innovations, evolutions and fluctuations can be viewed as future events having potentially positive and negative effects on fulfilling a corporation’s mission. In other words, all of these possible changes, including modifications in law and ethics, can all be understood in terms of opportunities and risks.

Corporate executives cannot effectively manage the opportunities and risks entailed by changes in any one of those factors (e.g., technical, supply or demand) without considering all of the other factors (e.g., legal and ethical). For example, setting corporate goals (i.e., deciding to pursue certain opportunities) made available by changes in technology, supply or demand typically can entail legal and ethical risks. Conversely, setting corporate goals made available by changes in applicable laws and ethical norms typically entails risks concerning redeployment of a corporation’s employees and assets, as well as a rearrangement of its ongoing relationships with suppliers, customers and users.

Opportunities and risks created by third-party actions

As previously noted, possible future events constituting opportunities and risks for corporations often take the form of – and so can often be understood as – possible future actions by persons other than the corporation. For example, the possibility of competitors entering a market constitutes a “supply side” risk for other suppliers already in the market. Similarly, buyers’ price sensitivities obviously constitute fundamental “buy side” risk for all suppliers.

Legal and ethical risks created by governments and media

Legal and ethical opportunities and risks can be understood in the same way. In fact, legal and ethical opportunities and risks often take the form of – and so can often be understood as – possible future actions by governments and media. Legal and ethical risks, for example, often take the form of governmental and media responses to business conduct, especially business conduct which threatens to violate legal principles or which offends community ethical norms.

No business plan is complete without considering the opportunities and risks presented by possible future actions of governments and media in light of applicable legal principles and ethical norms, just as no business plan is complete without considering the opportunities and risks presented by possible competitor and consumer reactions in light of their commercial interests.

Legal and ethical risks created by corporate constituencies

In fact, legal principles and ethical norms can be the basis of possible future actions by any and all “corporate constituencies,” i.e., the individuals and groups who contribute to business operations: such as customers, employees and shareholders. In general, corporate constituencies have the ability to terminate, suspend or withhold their contributions to corporate operations in light of commercial interests, legal rights or ethical concerns.

Consumers, employees and shareholders are usually motivated primarily by commercial interests, but legal rights provide the basis for all those business relationships, while ethical norms can become overriding concerns for any of them. Accordingly, the actions of corporate constituencies can also be motivated by legal rights and ethical concerns, especially in those instances when business conduct threatens to violate those legal rights or ethical norms.

Just as no business plan is complete without considering the possible actions of corporate constituencies in light of their commercial interests, so no business plan is complete without considering the possible actions of those same corporate constituencies in light of applicable legal principles and ethical norms.

Legal and ethical risks created by affected and concerned persons

Finally, legal principles and ethical norms can be the basis of possible future actions by parties other than corporate constituencies, if those other parties are affected by business conduct or simply concerned about it.

Parties affected by business conduct other than corporate constituencies do not have the ability to terminate, suspend or withhold their contributions to corporate operations, but they can seek compensation in courts of law for personal injury and property damage they have suffered as the result of past business conduct.

In addition, business conduct can offend the ethical norms of persons affected by business conduct or simply concerned about it. In these instances, such persons can seek to rally governments, media ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Contributors
• Preface
• Part 1: Introduction: Integrating Law and Ethics into Corporate Government
• Part 2: Basic Business Laws
• Part 3: Government Regulation
• Part 4: Corporate Governance
• Part 5: Other Legal Facilities
• Notes
• Index