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Canada (158,054)
MCS 3040 (220)
Chapter 22

Chapter 22

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University of Guelph
Marketing and Consumer Studies
MCS 3040
Joseph Radocchia

Chapter 22: Professional Services Relationships and Obligations • Professional: Someone engaged in an occupation, usually governed by a professional body, requiring the exercise of specialized knowledge, education and skill • Other professional services, such as those of an engineer, architect or consultant are hired on an ad hoc or project basis • Professionals who are employees are governed by the basic principles of employment law • Relationships with external professional service providers are defined by contract law • The legal or ethical obligations these professionals owe the business vary according to the capacity in which they are hired • Other employees choose to retain their professional status and are hired in this capacity • The legal obligations of employed professionals are the same as those who work in private practices outside the firm • They are in a fiduciary relationship with their employer, where there exist elements of of trust, confidence, and reliance on the professionals skill, knowledge and advice • Can be liable for negligence, and their employees can be vicariously liable Ethical Obligations • Professional retaining membership in their profession continue to be bound by the rules of professional conduct and codes of ethics of their professional bodies • These obligations bring a level of independence that distinguishes a professional employee from a manager • Both owe ethical obligations to their employers, but professionals have additional obligations imposed by their governing bodies Hiring Professionals In-House • If the cost of external professional services for a business becomes signifcant, the business will likely consider the employment option • It is important that this decision be approached systematically and that all costs, quantatitve and qualitative, be incorporated in the analysis • What level of experience is required of an in-house professional? Is there a need for specialization and will there still be a need to hire externally from time to time, and what cost? • In-house professionals should provide enhanced value through their knowledge of the organization, their skill in managing external services, and their ability to contribute to risk management programs Responsibilities of Professionals to Clients and Other Who Reply on Their Work Responsibilities in contractor • Nature of the service to be provided, the timeliness of the delivery of the service, and the way in which fees for service will be billed are established by the terms of the contract between the professional and the client • Clients are often unaware of provisions in the contract dealing with how work will be billed and how and when retainers will be required • Retainer: An advance payment requested by a professional from a client to fund services to be provided to the client • Both the professional and the client must comply with the terms of the contract negotiated • The most contentious issues in practice tend to be those relating to quality of service and the fee • If a client is dissatisfied, most professionals associations have mechanisms for providing advice and investigating feee and quality of service disputes • Lawyer-clients may submit lawyers bills to taxing officers for review • The officer determines whether the sum charged was fair and reasonable in the circumstances • Read box on pg 564 Fiduciary Responsibilities • Agents owe fiduciary responsibilities to their principals; Directors owe fiduciary responsibilities to the corporation; partners owe fiduciary responsibilities to one another; and senior or key employees owe fiduciary responsibilities is to their employers • Professionals act in a fiduciary capacity and are deemed by law to owe duties of loyalty, trust, and confidence that go beyond those contractual or tort responsibilities owed by the non- professional service provider • A fiduciary must act primarily in the interest of the person to whom a responsibility is owed • The professional as fiduciary must: ◦ Avoid any conflict of interest between the clients affairs and those of the professional or the film ◦ Refrain from using the relationship for personal profit beyond charging a reasonable fee for services provided ◦ Follow the clients instructions ◦ Disclose all relevant information to the client ◦ Act honestly, in good faith, and with due care ◦ Maintain confidentially of client information • The fiduciary must comply with the spirit of the obligation and not merely the letter • Read case on pg 565 • Fiduciary obligation to give independent advice free from self-interest has a distinct meaning in the case of the audit • The auditor, must act independently of any interest of the company, since she is fulfilling a public function – namely providing assurance to shareholders that the financial statements have been prepared according to established guidelines • Audit firms are prohibited form involvement in their clients business and are increasingly limited in their ability to provide services other than the audit to their audit clients • Duty of Confidentially: The obligation of a professional not to disclose any information provided by the client without the clients consent ◦ For example: a rule of conduct for professional engineers is the following: ▪ Engineers shall not disclose information concerning the business affairs or technical processes of clients or employers without their consent • Privilege: The professionals right not to divulge a clients confidential information to third parties ◦ Basic principle is the overriding need of clients in specific circumstances to be able to put their entire trust in their professional advisor ◦ The only advice to which privilege attaches is legal advice ◦ Privilege may extend to the advice given by other professionals only when they prepare documentation at a lawyers request and solely as part of the lawyers advice to the clients Responsibilities in Tort General Responsibility • Professionals have duties in tort equivalent to those of other seevice providers • Professional must perform the services in accordance with the standards of a reasonably competent member of that professional • In order for a professional to be liable for negligence, the basic elements of a negligence action must be present: ◦ The professional owes the claimant a duty of care ◦ The professional has breached the standard of care ◦ The professional conduct has caused the claimant's loss ◦ The claimant's loss is not too remote from the professional's actions • The context of professional services, these basic elements involve particular challenges: ◦ To whoma does a professional duty of care extend? Who can claim compensation? Is the duty limited to clients or does it extend to others who might rely on the professional's work, such as lenders, investors or the general public? ◦ What performance standards must professionals meet? Who determines the level of expertise required in a particular situation? ◦ For what types of losses should claimants be able to seek compensation? Personal physical injuries are the most straightforward . Damage to property and pure eco
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