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RSM225H1 (13)
Chapter 1

RSM225H1 Chapter 1 Notes
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Department
Rotman Commerce
Course
RSM225H1
Professor
Jaclyn Seidman
Semester
Fall

Description
RSM225H1 Textbook Notes Chapter 1: Law, Society, and Business  The law sets basic standards of behaviour that are enforced by government and also by individuals and groups with the help of government.  No one can opt out of the legal system; the law binds us.  Law influences and controls the behaviour of individuals in society. o Also prescribes simple but vital rules that allow us to get on with our daily lives (i.e. driving on the right side of the road).  Law empowers, influences, and controls the actions of government. o Government provides policing, fire fighting etc. which are funded through taxes (can be raised).  Rule of law: established legal principles that treat all persons equally and that government itself obeys.  Public law: law that regulates the conduct of government and the relations between government and private persons.  Law regulates individuals’ interaction with each other (i.e. enables us to make legally binding agreements enforceable in the courts). o It provides an element of certainty in determining contractual and property rights (essential for the efficient carrying on of business).  Private law: law that regulates the relations between private persons and groups of private persons.  The moral and ethical values of society as a whole shape the development and direction of the law. o Needed for it to be effective.  Certain instances may arise where breaking a law is justified.  Even unjust laws should be obeyed due to the possible consequences if numerous people rebel.  Legal liability: responsibility for the consequences of breaking the law.  Criminal liability: responsibility arising from commission of an offence against the government or society as a whole.  Regulatory or quasi-criminal liability: responsibility arising from breaches of less serious rules of public law, often enforced through regulatory tribunals set up by the government for specific purposes. o Offenders are usually ticketed.  Civil liability: responsibility arising from a breach of a private law, enforced through a lawsuit initiated by the victim.  To have a good environment for business, a country must provide an adequate legal infrastructure that clearly defines rights and responsibilities and properly enforces them. o Too much regulation may hinder businesses and make them less competitive.  Non-governmental organizations: voluntary non-profit associations of private individuals or groups working together to influence policy, raise awareness, or effect change.  Governments and NGO’s are trying to address conflicts in which a company has to determine which laws to apply when operating in foreign countries. o Done through:  Treaties & conventions  International agreements between governments in which countries agree to pass similar laws.  Model laws  Recommended templates for domestic laws that are developed by advisory organizations such as law reform commissions.  Super-governmental organizations: non-profit associations of governments from around the world working to find common approaches to international issues, such as the World Trade Organization or UN.  Legal risk: business activities, conduct, events, or scenarios that could expose a business to any type of legal liability.  Business managers cannot effectively use lawyers unless the managers know what to ask and when to ask it – and then understand the advice they receive.  Legal risk management plan: a plan developed by a business that identifies potential legal liability and provides preventive and remedial strategies.  Five steps in developing a legal risk management plan: o Managers must undertake a legal audit of the operation.  Legal audit: a review of each area, action, and interaction of the business to identify potential legal liability and legal compliance risks. o Risks must be prioritized.  Prioritization involves assessing the likelihood or frequency of the event occurring and the magnitude of the consequences if the event occurs. o Strategies must be developed to deal with each risk.  Proactive and reactive elements must exist.  Proactive to prevent accidents from happening.  Reactive to minimize consequences if an accident does occur. o The plan must be implemented.  There must also be training, education, testing, and monitoring (whether it’s being followed). o The plan must be revised regularly.  Risks change daily, new laws are implemented, cases are decided etc.  Four strategies that exist for managing legal risk: o Avoid the risk: involves discontinuing the conduct or finding another way to achieve the result. o Reduce the risk: includes quality control initiatives that decrease the likelihood of the risk or minimize its damage o Transfer the risk: accepts that the risk may occur and shifts the consequences to someone else – an insurance company or consumer who, through contracts, assumes responsibility. o Absorb the risk: accepts that the risk may occur and budgets for the expenses (used with remote risks or small-valued risks).  The potential cost is factored into the price of the product, and the strategy is known as “self-insuring.”  Corporate social responsibility: a concept that suggests business decision- makers consider ethical issues including the interests of customers, employees, creditors, the public, and other stakeholders, in addition to legal and financial concerns.  Code of conduct: a common standard of behaviour that may take the form of a values statement or a prescribed set of rules.  A firm behaves ethically because: o That is how its owners or managers believe it should behave. o Better public image. o Better relationships with employees/suppliers/investors etc.  “Today’s voluntary ethical standard may be tomorrow’s mandatory obligation.”  Types of codes of conduct: o Binding codes  Some activities, particularly of professionals, are regulated by a code of conduct, or a similar set of rules laid down by a governing body or trade association.  These bodies can cross jurisdictional boundaries that the law does not.  Breaches of the codes may result in disciplinary proceedings and may even result in expulsion from that body (not allowed in the profession anymore either). o Voluntary codes  They usually have a strong persuasive effect.  Government may threaten to intervene in an industry and legislate standards if it cannot regulate itself. o Self-imposed codes
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