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
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.
Recommended templates for domestic laws that are
developed by advisory organizations such as law reform
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
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
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
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
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