Legal, Regulatory, and Political Issues

This topic covers the understanding about the government influence on business,
business influence on government and politics and the government’s strategic approach
for legal and ethical compliance.

At the end of the topic:

1. Understand the rationale for government regulation of business

2. Examine the key legislation that structures the legal environment for business
3. Analyze the role of regulatory agencies in the enforcement of public policy
4. Compare the costs and benefits of regulation

Lesson No: 1

Lesson Title: Government Influence on Business

LESSON OBJECTIVES:

At the end of this lesson you will be able to:

· Understand the rationale regulation

· Compare the cost and benefits of regulation

Introduction

The government has a profound influence on business. Most western countries

have a history of elected representatives working through democratic institutions to
provide the structure for the regulation of business conduct. The provision of a court
system to settle disputes and punish criminals, both organizational and individual,
provides for justice and order in society. The legal system is not always accepted in
some countries as insurance that business will be conducted in a legitimate way. While
many businesses may object to regulations aimed at maintaining ethical cultures and
preserving stakeholder welfare, businesses’ very existence is based on laws permitting
their creation, organization, and dissolution. From a social perspective, it is significant
that a corporation has the same legal status as a “person” who can sue, be sued, and
be held liable for debts. Laws may protect managers and stockholders from being
personally liable for debts, but individuals as well as organizations are still responsible
for their conduct.

The Rationale for Regulation

There are 3 kinds of capitalism namely: Laissez-faire or the “invisible hand”-

assumes the market, through its own inherent mechanisms, will keep commerce in
equilibrium and was introduced by Adam smith; Keynesian capitalism- John Meynard
Keynes argued that state could stimulate economic growth and improve stability in the
private sector- through, for example, controlling interest rates, taxation and public
projects; and Friedman’s capitalism- developed by Milton Friedman and rejected the
Keynesian conclusion instead believed in deregulation because he thought that the
system could reach equilibrium without government intervention.

1. Economic and Competitive Reasons for Regulation

Preventing trusts and monopolies from using their market dominance to negatively
manipulate output, pricing, and quality.

a. Trust an organization established to gain control of a product market or industry

by eliminating competition. Such organization are often considered detrimental
because, without serious competition, they can potentially charge higher prices and
provide lower-quality products to consumers. Thus, as these firms grew in size and
power, public distrust of them likewise grew because of often legitimate concerns about
unfair competition. This suspicion and the public’s desire to require these increasingly
powerful companies to act responsibly spurred the first antitrust legislation. If trust are
successful in eliminating competition, a monopoly can result.

b. Monopoly occurs when just one business provides a good or service in a given
market. Examples of monopolies are utility companies that supply electricity, natural
gas, water, or cable television. The government tolerates these monopolies because
the cost of supplying the good or providing the service is so great that few companies
would willing to invest in new markets without the protection from competition. It
allowed by patent laws that grand the developer of a new technology a period of time
during which no other firm can use the same technology a period of time during which
no other form can use the same technology without the patent holder’s consent. Patent
protections are permitted to encourage business to engage in riskier research and
development by allowing them time to recoup their research, development, and
production expenses and to earn a reasonable profit.

c. Regulation is also intended to protect consumers from unethical business

practices. For instance, the seniors are a highly vulnerable demographic and are often
the victims of business scams.

2. Social reasons for regulation Regulation may also occur when marketing activities
result in undesirable consequences for society. It is necessary to ensure that all
firms w/in an industry do their part to minimize damages and pay their fair share.
Likewise, regulations have proven necessary to protect resources, both natural and
social. Other regulations have come about in response to social demands for
equality in the workplace. Such laws and regulations require that companies ignore
race, ethnicity, gender, religion, and disabilities in favor of qualifications that more
accurately reflect an individual’s capacity for performing a particular job. Likewise,
deaths and injuries because of employer negligence resulted in regulations designed
to ensure that people can enjoy a safe working environment. Issues arising from the
increasing use of the Internet have led to demands for new laws protecting
consumers and business in e-commerce activities. Internet access services in the
past have pressed for tougher federal legislation in a quest to stop illicit commercial
email. However, legislators often have difficulty with finding a way to block
deceptive spammer without violating their right. In addition copyright violations
continue to plague many global industries, which to some critics call into question
the effectiveness of legal action. A team of security specialist recommends
technological, not legal, solutions as most effective in the fight against piracy and
copyright infringement.

Law and Regulations

1. Sherman Antitrust Act – to prevent businesses from restraining trade and

monopolizing markets. It is the trust, or conspiracy, and restraint of trade.
Example: make violation of law a felony crime, punishable by a fine of up to $10
million for corporate violators and $350,000 and/or three years in prison for
individual offenders.
2. Clayton Antitrust Act – prohibits price discrimination, typing agreements,
exclusive agreements, and the acquisition to lessen competition or tend to
create a monopoly.
3. Federal Trade Commission Act - gives the FTC investigatory powers to be used
in preventing unfair methods of competition.
4. Proposed Financial Reform
List of Business Law in the Philippines

1. Tax Reform Act of 1997 (National Internal Revenue Code)

2. The Local Government Code of the Philippines

3. Labor Code of the Philippines

4. Intellectual Property Code of the Philippines

5. The Corporation Code of the Philippines

6. Civil Law of the Philippines

7. Social Security Act of 1997

8. National Health Insurance Act of 1995

9. Home Development Mutual Fund Law of 2009

10. Food and Drug Administration (FDA) Act of 2009

11. The Philippine Fisheries Code

12. The Animal Welfare Act of 1998

13. Securities Regulation Code of the Philippines

14. Financing Company Act of 1998

15. Truth in Lending Act of 1998

16. Consumer Act of the Philippines

17. Electronic Commerce Act of 2000

18. The Magna Carta for Micro, Small and Medium Enterprise (MSMEs)

19. Barangay Micro Business Enterprise Act of 2002

20. Insurance Act of the Philippines

21. Foreign Investments Act of 1991

22. Anti-Violence Against Women and Children Act of 2004

23. Philippine Cooperative Code of 2008

24. Anti-Money Laundering Act of 2001

25. The Anti-Red Tape Act of 2007

Global Regulation

Import barriers

· Tariffs and quotas

· Minimum price levels

· Port-of-entry taxes

Product quality, safety, distribution, sales, and advertising regulation

North American Free Trade Agreement (NAFTA)

· Eliminates virtually all tariffs on goods produced and traded between the
U.S., Canada, and Mexico

European Union (EU)

· Promotes free trade between member nations

Benefits of Regulation

Despite business complaints about the cost of regulation, it provides many benefits to
business, consumers, and society as a whole. These benefits include greater equality
in the workplace, safer products, more information about and greater choices among
products, cleaner air and water, and the preservation of wildlife habitats to ensure that
future generations can enjoy their beauty and diversity.

Companies that fail to respond to consumer desires or that employ inefficient processes
are often forced out of the marketplace by more efficient and effective firm. Truly
competitive markets also sour companies to invest in researching and developing
product innovations as well as new, more efficient methods of production. These
innovation benefit consumers through lower prices and improved goods and services.
 Regulatory Reform. Many businesses and individuals believe that the cost of
regulation outweigh its benefits. Removing regulatory will allow Adam Smith’s
“invisible hand of competition” to more effectively and efficiently dictate business
conduct. Some people desire completed deregulation, or removal of all the
authority. They believe that less government intervention allows business markets to
work amore efficiently. For example, many businesses want their industries
deregulated to decrease their cost of doing business. Many industries have been
deregulated to a certain extent since the 1980s, including trucking, airlines,
telecommunications (long-distance telephone and cable television), and more
recently, electric utilities. In many cases, this deregulation has resulted in lower
prices for consumers as well as in greater product choice.

Self-Regulation. Many companies attempt to regulate themselves in an effort to

demonstrate social responsibility, to signal responsibility to stakeholders, and to
preclude further regulation. Often these firms choose to join associations that have
self-regulatory program, many of which were established as a preventive measure to
stop or delay the development of laws and regulations that would restrict the
associations’ business practices. Some trade association establish codes of
conduct by which their members must abide or risk discipline or expulsion from the
association.

Lesson No: 2

Lesson Title: Business ‘s Influence on Government and Politics

LESSON OBJECTIVES:

At the end of this lesson you will be able to:

· Understand the corporate approaches influencing the government

Corporate Approaches to Influencing Government

Although some businesses view regulatory and legal forces as beyond their
control and simply react to conditions arising from those forces, other firms actively
seek to influence the political process to achieve their goals. In some case, companies
publicly protest the actions of legislative bodies. More often, companies work for the
election of political candidates who regard them positively. Lobbying, political action
committees, and campaign contributions are some of the tools businesses employ to
influence the political process.

Lobbying. It is the process of working to persuade public and/or government officials

to favour a particular position in decision making. Organization may lobby officials
either directly or by combining their effort with other organization. Companies may
attempt to influence the legislative or regulatory process more indirectly through trade
associations and umbrella organizations that collective business interest of many
firm.

Political Action Committees. Companies can also influence the political process
through political action committees. Organization that solicit donations from
individuals and them contribute these funds so candidates running for political office.

Campaign Contribution. Laws from other country like federal laws restrict direct
corporate contributions to election campaigns, corporate money may be channelled
into candidates’ campaign coffers as corporate executives’ or stockholders’ personal
contribution. Such donations can violate the spirit of corporate campaign laws. A
sizable contribution to a candidate may carry with it an implied understanding that the
elected official will perform some favour, such as voting in accordance with the
contributor’s desire on a particular law.

Lesson No: 3

Lesson Title: The Government Approach for Legal and Ethical Compliance

LESSON OBJECTIVES:

At the end of this lesson you will be able to:

· Understand the government approach for legal ethical compliance

Introduction

Legal and regulatory forces have a strong influence on business operations,

business can also affect these forces through the political process. In addition socially
responsible firms strive to comply with society’s wishes for responsible conduct through
legal and ethical behavior. Indeed, the most effective way for businesses to manage
the legal and regulatory environment is to establish values and policies that
communicate and reward appropriate conduct. Most employees will try to comply with
 an organization’s leadership and directions for responsible conduct. Therefore, top
management must develop and implement a highly visible strategy for effective
compliance. This means that top managers must take responsibility and be
accountable for assessing legal risks and developing corporate programs that promote
acceptable conduct.

Seven Steps to Effective Compliance an Ethics Programs1

1. Establish codes of conduct (identify key risk areas).

2. Appoint or hire high-level compliance manage (ethics officer)
3. Take care in delegating authority (background checks on employees)
4. Institute a training program and communication system (ethics training)
5. Monitor and audit for misconduct (reporting mechanisms)
6. Enforce and discipline (management implementation of policy)
7. Revise program as needed (feedback and action)

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