The Legal and Ethical Landscape of Business

Basics of Business and Commercial Law

Business law, a composite of numerous doctrines and statutes regulating and governing commercial entities, is the local ordinance to be observed on the township of state or national jurisdictions. Government is the business of protecting your personal business. It executes a defined social contract ostensibly spelling out mutual obligations: The people cede coercive powers to the government in return for the government’s safeguards of individual health and safety, property and privileges as they relate to the commons.
The government’s jurisdiction to create and enforce an economy regulating legal framework is the general province of state laws or, at the federal level, statutes enacted by congressional legislation. Business law is a vast and crucial scope of law affecting all manner of private sector activity. Essentially, the legal field subcategorizes huge areas of common commercial activities into manageable frameworks based on similar implications and concerns. Thus, law regulating sales transactions, like property law, or law governing wages or employment, like tax law, pulse in relative concord with the rhythms of life. Business transactions, like anything else in a civilized society, are really only matters of expectation—what you expect from a deal, how well your counterpart will meet your expectations or, frankly, if at all. So significant are the implications of trading that there is a code of trade regulations, if you will, that spell out the obligations binding merchants and consumers, lenders and the loaned.
These laws are fundamental to modern business for the simple reason that they define and protect the rights of parties to a commercial transaction. Without these rights, acrimonious or inconclusive disputes over nonstatistical business, litigation and breach of promise disrupt the normal course of economic activity , ultimately harming the companies involved, their employees and, most importantly, the country as a whole.
It is important to remember that big business and small may be different, but they are still businesses and fall under the auspices of business law. This is equally true of parties whether they’re exchanging goods, or classes in a masterclass on recent neighborhood pet grooming classes. Therefore, while the obligations of parties will differ commonly as to size and circumstance, the basic structures of business law—the code of law applicable to companies—are universal. And what are the obligations of today’s businesses? Well, they’re not always what you think.
The scale and scope of a business’s activities take on diverse dimensions a non-business consumer of the same news clip may not consider, while appreciating, to be relevant at all. For example, if I told you that you’re obligated to keep your physical store open every day, you’d probably think I was drunk off Snapple or selling snake oil. Business law, specifically the Uniform Commercial Code, actually contains provisions that charge your store with just such an obligation. In fact, there are provisions that target and seed specific businesses to prevent monopolies, or to stop law firms from monopolizing your weekly e-reader space with ads and killing your business!
Legal obligations cover employee relations—the age of majority, for instance—property transactions—land lords and ladies, for example—and even cover the choice of business status and capitalization. It would be impractical for a new entrepreneur to memorize the layers of business law, but understanding your basic code construct will help you successfully traverse the legal jungle of new ventures and create a path to visibility for you, your company and, ultimately, those with whom you do business.

Ethics and the Law in Business

An established code of ethics serves as the moral backbone of any organization and represents the company’s values. Company ethics should not simply be a formal statement included in an employee handbook or posted on a wall in the office. Ethics are a proactive approach to management that promote positive relationships with stakeholders including customers, vendors, employees, investors and the community at large. Together with a clearly defined legal environment, ethics compliment the rule of law and societal standards to build a strong reputation and public trust.
The importance of an ethical business environment is underscored by the fact that 82% of employees in the survey Caught in the Middle: The Conflict Between Profits & Employee Ethics do not speak up if they see troubling behavior from others. This can have a devastating trickle-down effect because the same survey found that 51% say they have faced pressure to cut corners over the past year. The potential implications of unethical behavior are serious. The Caught in the Middle survey goes on to say that 52% of employees say they would leave a company for better ethics and 50% of employers say they would consider firing an employee for unethical behavior. It is therefore imperative for every organization to openly address ethics and its values to provide a decision-making framework and the tools for resolution.
Employees in the Caught in the Middle survey did report several opportunities for resolving ethical dilemmas including 43% say referring a situation to their manager and 23% say consulting the company handbook. A comprehensive set of guidelines for staff will help build a ethical culture within the company. Employers can use these guidelines to formally recognize and reward ethical behavior.
A case study sample problem was submitting false time sheets, installing unauthorized software or using company assets for personal reasons. The survey asked what would you do if you observed that behavior. Solutions the staff reported were first consulting the HR policies and procedures, then telling the employee to stop if the behavior is ongoing. However, if behavior is not ongoing, it may require an informal conversation to ask what is going on and how the company can help them resolve the dilemma.
In addition to offering a helpful framework for addressing ethical issues, a code of ethics defines unacceptable practices that may lead to individual disciplinary action up to termination. An example of behavior that could lead to termination is lying to customers or failing to disclose information that could impact their choice of service, such as a used car failing safety standards. Another example is a receptionist who fails to answer the phone in the office in order to take half a day for personal errands. While a one-time mistake may not be grounds for termination, repeated behavior after corrective action is taken to ensure understanding of policy, it is grounds for firing.
Lawyers are not the only ones who need to be aware of the legal and ethical environment that they are operating in. Likewise, businesses can seek the advice of attorneys and the expertise of consultants to ensure they are set up for long term sustainable success.

Law and Government Regulation

The regulatory environment is comprised of the laws, rules and guidelines that govern business activities. It is a fluid system, with changes occurring regularly on both the international and domestic front. Although the law is designed to ease the process of conducting business, confusion can still stem from the variety of actors involved in the regulatory process. At the international level, different organizations and agencies, such as the United Nations, World Trade Organization and the Organisation for Economic Cooperation and Development, play essential roles in shaping the regulatory environment for businesses operating in multiple countries. Meanwhile, Europe, Africa and Asia, among other parts of the world, are home to their own business-related treaties, terms and treaties. The federal government in the United States operates according to a four-branch system. The executive branch, led by the president, is responsible for executing the law. The judicial branch interprets the law, while the legislative branch creates it. State governments operate similarly. Within these branches, a number of other regulatory bodies supervise the economy and business landscape, including: The regulations put in place by these and other agencies influence every aspect of business, from the way a company may advertise its product to the price of a key material needed to produce it. Thus, maintaining compliance is essential to sustaining business operations. In order to function in accordance with the law and the regulations set forth by government bodies, a company must, first of all, understand all the regulations to which is subject. Beyond that, it is wise to take the steps necessary to ensure full compliance. Staying up to date with regulations is one of the best ways for businesses to avoid non-compliance – and the fines, penalties, arrests, or loss of license that may go along with it. A number of resources are available to help companies stay informed of the latest developments. The websites of federal and state regulatory bodies are good places to start; although such organizations are often focused on enforcing the law and managing information about compliance, they will also try to assist companies by offering ways to remain informed about the latest news. It’s not possible to anticipate from where changes may come – the youngest regulatory body may be the most influential. Some of the most significant changes in recent years have come from the Consumer Financial Protection Bureau (CFPB), for instance. Established in 2010 to monitor, enforce and implement compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFPB has already made a significant impact on the regulatory environment. For example, the Bureau developed the Know Before You Owe rule, which went into effect in October 2015. The rule altered the complicated closing process for settling a residential real estate transaction by implementing new forms and requirements. Although the rule was announced more than a year before it went into effect, closing companies had to work quickly to ensure that their compliance processes were sufficient to handle the changes early in the rule’s implementation. In a recent publication titled "CFPB’s Major Provisions, Past and Future," the Mortgage Bankers Association identified the rule as one of the CFPB’s most important. The CFPB has continued to develop new regulations, however. As it does so and existing regulations evolve, businesses must be aware of and ready to implement regulatory changes to avoid falling behind. Staying informed and being prepared to adjust may be enough to keep your company within the law in the face of new regulations. In other instances, your business may need to alter its model entirely. In 2012, for example, several new rules were put in place prohibiting the use of mandatory arbitration agreements that could affect the ability of consumers to file a class action when disputing with a company. The regulations, which came in the form of a final rule by the CFPB, called its approach a "more effective regulatory framework." Although the rules are limited to credit card issuers and creditors providing open-end credit cards and certain other types of creditors, many businesses in related industries have found it necessary to develop entirely new arbitration clauses and models. Drafting these forms can be especially tricky, as doing so incorrectly can easily become a violation of one of the new codes. The regulatory environment continues to evolve, and regulations will inevitably impact business strategy in one way or another. By staying informed of relevant regulations and working diligently to maintain compliance, however, business are more likely to stay ahead of the curve and positioned for growth even amidst changes in the law.

Governance and Social Responsibility

Corporate governance refers to the complexities of rules and practices directing how a company is managed and directed. The corporate governance framework involves the shareholders, the board of directors, the employees, auditors, regulators, and other stakeholders. For many depending upon public policy implications, corporate governance embodies numerous stakeholders in addition to the shareholders as decision-makers.
In particular, corporate governance involves such initiatives as shareholder rights, transparency, and disclosure. The system of corporate governance varies by jurisdiction, and there are many legal constraints based upon the location of the organization. For instance, some countries have varying employment-at-will policies , or restrictions on labor and especially women’s rights. Shareholders may demand stronger reporting requirements for the company.
Social responsibility has emerged in the past few decades to represent individuals’ or organizations’ efforts to enhance society and the environment. Social responsibility’s role in the legal and ethical environment of business is also expansive. Companies have adopted social responsibility policies and programs to contribute positively to society. Examples of common programs include environmental sustainability, philanthropy, volunteerism, and corporate ethics programs. Nonprofits also operate social enterprises to directly address social problems.
Companies can readily balance being profitable while engaging in social responsibility. Successful companies are keenly aware of the benefits of social responsibility. Such companies understand that social responsibility can include financial and operational efficiency benefits, a more engaged workforce, and meeting customer demand. A socially responsible company may directly influence its supply chain to ascribe to its social responsibility values and principles.

Trends in Business Law and Ethics

The legal and ethical environment of business is constantly evolving, and several new trends have emerged in recent years that are influencing how businesses navigate these waters. One of the most significant trends is the growing focus on sustainability and corporate social responsibility. More and more consumers are choosing to do business with companies that are environmentally conscious and socially responsible, and as a result, businesses are taking a closer look at their practices and making changes to align with these values. This has led to the implementation of more environmentally-friendly policies and practices such as reducing waste, energy consumption, and carbon emissions, and implementing fair labor practices. This trend is not only good for the planet and society, but it can also be good for business, as it can lead to increased sales and customer loyalty.
Another emerging trend is the rise of digital privacy laws. With the increasing amount of personal data being collected and stored by businesses, governments around the world are enacting new legislation to protect consumers’ privacy . This includes requirements for businesses to disclose what data they collect, how it’s used, and how it’s protected. For businesses, this means that there is now a legal obligation to protect their customers’ information and ensure that their data privacy policies are being followed. This can be a complex process, but it’s necessary to avoid potential legal issues down the line.
Global trade ethics is another area of emerging concern. As businesses continue to expand their reach into international markets, they are encountering new ethical dilemmas related to global trade. This can include situations such as labor exploitation, bribery and corruption, and the impact of trade on the environment. Businesses are beginning to recognize the importance of conducting trade ethically and are making changes to their policies and practices to reflect this. This is not only important from a legal standpoint, as there can be serious penalties and repercussions for unethical trade practices, but it also makes good business sense, as consumers are more likely to support businesses that practice ethical trade.