Regulation Of Business And Ethics -PPT

Chapter 6: Govt. Regulation of Business and EthicsDavid Baumer, Spring 2003Govt. Regulation and EthicsMuch of the legal environment is based on govt. agencies, e.g., EPA, EEOC and so onThere are few constraints on the subject matter of the fed. govt. regulationJust about everything “affects” interstate commerceStill self-regulation is a potent force that is important in many professionsThe extent of govt. regulation of cyberspace probably depends how responsible or irresponsible participants areCertainly there have been a number cyberspace statutes passed alreadyAdministrative LawEnabling statutescreate and define administrative agenciesRegulations issued by administrative agencies first appear in the Federal RegisterAnd are later codified in the Code of Federal RegulationsTotal regulations at the fed. level are massive—19 feet of shelf spaceAdmin. AgenciesThe Occupational Safety and Health Administration is one of many govt. agenciesObviously OSHA is directed towards achieving greater worker safetyIn order to promulgate new substantiveregulations, admin. agencies have to comply with the Administrative Procedures Act (APA)The APA requires advance notice of proposed new regulations appear in the Federal RegisterThe APA also requires that the agency must provide an opportunity for interested parties to make their views known New RegulationsFor new regulations that are not substantive, but rather interpretativeor proceduralThe agency does nothave to provide noticein the Fed. Register and provide for hearing to receive commentsInterpretative regulations refer to how the agency interprets the laws it enforcesProceduralregulations relate to the requirements parties have to follow to complain about or appeal decisions of the agencyIndependent Admin. Agencies The heads of most agencies serve at the pleasure of the president and can be removed for any or no reasonThe heads of “independent”agencies have fixed terms and cannot be removed before the expiration of their terms unless there is a showing of malfeasance All agencies do various things to carry out their responsibilitiesInvestigations—they must determine if the laws they are supposed to enforce are being violatedIssue subpoenas—agencies are entitled to subpoena records from businessesMust be relevant to their authorityAdmin. AgenciesThese agencies have a lot discretionIt is best for businesses to cooperate with govt. regulators when possibleIn some cases litigation will take place but in other instances compromises can be worked outIf an agency decides to take action against a business they can take a number of sanctionsFines or penalties, Denial or revocation of licensesSeizure of propertyLawsuits against the company in federal courtsAdmin. AgenciesWhen agencies first take actions against a business they take the business before Admin. Law Judges(ALJs)ALJs are employees of the agency and they make factual findingsEither the agency or the business can appeal decisions of the ALJsUltimately the business an appeal the fed. courts if the disagree with agency actionsAdmin. AgenciesOften agencies have to decide whether to prosecute individual businesses for violations of law orPromulgate a regulation if the problem is sufficiently broad The FTC sometimes prosecutes a business for unfair and deceptive trade practicesbut it also writes industry wide regulations such as Guides for Adver. Allowances--what a business can and cannot do in this regardJudicial ReviewPart of the checks and balances is the ability of fed. judges to review and reverse decisions of admin. agenciesThere are several grounds for reversing decisions of admin. AgenciesThe action of the agency was arbitrary and capriciousThere was no scientific or technical basis for the actions of the agencyThe agency exceeded its authorityunder the enabling statute(s)The agency violated a constitutional protectionGenerally contained in the Bill of RightsJudicial ReviewIn many cases advocacy groups are looking for a hook to get into court to challenge actions of admin. agenciesE.g., environmental groups regularly sue the EPA for not being tough enough on polluters or not enacting regulations that are strict enoughIn order to get into court the advocacy group must show that it has standing to sue,that it has exhausted all internal appealswithin the agency and that the dispute is ripefor resolutionPower of InformationInformation is power in today’s economyFederal agencies keep lots of files, which are threatening to many peopleAlso fed. agencies have sought to squelch public accessRecognizing these problems, Congress has passed reform legislation Many of the Congressional reform statutes have numerous exceptionsPower of InformationFreedom of Information Act (FOIA)In general, citizens have a right to access to information about their govt. Among the exceptionsto the FOIA are:Records that relate to national defense, personnel files, records that are required to be kept secret, trade secrets that are in possession of a govt. agency, law enforcement records, and internal memoranda that reveals decision making. Govt. in Sunshine Actrequires public notice of meetings by an agency along with the agendaAgain there is a lengthy list of exceptions that enable govt. officials to hold meetings that are not announced and are closed to the public Information and PrivacyThe Federal Privacy Act of 1974 Relates only to actions of fed. AgenciesEssentially the Privacy Act makes illegal non-consensual secondary useof information disclosed to an agencyFor example, medical records obtained by the VA hospital should not be shared with the FBI unless there is permission by the patientThere are numerous exceptions the Act, so the protection offered is leaky at bestOther Controls on the Fed. BureaucracyCongress and the President can reduce or eliminate an agency’s budgetSunset legislation has occasionally been effectiveThe bill that creates the agency calls for its demise after a fixed period, unless Congress reauthorizes the agencyRequirements by Congress that an agency justify new regulations with cost-benefit analysishas slowed creation of new regulations by some agenciesEthics in BusinessEthics is the study of right and wrongSome cynical or anti-business types believe that business ethics are a shamMany claim that the Enron debacle took place in part because of lack of ethical training by high level executivesOf course ethics has attracted some of the best minds and they do not agreeKantian EthicsImmanuel Kant—18thCentury German philosopherCategorical ImperativeRules of conduct should be universalizableand reversiblePeople should never be used as a means to an endOrigin of the notion of inalienable rights—there are some rights that should not be accessible by government UtilitarianismUtilitarianismis the major competing ethical system to the Kantian systemIn essence, policies that result in the greatest good for the greatest number of peopleare judged as good and ethical under utilitarian way of thinkingUtilitarians could justify testing AIDS drugs even though they know that more of the control group will die if they do not receive treatmentKantians say never use people as means to an end UtilitarianismIs the fundamental tool used by economists to do cost-benefit analysisAlthough it is possible to imagine situations in which Kantian ethics yields different prescriptions that those of utilitarianism, in most cases it is possible both systems yield the same answerModern discussions of business ethics usually revolve around corporate obligations to various stakeholdersCustomers, employees, the neighborhood, shareholders, Business EthicsMost people would agree that the following are ethical:Protecting the environment—businesses can use recycled paperPreventing fraudas much as possible—certainly it would be unethical to profit based on deceiving people—people are being usedIncreasing tolerance for diversity—although homosexuals are not legally protected, they could be protected by a company’s code of ethicsEthical Business Actions Providing a Social Safety NetOccasionally the rules need to be made less rigid so that some people do not fall through the cracks of a social safety netCompanies should be concerned about their customersEspecially if there is evidence some are misusing the productsSome of the legitimate wine makers also put out highly sugared rot gut wines favored by winos Ethical Business ActionsShareholder Interests—There have been conflicts between SH’ers and top level corporate officersTwo unethical practices Insider trading—in the Enron scandal top corporate officers sold their shares of Enron before the news of the inflated revenues was made publicThe Anderson accounting firm, which audited the books of Enron, also made millions in consulting feesCommunity Interests—Some claim relocating production overseas is unethical, even though companies save moneyEthics and Govt. RegulationIn industries where ethics are much in evidence, sometimes there is less govt. regulationIndustries that will not clean up their acts are inviting govt. regulationWhen free rider problemsare severe, such as with air pollution, ethics is very unlikely to substitute for govt. regulationThe firms that do not pollute will incur higher costs and their contribution to cleanup is minuscule. Business Ethics and Combating FraudThere are many examples of self-regulation that combats fraudIndividual firms will take measures to combat consumer frustration as long as they receive recognitionTrade associations use collective trademarksto signify qualityAlso third partiessuch as Underwriters Laboratories (UL) license their TMs to firms that meet their quality standardsLicenses are used in a number of industries to weed out fraudulent practitioners Business Ethics and Govt. RegulationTypically govt. regulation takes two formsFull disclosurerequirements—cuts down on fraud, and SEC, FTC type regulation where agency staff are constantly searching and prosecuting fraudIn many cases, govt. regulation is a factor that harms small business more than large businessesThird WorldMany actions that are illegal in this country are legal in the Third WorldBecause minimum wages, worker safety and environmental standards are much lower in the Third World, it often makes economic sense for companies to relocate production thereSome claim it is unethicalfor a company to relocate for these reasons or that a company should do something in the country to raise wages, working conditions or public infrastructureProduct LiabilityAre companies always required to make products as safe as possible?Safer products may cost more and may be priced out of the marketDo consumers have any responsibility to be responsible for their own actions?—to be careful?Internet EthicsThere are a number of ethical challengesthat are unique to the InternetAmong the ethical challenges that arise in cyberspace are:Acquisition of information from users and customers, with and without their consentAcquisition of information from childrenCombining online and off-line databasesIt seems clear that if web sites do not organize themselves better, more govt. regulation will take placeP3P seems to be an interesting experiment in self-regulation