This Document Contains Chapters 5 to 7 Chapter 5 Constitutional Principles Introduction Chapter Five addresses these questions: • What is the importance of the Constitution? • How does the idea of federalism affect the government’s structure? • What is “separation of powers,” and what does it mean for the branches of government? • How does the commerce clause affect the legal environment of business? • What are the tax and spending powers of the federal government? • How do the Constitution’s amendments affect the legal environment of business? Chapter Five is significant because Constitutional provisions affect the daily work of business managers. Business managers need to understand the Constitution not only because it affects their work, but also because it guarantees their individual rights. Achieving Teaching Excellence Encouraging Better Student Responses to Questions in Class Once instructors learn how to ask good questions in class, instructors need to know how to get their students to give good responses. Instructors also need to know what to do with the responses students give. One of the best changes a teacher can make to improve student responses to questions is to increase the “wait time” after they ask a question. J.T. Dillon, in his article on research on questioning and discussion, explains the idea of wait time. Wait time refers to the amount of time a teacher pauses after asking a question. Instructors will know wait time is a problem for them if they answer their own questions without giving students time to think, and then respond. Thomas R. McDaniel, in his article on asking better questions in class, mentioned something surprising. He explains that the average amount of time a teacher allows students to respond to a question is ONE SECOND! Dillon cites research on wait time that suggests that waiting only two to three seconds after asking a question, and waiting again before asking another question, increases the amount and quality of student discussion. He writes that “[m]ore students talk, and students talk more; their talk is more relevant to the topic and more elevated in cognitive level.” McDaniel agrees. His article suggests that increasing wait time to three to four seconds after asking a question triggers these significant changes: Students give longer answers, more students volunteer, more questions are answered, students report that class is more interesting, students ask more questions, and student responses are more analytical. Students are more likely to synthesize, and they are more creative. Taking into consideration all those benefits, all that the instructors have to do is increase the wait time! Instructors must try to work on their wait time in classes. The wait time can be increased by instructors by counting (1…2…3…) to themselves and make sure that students have time to think and respond. Instructors would be surprised at how well students can answer the questions when they wait. Instructors often incorrectly assume that students who say “I don’t know this one” have nothing to offer the discussion. Now instructors will know and say, “It’s OK to think about it before you respond.” If instructors wait, student responses are generally good. It is important to develop a classroom atmosphere that not only tolerates, but also encourages silence. Once students respond to the instructor’s better questions, and give better answers, instructors need to know how to respond to their improved answers. Verbal reinforcements are important, McDaniel says, but instructors have to be careful. They need to use a variety of reinforcements, including nonverbal cues. Also, they have to be careful not to overuse reinforcements. Although telling students all their answers are great might boost their self-esteem in the short run, instructors must let them know that answers differ in quality. They are not all outstanding. Many are poor, and many are wrong. They should stress to students that the purpose of class time is to work with the material, and discover where they are confused. It is okay to make mistakes. That is how students can figure out what they do not know. McDaniel makes another good suggestion and writes that instructors should use a technique called “suspended judgment.” This technique “keeps the thinking process alive for longer periods.” McDaniel describes suspended judgment as a technique in which the instructor tries to keep the ball in the student’s court for some time. Instructors should spend a great deal of time “clarifying responses, rephrasing and simplifying answers to questions, synthesizing the best responses into a satisfactory composite answer.” In summary, instructors can get better responses from students if they give them time to think, reinforce their answers appropriately, and the instructor’s focused attention should be on their answers. When students work on the material in Chapter five, try to increase the wait time, to reinforce their answers appropriately, and use the technique of suspended judgment. References • J.T. Dillon, “Research on Questioning and Discussion,” 42 EDUCATIONAL LEADERSHIP 50 (November 1984). Thomas R. McDaniel, “A Question of Questions: Can We Ask Better Ones?” THE SOCIAL STUDIES TEACHER 242 (November/December 1979). Chapter Overview, Topic Outline, and Discussion Questions Chapter Overview Fiercely independent, highly individualistic, and very proud of their country would be a good characterization of Americans. Many say there is no place they would rather live than the United States. Much of their pride stems from a belief that they have a strong Constitution, which secures for all individuals their most fundamental rights. Most people, however, are not aware of precisely what their constitutional rights are or of how to go about enforcing those rights. This chapter provides the future business manager with basic knowledge of the constitutional framework of our country, as well as an overview of the significant impact of some of the constitutional provisions on the legal environment of business. This chapter is one of the most challenging chapters in the book. It is one that students find especially interesting. This chapter presents an opportunity to work especially hard on critical thinking. Instructors should devote a considerable amount of time and attention to the cases and critical thinking questions. Instructors should make sure to include a lengthy discussion of the Lucas v. South Carolina Coastal Commission case. Save time for it. Students may also be interested in the Paula Jones case. Finally, the chapter includes a new section on the taxing and spending powers of the federal government. This section’s focus on taxation of the Internet is especially interesting. Discussion questions come from throughout the chapter. The numbers of discussion questions have been limited, so instructors can focus their attention on the critical thinking questions that follow the cases. Topic Outline I. The Constitution II. Federalism A. Supremacy Clause B. Federal Preemption III. Separation of Powers William Jefferson Clinton v. Paula Corbin Jones IV. The Impact of the Commerce Clause on Business A. The Commerce Clause as a Source of Federal Authority Gonzales v. Raich B. The Commerce Clause as a Restriction on State Authority Nat’l Ass’n of Optometrists & Opticians v. Brown V. The Taxing and Spending Powers of the Federal Government A. Taxation of the Internet? VI. The Impact of the Amendments on Business A. The First Amendment Corporate Commercial Speech Central Hudson Gas & Electric Corp. v. Public Service Commission of New York Corporate Political Speech B. The Fourth Amendment Florida v. Jardines C. The Fifth Amendment D.A.B.E., Inc. v. City of Toledo D. The Fourteenth Amendment Standard of Review VII. Summary Discussion Questions for Chapter Five 1. How are the supremacy clause and federal preemption related? The supremacy clause is found in Article VI of the Constitution which provides that the Constitution, laws, and treaties of the United States constitute the supreme law of the land. It says that any state or local law that directly conflicts with the federal Constitution, laws, or treaties is void. The supremacy clause is the basis for the doctrine of federal preemption. Federal preemption is a doctrine used to strike down a state law that, although does not directly conflict with a federal law, attempts to regulate an area in which federal legislation is so pervasive that it is evident that the U.S. Congress wanted only federal regulation in that general area. 2. Explain why someone would say it’s true that the Commerce Clause allows Congress to regulate almost anything that happens within states. Some of the cases presented in the chapter show just how much power Congress has under the Commerce Clause. Almost any activity, even if purely intrastate, can be regulated by the federal government if it substantially affects interstate commerce. This effect may be direct or indirect. The case of Wickard v. Filburn shows how broad Congress’ power is under the Commerce Clause. In that case, the Court upheld the federal regulation of the production of wheat solely for consumption on the farm. The combination of many small farmers’ activities could have a substantial impact on the national wheat market. 3. Explain the significance of the issue of Internet taxation. Article I, Section 8 of the U.S. Constitution gives the federal government the “Power to lay and collect Taxes, Duties, Imports and Excises.” This same provision also gives the federal government spending power by authorizing it to “pay the Debts and provide for the common Defence and general Welfare of the United States.” State governments also have the right to impose taxes. Imposing taxes is difficult with regard to e-commerce because state laws impose sales taxes on businesses only when they have a store or distribution center in the state. Currently, more than one regulatory or advisory body (e.g., the Advisory Commission on Electronic Commerce) is studying how both federal and state governments could tax Internet commerce. A significant amount of money is at stake for both federal and state governments. Additionally, the issue is important because one reason why Internet retail sales are robust is the absence of sales tax. 4. Evaluate this statement: The First Amendment protects all kinds of speech equally. The First Amendment does not protect all kinds of speech equally. Some kinds of speech are not protected at all, such as speech that incites a riot (yelling “Fire!” in a crowded theater). Nor does one’s right of free speech extend to making false statements about another that would be injurious to that person’s reputation. Other kinds of speech enjoy limited protection. Commercial speech is less protected than other forms of expression. Commercial expression not only serves the economic interest of the speaker, but also assists consumers and furthers the societal interest in the fullest possible dissemination of information. The protection available for particular commercial expression turns on the nature of both the expression and the government interests served by its regulation. Not all corporate speech is considered commercial speech. Sometimes, for example, corporations might spend funds to support political candidates or referenda. 5. Evaluate this statement: The Fourth Amendment applies to individuals, but not corporations. The Fourth Amendment protects the rights of individuals to be secure in their persons, their home, and their personal property. It prohibits unreasonable searches and seizures. The statement above is inadequate because the Fourth Amendment applies to corporations as well as individuals. Corporations enjoy constitutional protection against unreasonable searches and seizures. For instance, administrative agencies cannot usually conduct warrantless searches. (It depends on whether the industry is so regulated that it should reasonably expect searches.) 6. Explain relationships between procedural and substantive due process. One relationship is that both are protected by the Fifth Amendment. They are two types of due process. Procedural due process requires procedural safeguards before there is a taking of an individual’s life, liberty, or property. Substantive due process refers to the basic fairness of laws that may deprive an individual of his or her liberty or property. Under substantive due process, we would ask, “Is the law fair?” Under procedural due process, we would ask, “Was the life, liberty, or property taken away only after we followed certain procedures?” Answers to Critical Thinking about the Law, Case Summaries, and Answers to Review Questions, Review Problems, and Case Problems Suggested Answers to Critical Thinking about the Law Questions 1. If one branch of government became too strong, it could engage in behavior that would not be in the best interest of citizens. Each branch was made independent of the others and was given a separate sphere of power to prevent any one source from obtaining too much power and consequently dominating the government. Separation of powers is consistent with the ethical norm of security. Citizens are confident that their rights will be protected. 2. The protection of unrestricted speech to citizens and businesses is consistent with the ethical norm of freedom. Businesses would not have to comply with restrictions on them imposed by others. 3. The business might suffer because a business manager would not have a full appreciation of his or her rights as a corporate citizen. For instance, business managers need to know the protections they have to engage in free speech. Business managers also need to know the limits of government action. The government is not allowed to violate the rights of a business. Case Summary—William Jefferson Clinton v. Paula Corbin Jones This case is in the book to show the limits of presidential immunity. In this case, Defendant Clinton sought to use presidential immunity to dismiss Paula Jones’ sexual harassment claim, or, alternatively, to delay the proceedings until his term of office had expired. The U.S. Supreme Court rejected Clinton’s argument. The Court reminded Clinton that the President does not have immunity that extends beyond the scope of any action taken in an official capacity. An official’s absolute immunity extends only to acts in performance of particular functions of his office. The Court also rejected Clinton’s argument under the separation of powers principles. Separation of powers principles would not be violated by allowing the action to proceed. The doctrine of separation of powers does not require federal courts to stay all private actions against the President until he leaves office. The Court reminded Clinton that “we have long held that when the President takes official action, the Court has the authority to determine whether he has acted within the law.” Also, “it is settled that the President is subject to judicial process in appropriate circumstances.” Case Summary—Gonzales v. Raich The case is in the book to show how the U.S. Supreme Court interprets the Commerce Clause. In particular, the case considers whether medicinal marijuana can be ceased and destroyed by federal authorities. In this case, to investigate Raich’s and Monson’s use of medical marijuana the authorities seized and destroyed their cannabis plants, even though California law allowed them to possess these. The Court found that the Federal Government was well within its rights because it is very hard to tell where marijuana originates. The Commerce Clause protected this act because Congress has the right to regulate drugs within the country. Therefore, even though it was legal in the state, the federal government still could destroy the plants if they feared they would be used illegally. Suggested Answers to Critical Thinking about the Law Questions 1. Wickard is applied here because it deals with farming a product for personal consumption. In both cases, the Commerce Clause regulates it because it can be transported for sale to different states. 2. The Court acknowledges that illegal drugs are much more of a concern than farmed food. It downplays the idea that the drug was not for sale, but rather for medicinal purposes. Case Summary—Nat’l Ass’n of Optometrists & Opticians v. Brown This case shows how California had a regulation that prohibited licensed opticians from offering prescription eye-wear in the same city or location where professional eye examinations are provided. The National Association of Optometrists and Opticians, LensCrafters, Inc., and EyeCare Centers of America, Inc. challenged this California statute, stating that it places a burden on interstate commerce that “excessively outweighs the local benefits of the law.” In this case, the district court granted the State’s motion for summary judgment. The plaintiff companies appealed. Plaintiffs challenge these laws to the extent they prohibit opticians and optical companies from offering prescription eyewear at the same location in which eye examinations are provided and from advertising that eyewear and eye examinations are available in the same location. The district court denied Plaintiffs’ motion for summary judgment and granted the State’s motion for summary judgment. The court effectively concluded that, based on the facts and the law, there were no genuine issues of material fact. Plaintiffs argued that the challenged laws impermissibly burdened interstate commerce because: 1) the challenged laws preclude an interstate company from offering one-stop shopping, which is the dominant form of eyewear retailing; and 2) interstate firms would incur a great financial loss as a result of the challenged laws. Case Summary—Central Hudson Gas & Electric Corp. v. Public Service Commission of New York This case shows how the Supreme Court applies the First Amendment to corporate commercial speech. This case considers the constitutionality of a regulation that completely banned promotional advertising by the utility, but permitted informational ads. The U.S. Supreme Court reversed the lower courts and ruled in favor of Central Hudson. The Court decided that New York’s regulation violated the First Amendment. Suggested Answers to Critical Thinking about the Law Questions 1. The primary ethical norm implicit in the requirement that regulations on commercial speech be of the most limited nature possible is freedom. One definition of freedom is “to act without restriction from rules imposed by others.” This nation has a history of protecting freedom of speech, so the Court wants to make sure it does not violate this ethical norm. 2. The Public Service Commission is concerned because Central Hudson holds a monopoly over the sale of electricity in its service area. It is concerned that their advertising could endanger energy conservation or mislead the public. It would be interesting to find out more about why Central Hudson wants to advertise (given that it has a monopoly) and exact content of its regulations. That information would help students decide how much to regulate Central Hudson. Case Summary—Florida v. Jardines This case deals with the question of whether it is ethical to conduct searches without a warrant. A detective received an unverified tip that marijuana was being grown in Jardines’ home. A month later, the Police Department and the Drug Enforcement Administration sent a joint surveillance team to Jardines’ home for investigation. The detective approached Jardines’ home accompanied by a trained canine handler who had just arrived at the scene with his drug-sniffing dog. Jardines cited the Fourth Amendment. He argued that the search could not be admissible in court as evidence since it was gathered unlawfully and unsupported by probable cause. The Supreme Court ruled that the issue here was not just pertaining to the Fourth Amendment but it extended to the aspect that it was a case of trespassing and invasion of privacy. For this reason the court ruled in the favor of Jardines. Case Summary—D.A.B.E., Inc. v. City of Toledo This case deals with the Clean Indoor Air Ordinance’s ability to regulate smoking in public places, including restaurants, bars, and so on. A group of bar, restaurant, and bowling alley owners came together as D.A.B.E., Inc., to sue the city of Toledo, citing the Fifth and Fourteenth Amendments. They argued that the act constituted an unfairly regulatory taking of their property. The Supreme Court ruled that the ordinance was legal because there was no taking of private property. It did not regulate the property, only the people. Compliance did not create an undue hardship because the owner did not have to spend money to put in a lounge. But even if he or she wanted to, that was not enough to make the ordinance unlawful. Lastly, there was no regulation of smoking in places of public assembly, so the ordinance stood. Suggested Answers to the Critical Thinking about the Law Questions 1. Martin relied on the reasoning above: there was no taking of property and there was no hardship on the owners. 2. It seems Martin is relying on public health and safety. For him, it obviously takes precedent. Answers to Review Questions 5-1. The supremacy clause is the basis for the doctrine of federal preemption. The supremacy clause says that the Constitution, laws, and treaties of the United States constitute the supreme law of the land. Federal preemption is the doctrine used to strike down a state law that, although does not directly conflict with a federal law, attempts to regulate an area in which federal legislation is so pervasive that apparently the U.S. Congress wanted only federal regulation in that general area. This doctrine is valid because of the supremacy clause. 5-2. The Commerce Clause provides the basis for most of the federal regulation of business today. The Commerce Clause allows the federal government to regulate any activity that substantially affects interstate commerce. 5-3. Police power means the residual powers retained by the state to enact legislation to safeguard the health and welfare of its citizenry. 5-4. The courts have attempted to resolve the conflict over the impact of the Commerce Clause on state regulation by distinguishing between regulations of commerce and regulations under the state police power. When courts perceive state laws to be attempts to regulate interstate commerce, they will strike the law down. However, when the courts finds state laws are based on the exercise of state police powers, they will uphold the law. 5-5. A regulatory taking occurs when a government regulation becomes so onerous as to constitute a taking for which compensation is required. The key is whether a regulation renders the land “valueless.” In (a), there is minimal interference. With (b), the land still has value even if billboards cannot be placed on the land. In (c), compensation would be required if the land became valueless, and Florida Rock Company’s plans were not creating a “noxious use.” 5-6. In general, commercial speech enjoys less protection than private speech. That is because it is expression solely related to the economic interests of the speaker and speaker’s audience. Commercial speech has less value than private speech, so courts are less willing to protect it. Answers to Review Problems 5-7. This law will be challenged under the first amendment. The challenge by the tobacco industry will focus on the nature of the expression and the governmental interests served by the regulation. Here, the tobacco industry will not succeed in challenging the law. This case is similar to the case of Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, only the law does not seem more restrictive than is necessary to serve the government’s interests. The law does not ban all advertising and all cash contributions—only specific kinds. (Of course, the facts are ambiguous, and this case can be argued in the opposite way.) 5-8. Probably not. Ms. Crabtree suffered the loss of her job, but she was given a one year, nontenured contract. Her deprivation was not that great because she had not been assured she’d have a job after a year. Because she was not deprived of much, Students will have low expectations about the procedures the state must follow. 5-9. The landfill operators will say the state cannot make any law that impairs the obligations of any person under a contract. This law affects their contracts with out-of-state waste generators. The State will argue that their law is reasonable, so it should be upheld. The State must argue that the law is designed to meet an emergency, that it serves a general societal interest, the relief is appropriate to the emergency, the conditions imposed must be reasonable, and the legislation must be limited to the duration of the emergency. The State will probably win. The landfills are becoming “too full at too rapid a pace.” Sounds like an emergency. 5-10. Under Braswell, Chen will have to comply with the subpoena. Because Chen has incorporated, he is acting as a representative of the corporation. Regardless of how small the corporation, Chen cannot claim privilege. 5-11. No. Ricardo will not be able to argue that the regulation is so onerous as to constitute a taking for which just compensation is required. He will still be able to stay in business and use his property. He just has to undertake some additional expenses. That’s the price of progress in America. 5-12. The plaintiffs would say there has been a regulatory taking. They would be wrong. A law has changed the way the plaintiffs can use the land, but it has not made the property valueless. Answers to Case Problems 5-13. This case is related to First Amendment rights. The Wilson twins were suspended from school for creating a blog site which contained highly racist and sexually explicit comments about several girls in their high school. Although their freedom of speech was not violated, they are still responsible for posting hate speech on their blog. Therefore, they will have to face the consequences of their actions. 5-14. In this case the plaintiffs argue that they were discriminated against and when they filed a complaint they were discharged from their duties. However, the court held that their freedom of speech was not violated as they addressed private problems and were not public in nature. Additionally, the internal grievances were redressed due to which this involvement of the court was not necessary. 5-15. The court affirmed the lower court’s ruling. It held that Congress had the authority to pass the Body Armor Act of 2002. The interstate sale and possession of body armor is a sufficient link to the Commerce Clause. This case is similar to Gonzales v. Raich, because both cases address the issue of how to interpret the Commerce Clause. The clause, like most of the Constitution, is vague enough to be open to various interpretations. 5-16. The court upheld the district court’s decision by ruling in favor of Tennessee Governor Bredesen and the Constitutionality of the new law. The court found that the law was in accordance with the Commerce Clause because regulating the trade of scrap metal does not excessively burden interstate commerce. It also found that the law did not violate the Fifth Amendment because even if holding the metal for ten days deprived scrap dealers of their property, they are still entitled to due process. 5-17. The ordinance to ban pit bulls and other select dog breeds inside the city limits was ruled by the Court to be constitutional. There is no fundamental constitutional right that protects the ownership of dogs. The ownership of dogs is qualified by the safety of society. The Court deemed that the dog breeds listed in the regulation were dangerous and costly to control. Because there was a rational basis for the ban, it did not violate Due Process or Equal Protection Clause. 5-18. The court’s decision on the appeal was reasonable because the police used the GPS device surpassing the stipulated time frame and geography specified for a warrant. The plaintiff government agents’ act violates the Fourth Amendment as it constituted an act of trespassing on private property making the search unreasonable. 5-19. The appeals court ruled in favor of Phelps. It decided that the First Amendment protected Phelps’s actions because the statements were a matter of public concern, where not provably false and were only expressed through hyperbolic rhetoric. The statements were not dangerous threats so they were still protected under the First Amendment. The Free Speech Clause can be used as a defense in state tort suits and it was in this case. 5.20. In this case the plaintiff would not have been able to receive compensation other than monetary payment. This is because there was a reason for which the plaintiff was debarred and it was up to the discretion of the Court to reinstate his license or to revoke it. Thinking Critically about Relevant Legal Issues 1. The issue here is that corporations should be given the right to openly endorse a candidate, just as any person can. The conclusion would be that freedom of speech applies to corporations. 2. There is a case citation and the idea that businesses are protected under the Constitution and therefore have rights, such as freedom of speech. 3. There are misleading analogies that make it seem as though not allowing corporations to endorse candidates or speak out on political issues will lead to keeping corporations quiet. The author seems to miss the idea that corporations are made up of people with diverse backgrounds. 4. Corporations should not be allowed to speak about politics because they are not people. They are made up of people with many different viewpoints. The company, to be fair, would have to represent and speak about all political ideas within the company. The problem remains that the CEO would have the last say. Lastly, one could see that if disagreements arise from differences in the “corporate stance” and the stance of employees, unlawful firing of employees could result. Chapter 6 White Collar Crime and the Business Community Introduction Chapter Six addresses these questions: • What is crime and what is criminal procedure? • What are the distinguishing features of white collar crime? • Which are the common white collar crimes? • How can we prevent white collar crime? • What federal laws are used in the fight against white collar crime? • What state laws are used in the fight against white collar crime? • What are the global dimensions of white collar crime? Chapter Six is significant because it helps managers become aware of what it means to engage in corporate crime. Not only can managers avoid getting involved in crime, they can also understand why the public’s tolerance for criminal behavior in the corporate world is decreasing. Managers must be prepared to respond to reduced public confidence. Achieving Teaching Excellence Adopting a “No Fault” Policy for Grading Attendance/Preparation/Contribution to Class Discussions For those instructors who are willing to reward excellent in-class contributions to discussions, this section urges them to adopt a “no fault” attendance policy. This attendance policy also factors in student preparation, and the quality of student contributions to class discussions. Instructors get tired of students giving them feedback that said, in essence, “You should not punish me if I cannot attend class for reasons such as a grandparent’s funeral, job interview, and so on.” Instructors disliked that feedback because they were never trying to punish anyone; instructors were, instead, trying to reward those students who came to class, exceptionally well prepared, and made contributions to move discussions forward. Students who did not attend, came unprepared, or did not speak in helpful ways were simply ineligible for the reward. Instructors also grow weary of students’ idea that they should be allowed to turn in their answers to the discussion questions if they could not come to class. Their goal was to prove their preparation, even though they did not attend or did not contribute. Instructors should make it clear what they are rewarding—attendance combined with preparation and meaningful contributions to discussions. Plus, instructors should also make it clear that they respect students. Instructors should make positive assumptions about students when they do not appear in class, prepared, and ready to contribute. Instructors should always assume a student had a good reason for not attending class, prepared, and ready to contribute. By adopting a “no fault” attendance policy, the instructors’ time is saved because they don’t have to seek doctor’s notes and other documentation proving the student had a valid reason for not attending/preparing/contributing. Instructors should give each student a certain number of “misses” before they drop to a lower range of grading options. Note also that students are eligible for a number of grades within a particular range. Instructors should give themselves much discretion for judging the quality of students’ contributions to the discussions. Instructors should make sure that their own negligence does not back them into a situation in which they have no choice but to give students high grades for this component of the course, even when they might be marginally prepared. How could this happen? Suppose an instructor starts out a participation policy, which includes a participation sheet and discussion or study questions. Now, suppose instructors find themselves doing more than their share of the talking, they do not really know whether students who are signing the participation sheet are prepared and capable of making contributions to discussions. How do instructors make sure the students are remaining honest about their preparation? The best solution is to call on students frequently and randomly. Another idea is to check their preparation by asking them to turn in an answer to one of the study questions they have prepared for the day. For instance, sometimes an instructor walks into class and says, “Copy what you have written as an answer for study question 2 onto a separate sheet of paper, write your name on it, and turn it in.” Then, the instructor can check to see whether a student’s answer shows good preparation. If it does not, the instructor can remove the student’s name from the participation sheet and warn the student (privately), that they must be honest about signing the participation sheet only when they are prepared. If the student gets caught a second time, the instructor should impose a more serious consequence. Instructors have found that their clear expectations, combined with no fault attendance/preparation/contribution policy, set the stage for having a full, prepared class that appreciates the rewards instructors offered. It will take vigilance on the instructors’ part to set the stage for success, especially at the beginning of the semester. It will be worth the time and energy to set this stage. Instructors will end up with meaningful, productive in-class interactions. Chapter Overview, Topic Outline, and Discussion Questions Chapter Overview White-collar crimes—crimes committed in a commercial context—occur every day. Collectively, these crimes often result in millions of dollars of damages. In recent years, as corporate crimes have become more publicized, people’s attitudes toward corporations and white-collar crime are being affected. The future manager must be prepared to respond to a growing lack of public confidence and avoid becoming a corporate criminal. He or she must find ways to develop a corporate climate that discourages, not encourages, the commission of white-collar crime. Topic Outline I. Crime and Criminal Procedure A. Crime B. Criminal Procedure The Miranda Warnings Booking and First Appearance Information or Indictment Plea Bargaining Burden of Proof Defenses II. Distinguishing Features of White-Collar Crime A. The Corporation as Criminal B. Arguments in Support of Corporate Liability C. Arguments in Opposition to Corporate Liability D. Imposition of Liability on Corporate Executives United States v. Park E. Imposition of Liability on Lower Level Corporate Criminals F. Factors Encouraging the Commission of White-Collar Crime G. Sentencing of White-Collar Criminals III. Common White-Collar Crimes A. Bribery B. Violations of Federal Regulations C. Criminal Fraud United States v. Gray D. Larceny E. Embezzlement F. Computer Crimes Destruction of Data Unlawful Appropriation of Data or Services Entering of Fraudulent Records or Data into a Computer System Financial Crimes IV. Prevention of White-Collar Crime V. Federal Laws Used to Fight White-Collar Crime A. The Racketeer Influenced and Corrupt Organizations Act (RICO) Boyle v. U. S. B. False Claims Act C. Sarbanes-Oxley Act D. Whistleblower Protection Act VII. State Laws Used in the Fight Against White-Collar Crime VIII. Global Dimensions of White-Collar Crime IX. Summary Discussion Questions for Chapter Six 1. How is criminal procedure different from civil procedure? Criminal procedure is initiated somewhat differently from civil procedure. Both include many steps, but criminal procedure emphasizes protecting the defendant’s rights. From beginning to end, criminal procedure makes sure the defendant knows his or her rights, and requires prosecutors to have enough evidence to move forward to another step. Another difference in procedure is that in civil procedure, the steps encourage settlement of the case. Recall that discovery makes people aware of the strengths and weaknesses of their claim, so they might settle. In criminal cases, plea bargains are common, but discovery is not as open as in civil cases. 2. How is the burden of production of evidence related to the burden of persuasion? One relationship is that both are required in criminal cases. Another is that both burdens fall on the prosecutor. They are different in that the burden of production of evidence means that the prosecutor must prove all of the elements of the crime. The prosecutor must present physical evidence and testimony that prove all elements of the crime. The burden of persuasion means the prosecutor must convince the jury beyond a reasonable doubt that the defendant committed the crime. 3. Why might someone say this statement is true: White collar crime does not have a precise meaning? The textbook authors believe this statement is true. They point out more than one definition of white collar crime. Sociologist, Edwin Sutherland’s definition is that white collar crime is a crime committed by a person of respectability and high social status in the course of his occupation. Traditionally, white collar crime has been the classification for those crimes committed in a commercial context by members of the professional and managerial classes. 4. Why might someone say this statement is true: Liability should be imposed on the corporation for the criminal acts committed by employees of the corporation on behalf of the corporation? The following arguments may be presented in favor of the statement: • Imposing liability on a corporation for criminal acts committed by its employees will result in lower dividends for the shareholders, which will make shareholders take a more active role in trying to make sure the corporation behaves legally. • In situations where crime is a crime of omission, the responsibility for performing the omitted duty is not clearly delegated to any specific party. As the duty rests with no particular individual, there is no one to blame if the corporation cannot be held responsible. • There are many suspects in a corporation. It is difficult for enforcement agencies to investigate many employees. • The fact that many corporate decisions are committee decisions makes it difficult to point the finger at specific individuals. • Corporate personnel are expendable. • Often the behavior in question resulted from a pattern of behavior common to the whole company, so it is difficult to blame just one or two individuals. • People do not want shareholders to benefit from illegal activity. This could happen if shareholders get higher dividends because corporate crime costs are lower. • If an action is taken against the corporation, the criminal act will be linked to the corporation in the public’s mind. Consumers need this information to make informed decisions. 5. Now evaluate the statement written in question 4. The following arguments may be presented against corporate liability: • Imposing fines on corporations is a waste of time and effort because the fines are never going to be severe enough to act as a deterrent. • Some argue it is unfair to allow dividends to be reduced because shareholders cannot control corporate conduct. • Because criminal prosecutions of corporations are not well publicized, they do not harm the corporation’s public image. Ask your students to explain the strongest argument for and the strongest argument against imposing criminal liability on corporations. 6. What factors encourage the commission of white collar crime? Exhibit 6-6 lists the following factors that encourage the commission of white collar crime: • Societal stress on material success, without equal emphasis on means of achieving success • Linkage of corporate rewards of salary and promotion to accomplishing short-term goals • Groupthink • Ease of rationalizing illegal behavior • Dispersion of decision making • Retention of status by persons convicted of white-collar crime • The lack of an adversarial relationship between the corporation and government regulators • Poor personnel policies that leave employees feeling insecure, unappreciated, and underpaid Ask students to explain one or two of these factors. Also, ask students to add one or two factors to the list. 7. Why do street criminals usually receive stiffer penalties than white collar criminals? The following are some of the reasons for street criminals receiving stiffer penalties than white collar criminals: • White collar criminals can often afford superior legal counsel. • Many white collar criminals use the nolo contendre plea. They then receive minor penalties. • Victims are not clearly identifiable at the trial. This makes judges less concerned about keeping offenders away from society. • Judges also consider that the white collar criminal can make restitution if given his or her freedom. • Also, many judges believe the rehabilitation prison offers will not help white collar criminals because they already have relatively high levels of education and marketable skills. 8. What kinds of white collar crime are the most common? Some of the more common white-collar crimes are bribery, violations of federal regulations, criminal fraud, larceny, embezzlement, and computer crimes. 9. Explain relationships between larceny and embezzlement. Both larceny and embezzlement are common white collar crimes. Larceny is the secretive and wrongful taking and carrying away of the personal property of another with the intent to permanently deprive the rightful owner of its use or possession. The means of carrying out this crime is stealth. Embezzlement is defined as the wrongful conversion of the property of another by one who is lawfully in possession of that property. Larceny and embezzlement sometimes overlap. 10. What are the best ways to prevent white collar crime? The following are some of the best ways to prevent white-collar crime: • One suggestion is to replace state chartering of corporations with federal chartering. • An even more innovative suggestion, put forward by Christopher Stone, is that each corporation doing more than a certain amount of business be required to have a general public director (GPD). • Two other proposals are to link the amounts of fines to the benefits obtained by the violations and to increase the amount of both corporate and individual fines. • Some also suggest elimination of the nolo contendere plea. • Because it is believed that the courts are unlikely to impose stiff fines on either corporations or convicted executives, the imposition of equity fines has been proposed. • Another remedy is to increase the operating budgets of the regulatory agencies to allow them to hire more people to monitor corporations and to improve the training of regulatory agency employees. The above ideas and suggestions are all beyond the direct control of most corporate managers. There are, however, some very practical things that managers can do to reduce the likelihood that their employees or companies will commit white-collar crimes: • Have a well-defined company code of ethics that the employees read and sign • Provide a hotline for anonymous tips • Provide an employee assistance program • Conduct proactive fraud auditing 11. Explain relationships between Racketeer Influenced and Corrupt Organizations Act (RICO) and the False Claims Act. One relationship between RICO and the False Claims Act is that both are federal laws that fight white-collar crime. RICO prohibits persons employed by or associated with an enterprise from engaging in a pattern of racketeering activity. The False Claims Act takes a different approach to fighting white-collar crime. It allows private citizens to sue employers on behalf of the government for fraud against the government. Answers to Critical Thinking about the Law, Case Summaries, and Answers to Review Questions, Review Problems, and Case Problems Suggested Answers to Critical Thinking about the Law Questions 1. This situation involves a clash between efficiency and security. On the one hand, business managers want efficiency—to minimize costs. The Environmental Protection Agency (EPA) fine would be a cost managers would want to avoid. On the other hand, as a citizen of the community managers count on the EPA to protect their property rights from those who might want to interfere by violating environmental standards. The EPA ensures security for everyone. Also, making sure the EPA does its job shows support for honesty or perhaps justice, depending on how people define justice. People want the EPA to conduct its work free from undue influence by those with enough money to bribe. 2. When a young woman commits a robbery, usually only the one victim of the robbery suffers. When a business manager embezzles, there are more victims. The embezzlement could put the whole company in financial jeopardy, which could damage customers, employees, and the community. 3. One definition of justice is to treat all humans identically, regardless of class, race, gender, age, and so on. Hypothetically, the biggest difference between the embezzler and robber is probably class. Probably, the person who embezzles enjoys a higher standard of living than the robber. The intent behind the crimes is similar. If the judge believes in a definition of justice that stresses treating people identically regardless of class, he or she will give the same sentence to both criminals. Case Summary—United States v. Park United States v. Park is in the book to show a case in which a court was willing to impose criminal liability on a corporate executive. The case involved a president of a national food-chain corporation who was charged with violating the Federal Food, Drug, and Cosmetic Act by allowing food in the warehouse to be exposed to rodent contamination. Park claimed he had turned over responsibility for sanitation over to dependable subordinates. The trial court found him guilty, the court of appeals reversed, and here the U.S. Supreme Court ruled in favor of the government, not Park. Suggested Answers to Critical Thinking about the Law Questions 1. It was very important to the Court that Park had, by reason of his position in the corporation, responsibility and authority to prevent the inappropriate acts in the first instance, or promptly to correct, the violation complained of, and that he failed to do so. He admitted he had received a warning letter from the Food and Drug Administration regarding the unsanitary conditions at one of the company’s warehouses. 2. Dotterweich was significant because it held that corporate officers could be subject to criminal liability under food and drug legislation. The case held that people could hold criminally accountable the persons whose failure to exercise authority and supervisory responsibility resulted in violation of the law. Case Summary—United States v. Gray This case is in the book to present an example of what it takes for a conviction under the mail fraud statute to stick. The appellant, Gray, lost his appeal when he claimed that his fraudulent scheme was so absurd that a person of ordinary prudence would not have believed it. The court ruled that ‘the mail fraud statute does not require that every representation a defendant utters while executing his scheme must be credible.’ It was enough that Gray’s scheme to defraud ‘involved the use of material, false representations or promises.’ Suggested Answers to Critical Thinking about the Law Questions 1. The mail fraud statue does not require any particular action or belief on the part of the person being defrauded. Instead, the focus is on the person committing the fraud. 2. This decision is consistent with the norm of security—victims of mail fraud know the focus will not be on them. Instead, the focus is on the alleged criminal. Case Summary—Boyle v. U. S. This case is in the book to present an example of what it takes for a conviction under the Racketeer Influenced and Corrupt Organizations Act (RICO) to stick. There was sufficient evidence presented to prove that Boyle and the others had committed the crime. The District Court instructed the jury that to establish a RICO association-in-fact “enterprise.” Boyle was the petitioner who was convicted on 11 of the 12 counts against him, including the RICO counts, and was sentenced to 151 months’ imprisonment and the Second Circuit affirmed. Boyle appealed to the U.S, Supreme Court. Answers to Review Questions 6-1. The purpose of criminal law is to punish persons who engage in activities that are harmful to the public health, safety, or welfare. 6-2. Crimes are generally classified as treason, felony, misdemeanor, or petty crime on the basis of the seriousness of the offense. Treason is engaging in war against the United States or giving aid or comfort to its enemies. Felonies include serious crimes such as murder or rape; felonies are punishable by death or imprisonment in a penitentiary. Misdemeanors, which are considered less serious crimes, are punishable by a fine or by imprisonment of less than a year in a local jail. In most states, petty crimes are considered a subcategory of misdemeanors; they are usually punishable by a fine or incarceration for six months or less. 6-3. The basic procedural stages in a criminal prosecution are arrest, booking, first appearance, information (for misdemeanors) or indictment by grand jury (for felonies), arraignment, trial, and appeal. 6-4. One definition of a white collar crime is crime committed by a person of respectability and high social status over the course of his occupation. Another definition is crimes committed in a commercial context by members of the professional and managerial class. Students’ examples may vary. One crime that would fit under both definitions is if a bank officer embezzled money from the bank. A crime that would fit under the first definition, but not the second, would be a crime committed as part of a person’s occupation, but not in a commercial context. If the bank manager raped an employee on the work site, this would be white collar crime under the first definition, but not under the second because it would not be a crime in a commercial context. 6-5. The basic rationale for imposing criminal liability on corporations is that the corporation can act as one unit—like an individual—and that it makes more sense to impose liability on the corporation than individual actors within the corporation. 6-6. One sentencing alternative is to make the white collar criminal pay a fine rather than go to jail. Another is to make the offender do community service, such as having them work among the poor in drug rehabilitation clinics. Answers to Review Problems 6-7. Matheson could be held liable. He cannot escape liability by announcing the limits of his authority. Individuals in positions of authority can be held liable for violating statutes even when they try to redefine the limits of their authority. 6-8. No, the defense was not valid. Generally, corporations are liable for their agents, even when they act contrary to general corporate policy. This policy encourages corporations to make sure their agents act properly. 6-9. It depends. In United States v. Park, the court did not have much sympathy for Park because he was aware of legal violations. Laffal did not know. However, he will still lose. Courts expect presidents of corporations to know what goes on in the company. The only way Laffal might win is if he can show his employees make every effort to hide their illegal activity from him. Then a jury would at least feel sorry for Laffal. 6-10. Evans, the loan officer, violated the law. His behavior looks like criminal fraud. He has an intent to defraud, he committed the act (through Docherty), and accomplished the fraud. Docherty is an accomplice to the fraud. 6-11. Defendant engaged in a specific type of fraud—false pretenses. He misrepresented facts to obtain money from Mrs. Russ. 6-12. Mr. Jones is displaying behavior similar to Mr. McGraw’s behavior in State v. McGraw. We’d have to look at the relevant state statute for theft. Still, if Mr. Jones is in a state such as Indiana, he will be found guilty of theft. Mr. Jones could “test” the product without making any money. If he simply tested it, the behavior would not be a crime. Here, he is engaging in the crime of theft. Answers to Case Problems 6-13. The court ruled that charge 3, disclosure of budget deliberations, was lawful because it is not protected under the Whistleblower Protection Act. However, the court found in favor of Chambers with regards to charge 2, concerning issues of public safety. These allegations were substantiated enough to be protected under the Whistleblower Protection Act. The court remanded the Department of the Interior to reconsider Chambers’ penalty based on the reversal of charge 2. 6-14. The appeals court affirmed Kimoto’s conviction by finding him in violation of all counts, including conspiracy, mail fraud, and wire fraud. The government was able to establish that Kimoto had intent to defraud and showed Kimoto’s knowledge of the fraudulent activities within his company. As President of the company, Kimoto was aware that the scripts were deceptive and had told employees the cards had to be sold using that method. 6-15. In this case, the court found that Sam’s Wines & Liquors, Inc. had not properly pled damages under Computer Fraud and Abuse Act (CFAA). The company must allege damages and loss but because they did not properly plead damage under CFAA that motion was dismissed. However, the court also found that Sam’s Wines & Liquors, Inc. still has reasonable probability of jurisdiction over any other sources of damages they may have. 6-16. The Supreme Court upheld that lower courts verdict. The court stated that Thompson had waived his Miranda rights. This is because he voluntarily and willingly agreed to make a statement to the police. 6-17. Joel Ruben would be guilty of fraud because he deceived the government into thinking that his mother was still receiving the checks. Basically, the government would need to prove that the mother did not gift the money to him and prove that Ruben intended to use the money only for himself and continue to claim to be his mother. 6-18. The court of appeals affirmed the trial court’s decision to convict and sentence Harvey and Kronstein. The government was able to sufficiently establish intent to defraud by showing that Kronstein’s contract proposal identified nine positions but he only filled six. Kronstein submitted an invoice to bill INSCOM for nine employees and Harvey approved the invoices. 6-19. The appeals court affirmed the trial court’s decision. Terry continuously embezzled gasoline over a period of time. The state had provided him with a timeline of when the embezzlement took place and Terry had access to documents that recorded each individual date. The time frame provided to Terry was deemed sufficient to notify Terry of the charges against him. 6-20. In order to win this case, Robbins’s attorney would have to prove that a constitutional violation was committed by the RICO employees. However, the employees of the Bureau of Land Management could not be held responsible as other forms of relief were available to Robbins. Additionally, even though the negotiations between the two parties were tough, no constitutional violation was committed. For this reason it would be difficult to win this case. Thinking Critically about Relevant Legal Issues 1. The main argument here is that managers should not be held accountable for the actions of employees. The author argues that managers have to trust employees to get the job done and when they do not, they fall short in their other duties. The author would conclude that managers need to be seen as overseers, not as extensions of the employees. 2. A good piece of information here would be what exactly a manager is. How much influence does he or she have over a project? What are his or her duties? Because manager is such a broad term, it needs to be clarified. 3. Here the author is looking at independence and human nature. It is in one’s nature to make mistakes. He believes that a manager cannot influence an employee in a way to eliminate mistakes. An opposite view would rely on the notion that a manager is in charge of a project. If there are any problems along the way, they are his or her responsibility. If that responsibility is forgone, then it is on the manager. A good manager makes sure that his or her employees know exactly what to do and is involved enough so that he or she can check every step of the way to make sure that nothing has gone wrong. Chapter 7 Ethics, Social Responsibility, and the Business Manager Introduction Chapter Seven addresses the following questions: • What is business ethics? • What does social responsibility mean? • What are some recognized theories of ethical thought and their application to business problems? • What purposes do codes of ethics serve? • Do people have different perspectives on what a business should do if it wants to be socially responsible? • What are the global dimensions of ethics and social responsibility? Chapter Seven is significant because issues related to ethics and social responsibility affect every business manager. The effects are both personal and professional. Students are usually interested in the ethics and social responsibility material. The themes of ethics and social responsibility have been used throughout the legal environment of business course. This textbook makes it easy to use these themes because the continual reference to the ethical norms of efficiency, security, justice, and freedom remind students of ideas that fall under the topics of ethics and social responsibility themes. Achieving Teaching Excellence “Ethics and Me” Exercise If instructors teach students who are employed, then it might be interesting to hear the kinds of ethical dilemmas they face at work. Here’s how to find out in a structured way that allows everyone in the class to participate. At the beginning of class time that the instructor plans to devote to this chapter, ask students to write down the answer to these questions: 1. Think of a moment when you discovered that the word “ethics” affected you at your job. Note: At this point, do not worry that students have not yet read a definition of the word ethics. 2. Write for five minutes, answering these questions: What was happening at this moment when you discovered that the word ethics had something to do with your working life? Who was there? How did you feel about this moment? Then, after students have written for five minutes, engage in serial testimony. Instructors should go around the room and ask each student to read some of what they wrote, all of what they wrote, or to pass if they do not want to speak. Give each student a three minute time limit, and stick to it. Instructors may want to participate in the exercise too, sharing a moment of their own. As instructors go around the room, they should take notes of the moments students shared. These moments can be used later in discussions of the chapter. Instructors might be surprised at the seriousness of some of their students’ dilemmas, and at their relevance to material in the chapter. To get a sense of closure after students have shared the real dilemmas they face at work, let them know that in this chapter, they will learn some strategies for responding to ethical dilemmas. They will also get a sense that some of the dilemmas they face are common, and solvable. Chapter Overview, Topic Outline, and Discussion Questions Chapter Overview This chapter presents material on business ethics in a neutral way. Readers are left to make their own choices about what part ethics should play in business decision making and about whether the business community, the trade groups that represent it, and individual managers should act in a “socially responsible” manner. This chapter includes (1) a broad definition of ethics and social responsibility; (2) some recognized theories of ethical thought and their application to business problems; (3) a discussion of individual, corporate, trade association, and professional ethical codes; and (4) schools of social responsibility as applied to business problems. The chapter ends with a brief discussion of some current trends in the area of ethics and social responsibility, as well as some proposals now being debated, which, if implemented, would change the structure of corporate governance. This chapter falls in a good place in the book. Just as students are getting the hang of figuring out what ethical norms underlie judicial opinions, they get more information about ethics and social responsibility. The chapter presents basic, clear information about those topics. The chapter also succeeds in its promise to refrain from being preachy. The cases provide good facts that allow discussions of alternative definitions of ethics and social responsibility. Additionally, instructors should try starting class with “ethics and me” serial testimony for a change of pace. Topic Outline I. Definition of Business Ethics and Social Responsibility A. Business Ethics B. The Social Responsibility of Business In re Exxon Valdez II. Theories of Ethical Thought A. Consequential Theories B. Deontological Theories Bates v. State Bar of Arizona C. Humanist Theories III. Codes of Ethics A. Individual Codes of Ethics B. Corporate Codes of Ethics Corporate Ethics C. Industry Codes of Ethics D. Professional Codes of Ethics Accounting Insurance and Finance Law IV. Schools of Social Responsibility A. Profit-Oriented School B. Managerial School Cooper Industries v. Leatherman Tool Group, Inc. C. Institutional School D. Professional Obligation School E. Regulation School Fog Cutter Capital Group v. Securities and Exchange Commission V. Global Dimensions of Ethics and Social Responsibility A. Code of Conduct for Transnational Corporations VI. Summary Discussion Questions for Chapter Seven 1. How does ethics as presented in Chapter Seven relate the four primary ethical norms the text authors presented in Chapter One? Focusing on the four primary ethical norms or values (freedom, security, justice, and efficiency) is one way to discuss ethical issues. The part of the chapter that looks at schools of thought and ethical theories is a different and broader way of looking at ethical issues. 2. Why do some people call utilitarian thought the “philosophy of business”? The idea of judging business conduct based upon whether it brings net happiness or pleasure to society underlies a market-based economic system. Under this economic system, the focus is on the maximization of utility (happiness), measured in terms of dollars. Business people are uncomfortable thinking in terms of a duty to follow the moral law, which is part of the Kantian view of ethical thought. 3. Ask students to read up the case Pavlik v. Lane Ltd./Tobacco Exporters Intern. 135 F.3d 876 (3d Cir. 1998). Ask them how would a utilitarian thinker respond to the Pavlik case? Both act and rule utilitarians would focus on the consequences of an act. They would judge Justice Becker’s decision to remand the case for a new trial based upon what would maximize the benefits to society. A utilitarian thinker would view Justice Becker’s decision as a good one because the decision protects the interests of individuals who would likely refrain from inhaling butane if they knew it would kill them. 4. How would a Kantian thinker respond to the Pavlik case? A Kantian thinker might focus on the behavior of the manufacturers of Zeus (and similar products); say the manufacturer had a duty to follow the moral law. What would the moral law tell us in this case with warning labels? What if all manufacturers used equally weak warning labels? A person/organization ought to engage in acts that he or she could see becoming universal standards. Do people want manufacturers to minimize the dangers of their products? Probably not. Moral law tells us that it would be okay to universalize a rule that has high expectations of manufacturers who make potentially lethal products. 5. Think of all the reasons you can that corporations enact codes of conduct. Companies want to make it clear to their employees what they can and cannot do in the workplace. Companies want to make sure that if employees engage in questionable behavior, the company can prove it and employees can be told what they can and cannot do. Corporate codes of conduct also generate good will and good publicity. Have students add to this list. 6. Why do accountants, lawyers, and life underwriters have codes of ethics, but managers do not? First, have students discuss whether managers are professionals. Then, explain that the work managers do varies so much that it would be hard to enact a code that would cover such a diverse group. Ask the class whether managers would want to have a professional code of conduct. What are the advantages and disadvantages? 7. List and explain the five schools of social responsibility. Following are the five schools of social responsibility: • Profit-oriented school—the sole purpose of business is to maximize profits for shareholders. • Managerial school—businesses must create a relationship of trust with constituents both internal and external to the company. • Institutional school—business entities, like other societal institutions, must act in a manner that benefits all of society. • Professional obligation school—business managers and members of boards of directors should be certified as professionals before they can assume managerial responsibility. • Regulation school—business units are accountable to elected public officials. Answers to Critical Thinking about the Law, Case Summaries, and Answers to Review Questions, Review Problems, and Case Problems Suggested Answers to Critical Thinking about the Law 1. Several different definitions of responsibility exist. To be responsible could mean to take the blame. To be responsible could mean to engage in serious reflection before making a decision. To be responsible could mean to look out for the interests of a particular group, such as shareholders. 2. If security mattered to a person, it would be important to want to stay in business a long time. If you acted in a callous manner toward the Bhopal victims, the public would react negatively, thereby placing the company in financial jeopardy. The company wants to make sure no one steps in and interferes with its property rights. Thus, Union Carbide would want to take voluntary action to respond to the needs of the victims before the government steps in and mandates action. 3. Immediately, one would ask, “Which kind of responsibility do you mean”? One would want to know whether the person means responsibility to shareholders, responsibility to stakeholders, or responsibility in terms of accepting blame. Responsibility might also mean to engage in a certain kind of decision-making process that shows respect for moral reasoning. These definitions show respect for different ethical norms. For instance, defining responsibility in terms of shareholders shows a preference for efficiency. Focusing on stakeholders shows more of a preference for justice—employees, customers, and local communities should also be treated with respect. Case Summary—In re Exxon Valdez This case is part of the aftermath of the Exxon Valdez oil spill. When taken to trial, the company was found guilty and among other penalties, had to pay $5 billion in punitive damages. This review of the damages ruled that it must be sent down to the lower courts and essentially said that the punitive damages were unreasonably high. The final judgment by the court is a reduction in the punitive damages award is $4.5 billion as the means of resolving the conflict between its conclusion and the directions of the court of appeals. Case Summary—Bates v. State Bar of Arizona In this case, the State Bar of Arizona asks the U.S. Supreme Court to uphold a disciplinary rule in Arizona that prohibits advertising by lawyers. The Court rules against the State Bar of Arizona and holds that the disciplinary rule violates the First Amendment’s right to freedom of speech. Suggested Answers to Critical Thinking about the Law Questions 1. The Court reasons that legal advertising is good because lawyers can reach out and serve the community better. The Court also points out the possibility that consumers might benefit from having more public information about fees. Next, the Court points out the possibility that the quality of legal services could go up if lawyers are able to offer certain standard packages. Finally, the Court does not believe advertising will affect the integrity and honor of the legal profession. 2. In the last paragraphs of the opinion the Court’s preference for freedom was seen. Freedom is defined as to act without restriction from rules imposed by others. The Court does not want the State Bar of Arizona to place restrictions on lawyers in the area of advertising. 3. Justice Blackmun’s conclusion would not change, even if evidence were offered that advertising causes the price of legal services to increase. Freedom is important to the Court. The rules against advertising are a serious infringement on freedom. Freedom is more important than efficiency to the Court, so the Court would not change its mind, even if it thinks it is important to reduce costs to those who seek legal services. Case Summary—Cooper Industries v. Leatherman Tool Group, Inc. This case is in the book to make clear to students the purpose of punitive damage awards. The Supreme Court makes clear that they are “quasi-criminal” and operate as private fines. The purpose of punitive damage awards is to punish the defendant and deter future wrongdoing. The Court in this case was concerned that a punitive damage award might be excessive. Case Summary—Fog Cutter Capital Group v. Securities and Exchange Commission The reason this case is in the book is to explain the regulation school of thought. In this case, the court found in favor of a regulatory body, the Securities and Exchange Commission, after a company, Fog Cutter Capital Group, was removed from the NASD for keeping their CEO after he was incarcerated and cost the company and its stockholders millions of dollars. With this ruling, the court recognized the need to regulate businesses. Answers to Review Questions 7-1. The deontological theory of ethics claims actions that actions can be judged as ethically good or bad based on absolute moral principles arrived at by human reason regardless of the consequences of an action, that is, regardless of whether there is net happiness. From the facts the book lists about Union Carbide, it appears the company acted according to principles unrelated to intelligence, wisdom, and self-restraint. The company appeared to look out for shareholders rather than contribute to inherent human capacities of residents who lived near the Union Carbide plant in India. 7-2. Milton Friedman adheres to the profit-oriented theory of social responsibility. He believes the one responsibility of business is to maximize profits for the shareholders, while staying within the rules of the game. Holders of this theory argue that business entities are distinct organizations in our society and that their sole purpose is to increase profits for shareholders. Businesses are to be judged solely on criteria of economic efficiency and how well they contribute to growth in productivity and technology. Robert Krikorian believes in the managerial theory of social responsibility. He argues that businesses, as large institutions, have obligations to stakeholders—shareholders and employees, customers and communities. Advocates of an institutional school of social responsibility for business argue that business entities have a responsibility to act in a manner that benefits all of society, just as churches, unions, courts, universities, and governments have. Advocates of a professional obligation school of social responsibility state that business managers and members of boards of directors should be certified as “professionals” before they are allowed to assume managerial responsibility. A regulation school of social responsibility sees all business units as accountable to elected public officials. Proponents of this theory argue that, because business managers are responsible only to a board of directors that represents shareholders, the corporation cannot be trusted to act in a socially responsible manner. 7-3. Individual codes of ethics are codes individual managers develop to guide their behavior in the business world. Professional codes of ethics guide the behavior of not one individual manager. Instead, they provide guidance for a whole profession, such as lawyers or insurance underwriters. An individual professional is likely to follow both a professional code of ethics and an individual code. For instance, a person might have higher moral standards than those outlined by their industry. 7-4. Following are the characteristics expected of an individual and his or her profession: • Mandatory university educational training before licensing, as well as continuing education requirements • Licensing-examination requirements • A set of written ethical standards that is recognized and continually enforced by the group • A formal association or group that meets regularly • An independent commitment to the public interest • Formal recognition by the public as a professional group 7-5. The profit-oriented school of social responsibility begins with a market-oriented concept of the firm that most readers were exposed to in their first or second course in economics. Holders of this theory argue that business entities are distinct organizations in our society and that their sole purpose is to increase profits for shareholders. Businesses are to be judged solely on criteria of economic efficiency and how well they contribute to growth in productivity and technology. Answers to Review Problems 7-6. The answers to this question would vary depending on which ethical standard is applied by the student. However, a Kantian thinker would follow moral law without thinking about or no matter what the consequences. It is because, if Pocock gathered information without revealing the fact that she worked for a rival company, it would be an ethical violation. On the other hand, if she refused to gather information she would risk losing her job and limiting her career growth. 7-7. The conference attended by Wu was sponsored by the company he works for. On winning the prize, Wu should have informed his supervisor. It could become a problem if Wu’s supervisor heard about this from someone else. Therefore, the best option for Wu would be to clear things out with his supervisor as the gift was not given to him by suppliers or company’s clients. 7-8. C should apply a Kantian standard and engage in behavior that would make a good universal standard. Can there be a universal standard that allows everyone to cheat companies that provide telephone services? No. It would be difficult to live in a culture with such a universal standard. 7-9. The answers to this question would vary depending on the ethical standard applied. In both situations, the person is lying. Using a Kantian standard, it would be prudent to refrain from hiring anyone who lies. Although you might be missing out on a good hire overall, you would want someone who follows the moral law at all times. A utilitarian standard would be more forgiving, and would probably allow you to hire the manager who lies about his or her prior salary. Lying about the MBA degree seems significant, and unusually deceptive. However, inflating a prior salary might be standard practice in the business world. If one refrains from hiring someone who inflates a prior salary, the choices of potential employees might be a small pool of moralistic managers. One might get a good hire from the pool of salary inflators. One way to handle the situation would be to accept salary inflation figures, and offer a lower, more realistic starting salary. 7-10. The various schools of ethical thought will influence a person’s answer to this question. Ask students to run through all the possible responses. Realistically, it is hard to imagine someone in business reporting the incident to the salesperson’s superior, especially when no policy demands that kind of reporting. Whether a person reports to his or her own company is more difficult. The situation does involve a gratuity that needs to be reported. A good exercise might be to ask students to create a company policy that makes the response clear. For example, the policy should define gratuity. Also, the policy should make it clear that the employee must report the behavior. The employee may be relieved to find that there really is no choice. 7-11. Ideally, the lab technician will engage in an ethical decision-making process that considers more than one ethical standard. What decision will benefit the community as a whole? What would the moral law tell the lab technician? How would the lab technician feel if his or her behavior were detailed in a newspaper, such as The New York Times? Hopefully, the lab technician will decide not to go along with a plan that puts the public at risk. Ideally, the lab technician will be able to influence change within the organization that encourages the company to continue to look for a treatment that is both safe and effective. This decision reflects the institutional school of social responsibility, which indicates that business entities have a responsibility to act in a manner that benefits all of society. Answers to Case Problems 7-12. Howard did act unethically as he indulged in a bogus sale that showed an increase in business earnings. This count could account to fraud, which is not indicative of the company’s actual growth. Student’s answer may vary based on the school of thought they use to substantiate their answer. 7-14. In this case, the best way for Johns-Manville to justify declaring bankruptcy is by using a consequentialist theory. The company argues that, by declaring bankruptcy, the company is achieving a result that is desirable for society as a whole, in that the company will continue to exist. The court recognizes this concept when it states that: “In the instant case, not only would liquidation be wasteful and inefficient in destroying the utility of valuable assets of the companies as well as jobs, but, more importantly, liquidation would preclude just compensation of some present asbestos victims and all future asbestos claimants. This unassailable reality represents all the more reason for this Court to adhere to this basic potential liquidation avoidance aim of Chapter 11 and deny the motions to dismiss. Manville must not be required to wait until its economic picture has deteriorated beyond salvation to file for reorganization.” With regard to theories of social responsibility, Johns-Manville can justify its behavior by relying on the managerial school, which requires the company to look out for all stakeholders. Here, Johns-Manville can argue that it has a duty to stay in business. Staying in business ultimately benefits employees and local communities. 7-15. Richard Fraser and Nationwide disagree about the extent of an agent’s rights to privacy. Legally, Nationwide’s case is solid. In fact, Nationwide won the case. However, Richard Fraser could argue that moral law is on his side. Most employees/agents want some guarantee of privacy in the workplace. With regard to social responsibility, Nationwide is looking out for its bottom line. The company prefers the profit-oriented school. That school suggests that Nationwide should do whatever it can (including violate agents’ privacy rights) in the interests of shareholders. By contrast, Fraser prefers the managerial school, which requires companies to look out for the interests of all stakeholders, including agents. 7-16. Zanford was maximizing his self-interest at the expense of a weak, elderly man. The SEC looks out for people such as Wood (the weak, elderly man), using a duty-based ethics theory. Zanford violated a position of trust, and the SEC acts on behalf of society to reinforce the moral rule that individuals in positions of trust owe the highest duty to their clients. Thinking Critically about Relevant Legal Issues 1. The Court is very protective of the professional code of ethics that governs the actions of attorneys. Even though the attorney was working under a misguided president, he had no obligation to do so. Therefore, the court took into account personal accountability and the ability to remove oneself from a potentially dangerous situation. 2. The fact that when an attorney commits a felony he or she is automatically disbarred is basically the whole argument the Court gives for disbarment. 3. The Court wants to uphold the image of the profession and stay true to principles that govern all actions. No action is exempt from the rule and the Court wants to make sure that attorneys understand that they represent the entire profession and must make ethical decisions in all aspects of life. 4. Basically, because he was under the direction of the President, he was obligated to follow his orders. One does not easily refuse the President. He also outlines his impeccable record and vast achievements. He wanted to show that it was an isolated incident, carried out under orders from the highest office in the country. Solution Manual for The Legal Environment of Business: A Critical Thinking Approach Nancy K. Kubasek, Bartley A. Brennan, M. Neil Browne 9780133546422, 9780134074030
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