CH-11 Business, Government, and Regulation – Business and Society: Ethics, Sustainability, and Stakeholder Management : Book Guide

Chapter 11 Business, Government, and Regulation SUGGESTED ANSWERS TO DISCUSSION QUESTIONS Students should recognize that their answers to these discussion questions should be well reasoned and supported with evidence. Although some answers will be more correct than others, students should be aware that simplistic answers to complex questions, problems, or issues such as these will never be “good” answers. How has the evolution of business ethics shifted from a collectivist ethic to an individualistic ethic, and how does this shift influence the relationship between business, government, and regulation in contemporary society? As business historians often point out, corporate charters were first issued explicitly to serve a public good. In that sense, business has changed from a collectivist ethic, in which the good of the group is placed above the rights or good of individuals, to its current individualist ethic. Individualism seeks to place the rights of individuals above the good of the group, and thus supports the profit motive of current businesses. Government, especially a representative democracy as practiced in the United States, is formulated to promote the common good. Students will obviously be split in their preferences for these two ethics, but the prevailing sentiment will most likely be for the individualistic approach. This is by far the dominant mode of thinking among business people. What insights does the provided answer from "Business & Society: Ethics, Sustainability, and Stakeholder Management" offer regarding the influence of money on the political process and the potential consequences of such influence? Ideally, the public is represented by the government. However, this is an imperfect process. In addition, the public does not speak with a single voice—there are many minority views that, while important and relevant, may not be sufficiently widespread so they garner a voice in government. One of the most dangerous realities in the United States is the influence of money on the governing process. Michael Walzer, in Spheres of Justice, warns of the danger of goods from one sphere (e.g., money from the economic sphere) invading and influencing the goods of another sphere (e.g., power in the political sphere). Because big business has control of such vast amounts of money and uses a portion of that currency to influence political power, the public’s influence over the political process is severely diminished. The Supreme Court’s recent decision in Citizens United v. Federal Election Commission increased corporate influence in the political process when the Court ruled that the First Amendment protects a corporation’s right to fund independent political broadcasts. How to return significant influence over government to the public is a topic that is both timely and critical. Students may appreciate this issue even more if they visit the multitude of websites that disclose the funding sources for various federal and state candidates. What are the purposes and categories of government regulation discussed in the context of business and society, and how does a specific example, such as the Patient Protection and Affordable Care Act, illustrate the ongoing debate and impact of social regulations? Regulation is the act of controlling the activities of others by means of rules, law, or constituted authority. Typically, government regulates to correct past wrongs, achieve social goals, control natural monopolies, or control negative externalities. These regulations fall into two general categories—economic regulations that control commerce and social regulations that seek to achieve some type of social objective. The needs for social regulations are numerous. Because of the complexity of our interactions, our society has the power to do great harm to people and the environment, to the extreme of ending all life. The unbridled quest for more, and the individualistic ethic have proven to do great harm to the common good, which is the purview of social regulations. In 2010, Congress passed the Patient Protection and Affordable Care Act, which extends health insurance to 32 million uninsured people in the United States. This Act has been the subject of considerable debate, and the social and economic impacts of the new law are still the subject of substantial discussion in the U.S. What factors influence students' perceptions of the effectiveness of government regulation, as discussed in the 'Business, Government, and Regulation' chapter of the book 'Business & Society: Ethics, Sustainability, and Stakeholder Management'? This will be a difficult question for students to answer, simply because the costs and benefits have not been quantified for them (or anyone else). Without hard data on which they can base their answer, the students will rely on their general feelings about government regulations. Because the prevailing notion about government regulation is negative (especially among business people), the majority of students will likely answer that it does more harm than good. However, students also may address the costs of deregulation. As the text notes, “most observers believe that the rescinding of the Glass Steagall Act prompted the [global recession that began in 2008]”. If this is true, the global economy will experience the costs of the failure to regulate for some time. What are the key arguments presented in the privatization/federalization debate, particularly in terms of efficiency, and how should societal priorities and values influence decisions regarding the appropriate roles of government and the private sector in areas such as education, social security, and healthcare? The privatization/federalization debate centers on the question of efficiency. Proponents of privatization contend that almost everything can be accomplished more efficiently in the private sector than through government control. Supporters of federalization contend that there are some functions that cannot be adequately handled by the private sector. What the two sides often miss is that efficiency may not be the right criterion upon which to make this decision. Is efficiency the most important factor in making decisions about the education of our young people? Students may like to debate whether social security should be privatized. This is a timely issue and one that garners the interest of a majority of students due to the applicability to their personal lives. On the other hand, students may like to debate the role that the government should play in healthcare. Given the current political climate regarding this issue, this topic should be the subject of a lively debate. GROUP ACTIVITIES Group Activity 1 – The Regulatory Process While many students understand the concept of regulation, they do not understand the regulatory process. At a basic level, students should understand that Congress creates laws, various regulatory agencies create rules/regulations within the parameters of those laws and that the public has an opportunity to comment on the proposed regulations. To help students understand this concept, instructors should divide students into groups of three to four students. Each group should then be assigned a law (preferably one that is studied in this textbook). The students should research when the law was passed and the regulatory agency responsible for implementing regulations under the law. They should summarize any regulations created by the appropriate regulatory agency under the law and note any public opposition or support that was generated during the comment period. Here's how students could approach Group Activity 1: Group Activity 1: The Regulatory Process Step 1: Assign Laws and Regulatory Agencies: • Divide students into groups of three to four. • Assign each group a specific law, preferably one studied in the textbook. For example: • Clean Air Act (1970) - Environmental Protection Agency (EPA) • Food, Drug, and Cosmetic Act (1938) - Food and Drug Administration (FDA) • Occupational Safety and Health Act (1970) - Occupational Safety and Health Administration (OSHA) • Sarbanes-Oxley Act (2002) - Securities and Exchange Commission (SEC) Step 2: Research and Summary: • Research when the assigned law was passed and its primary objectives. • Identify the regulatory agency responsible for implementing regulations under the law. • Summarize any significant regulations created by the regulatory agency to enforce the law. Include key provisions and their impact on businesses and the public. • Note any public opposition or support generated during the comment period for the proposed regulations. This could include public hearings, written comments submitted to the agency, or stakeholder feedback. Example: Law: Clean Air Act (1970) Regulatory Agency: Environmental Protection Agency (EPA) Regulations: • The EPA has issued regulations under the Clean Air Act to control air pollution from sources such as vehicles, power plants, and industrial facilities. • Key regulations include the National Ambient Air Quality Standards (NAAQS), which set limits on common air pollutants like ozone, particulate matter, and sulfur dioxide. • The EPA has also implemented regulations to reduce emissions from motor vehicles through programs such as the Corporate Average Fuel Economy (CAFE) standards and emissions standards for vehicles and engines. Public Input: • During the comment period for proposed regulations, the EPA received input from a variety of stakeholders, including environmental groups, industry representatives, and the public. • Environmental groups generally supported stricter regulations to protect public health and the environment, while some industry groups expressed concerns about the potential economic impact of compliance. • Public hearings were held to allow individuals and organizations to voice their opinions on the proposed regulations, and written comments were submitted to the EPA for consideration. Step 3: Presentation: • Each group presents their findings to the class, highlighting the law, regulatory agency, key regulations, and public input received during the regulatory process. • Encourage discussion and questions from classmates to deepen understanding of the regulatory process and its implications. By engaging in this activity, students gain a practical understanding of the regulatory process and how laws are implemented through regulations, while also exploring the dynamics of public participation and stakeholder input in shaping regulatory outcomes. Group Activity 2 - Deregulation Divide students into groups of three to four students. Have students research (1) how Enron lobbied Congress to deregulate the wholesale electricity industry and (2) how the deregulation of the electricity industry has impacted consumers. Students should note any benefits or problems that have occurred as a result of the deregulation of this industry. Instructors may want to guide students to the situation that occurred in California as a result of the deregulation of this industry. Here's a potential answer for the group activity: Enron's Lobbying Efforts for Deregulation: Enron played a significant role in lobbying Congress to deregulate the wholesale electricity industry during the 1990s. They argued that deregulation would introduce competition into the market, leading to lower prices for consumers and increased efficiency. Enron heavily lobbied for the passage of the Energy Policy Act of 1992, which laid the groundwork for deregulation by allowing for the creation of competitive wholesale electricity markets. Impact of Deregulation on Consumers: 1. Potential Benefits: • Lower Prices: One of the main arguments for deregulation was that it would lead to lower electricity prices for consumers due to increased competition among suppliers. • Innovation: Deregulation was expected to encourage innovation in the industry as companies competed to offer better services and products. • Choice: Consumers were promised greater choice in selecting their electricity providers, potentially allowing them to choose suppliers based on factors such as price and environmental policies. 2. Problems and Challenges: • Market Manipulation: Deregulation opened the door to market manipulation and abuse. Enron famously exploited loopholes in the system to manipulate energy prices in California, leading to the California electricity crisis of 2000-2001. • Price Volatility: Deregulated markets often experience greater price volatility, leading to uncertainty for consumers and potentially higher costs during periods of peak demand. • Quality of Service: Some critics argue that deregulation has led to a decline in the quality of service as companies prioritize profit over reliability and customer satisfaction. • Barriers to Entry: Deregulated markets can create barriers to entry for new competitors, as established companies may use their market power to limit competition. Case Study: California Electricity Crisis: The California electricity crisis serves as a cautionary tale of the potential pitfalls of deregulation. Enron and other energy companies manipulated the market by artificially inflating prices and creating artificial shortages, leading to rolling blackouts and skyrocketing electricity bills for consumers. The crisis ultimately resulted in the bankruptcy of several utilities and a reevaluation of the deregulation policies that had been implemented. Overall, while deregulation promised benefits such as lower prices and increased competition, it also brought about significant challenges and risks, as seen in the case of California. It highlights the importance of carefully crafting deregulation policies to prevent market abuse and ensure the protection of consumers. INDIVIDUAL ASSIGNMENT Ask students to research the Patient Protection and Affordable Care Act of 2010. As a starting point, instructors may want to guide students to the following websites, which summarize the law: http://www.kff.org/healthreform/upload/finalhcr.pdf http://www.cbsnews.com/8301-503544_162-20000846-503544.html In connection with their research, students should prepare a typed-written response to the following questions: What are health insurance exchanges? How will the law affect business? Specifically, what requirements does the law place on employers? What is a public option? Why is it controversial? What role does the public option currently play in healthcare reform? In your opinion, what role should the government play in healthcare? Explain. There's a response to the individual assignment questions: 1. What are health insurance exchanges? Health insurance exchanges are online marketplaces where individuals and small businesses can shop for and purchase health insurance coverage. These exchanges offer a variety of insurance plans that meet certain standards set by the government. They aim to increase transparency, competition, and affordability in the health insurance market by allowing consumers to compare different plans based on cost, coverage, and other factors. 2. How will the law affect business? Specifically, what requirements does the law place on employers? The Affordable Care Act (ACA) imposes several requirements on businesses regarding health insurance coverage for their employees: • Employer Mandate: Larger businesses (those with 50 or more full-time employees) are required to offer affordable health insurance coverage to their full-time employees or face penalties. • Reporting Requirements: Employers must report information about the health insurance coverage they offer to their employees to the IRS. • Small Business Tax Credits: The ACA provides tax credits to small businesses with fewer than 25 employees to help them afford health insurance coverage for their employees. • Prohibition of Discrimination: The law prohibits employers from discriminating against employees based on health status or pre-existing conditions when offering health insurance coverage. 3. What is a public option? Why is it controversial? What role does the public option currently play in healthcare reform? A public option is a government-run health insurance plan that would compete with private insurance plans in the marketplace. It would be available to individuals and businesses alongside private insurance options. The public option is controversial because it is seen as a potential government takeover of the healthcare system by some, while others argue that it would increase competition and provide a lower-cost alternative to private insurance. The public option was a highly debated aspect of healthcare reform during the passage of the Affordable Care Act. However, it was ultimately not included in the final legislation due to political opposition. Currently, there is no nationwide public option in place, but some states have explored implementing their own public healthcare programs. 4. In your opinion, what role should the government play in healthcare? Explain. Opinions on the role of government in healthcare vary widely. Some argue for a more interventionist approach, advocating for universal healthcare coverage provided by the government to ensure access to affordable care for all citizens. Others believe in a more limited role for government, preferring a market-based approach with minimal government involvement. In my opinion, the government should play a significant role in ensuring access to affordable healthcare for all citizens. Healthcare is a fundamental human right, and the government has a responsibility to ensure that everyone has access to necessary medical care, regardless of their income or health status. This could involve implementing a universal healthcare system, expanding Medicaid coverage, regulating insurance markets to prevent discrimination and ensure affordability, and investing in public health initiatives to improve overall population health. However, it's also important to balance government intervention with market competition and innovation to ensure efficiency and quality in the healthcare system. Chapter 12 Business Influence on Government and Public Policy SUGGESTED ANSWERS TO DISCUSSION QUESTIONS Students should recognize that their answers to these discussion questions should be well reasoned and supported with evidence. Although some answers will be more correct than others, students should be aware that simplistic answers to complex questions, problems, or issues such as these will never be “good” answers. How does lobbying serve as a mechanism for businesses to influence government officials and shape public policy, and what are the various levels and forms through which lobbying efforts can be conducted? Additionally, how do umbrella organizations face challenges in representing diverse business interests within their membership? Lobbying is the organized effort to influence government officials (elected and appointed) to pass or interpret laws and regulations that are beneficial to your organization. Lobbying can take place at the company level (addressing issues specific to a single company), at the grassroots level (mobilizing individual citizens affected by legislation), through trade associations (groups of companies in a single industry or line of business), and through umbrella organizations (representing the “business interests” of the country). Umbrella organizations are subject to division because they represent such a broad range of firms and interests. Just as we saw in Chapter 11 that the broad “public interest” makes finding consensus difficult, so it is with umbrella organizations. A gun manufacturer and a bank might both belong to the Chamber of Commerce but have very different political agendas. How does the provided answer from "Business & Society: Ethics, Sustainability, and Stakeholder Management" explore the role and impact of Political Action Committees (PACs) on the political process, particularly in the context of business influence on government and public policy? Political Action Committees (PACs) are organizations of like-minded individuals who raise money and donate it to political candidates. While the recent Supreme Court decision in Citizens United v. Federal Election Commission altered the landscape for how a corporation may participate in the political process, PACs are likely to remain an effective way of raising money and supporting the organization’s special interests (since the restrictions on direct corporate contributions to candidates remain intact). Because democracy can be viewed as a “competition” among special interests, PACs are vehicles through which that competition can be strengthened. The business community and many members of Congress view PACs as a viable way in which not only business, but other special interest groups such as labor, education, etc., can organize their contribution efforts and participate in the political process. The major drawback to PACs is their reliance on one form of power, money, to dominate other forms of persuasion, such as religious beliefs or simply numbers of voters. Many feel that there is an implication that the money provided by PACs is used to buy votes; whether or not this is accurate, the implication itself is enough to cause concern over the process. While there are issues with PACs, they are one workable way in which business can participate in the political process. Many note that money pollutes the political process, and since business is the institution with the most money, business dominates politics as well. However, since PAC contributions are regulated by the Federal Election Commission, voters have public access to information regarding PAC contributions to candidates and can make informed decisions regarding how such donations may or may not impact a candidate’s voting record. Arguably, this process enables business to participate in the political process, which is their right as a legal “person” under the law, but creates checks by which the voter can determine the legitimacy of this process. What are the implications of the Supreme Court's ruling on the Bipartisan Campaign Reform Act regarding corporate political expenditures, and how does this decision intersect with concerns about the influence of money on the political process and the balance of free speech rights versus election outcomes? While the Bipartisan Campaign Reform Act was designed to limit the influence of soft money and the use of “issue ads” in political campaigns, the Supreme Court recently determined that these provisions were unconstitutional. In 2010, the Supreme Court ruled that provisions of the Bipartisan Campaign Reform Act that restricted a corporation’s independent political expenditures violated the First Amendment (although prohibitions on direct corporate contributions to candidates remain intact). Consequently, the impact of the Act on future elections is questionable. Furthermore, even after the Act was initially adopted, its impact was severely limited by the use of 527s. Having the benefit of writing this after the most recent Presidential elections, it is clear that the attempts to limit the influence of money on the election process failed. More money was raised and spent in these campaigns than ever before, by a wide margin. While many believe that the success of the Bipartisan Campaign Reform Act has been limited, it is important for legislators to continue to examine potential ways to regulate the influence of money on the political process. The key to success in campaign financing is to balance an individual’s free speech rights with the concern that financial contributions can determine the outcome of an election. The fact remains that it has become more and more expensive to run a successful election campaign. To be competitive, candidates must have access to significant funds, especially now that most of our elections are determined in the media. Consequently, funds must be expended on the political process; however, our society needs to continue to examine the process by which such funding occurs and the laws related to this process to ensure that we do not effectively create a system where the candidate with the most money wins. In light of the recent Supreme Court decision, many argue that corporate special interest groups will do just that – buy elections. What are the ethical implications of circumventing government regulations, as discussed in the 'Business Influence on Government and Public Policy' chapter of the book 'Business & Society: Ethics, Sustainability, and Stakeholder Management'? Circumvention of government regulations is suspect at best, and most of the time highly unethical. Rules, laws, and regulations cannot anticipate all possible actions, so there will always be loopholes to exploit. Companies have the advantage of having a set of rules laid out, which then allows the firms to figure out ways to get around them. Lawmakers, on the other hand, must look to past activities and try to conceptualize future possibilities when they craft the rules. Because of this relationship, individuals and corporations will always be able to figure out ways to get around laws and through loopholes if that is their goal. The only way to prevent circumvention is for the actors to police themselves and follow the spirit of the law, regardless of the opportunities to exploit loopholes. What are the ethical implications of the Supreme Court's decision in Citizens United regarding the influence of corporations, labor unions, and other entities on political campaigns, and how does this decision impact the democratic process and representation of diverse interests in government? In Citizens United, the Supreme Court ruled that corporations, labor unions and other entities have a constitutional right to run advertisements or distribute mailings either supporting or opposing candidates, as long as such expenditures were not coordinated with the candidates. While the ruling allows independent expenditures, such groups are still prohibited from directly contributing to a federal candidate. The ongoing impact of this ruling is left to the class instructor as time and events will have altered the facts available at the time this is being written. I do not agree with the Court’s ruling in Citizens United. In this day and age, campaigns are largely conducted through various forms of media. Access to television spots are very costly; the Court’s ruling potentially creates a situation where the group that has the most money to spend will determine who is elected. These elected officials become indebted to the groups that supported them, making it difficult for them to look out for the best interests of their various constituencies. GROUP ACTIVITY Divide students into groups of four to five students. Assign each group a federal candidate for president or for congressional office. Students should track the political contributions to their assigned federal candidate. Specifically, students should track individual contributions (and their affiliations) as well as PAC donations to determine the various groups that may eventually have political pull with certain candidates. Students may begin their search at www.opensecrets.org, but instructors should encourage the students to use other resources to research their assigned candidate. Each group should prepare a brochure for the rest of the class detailing the following information regarding their respective candidate (1) funds raised to date, (2) the source(s) of various political contributions, (3) the impact of the political contributions on the contender’s candidacy, (4) the candidate’s use of the funds to date, and (5) a comparison of the candidate’s financial resources with his or her closest competitors’ financial resources. Instructors may vary this project by having students complete the same assignment for state candidates. Here's how students could approach Group Activity 2: Group Activity 2: Tracking Political Contributions to Federal Candidates Step 1: Divide into Groups: Divide students into groups of four to five. Assign each group a federal candidate for president or congressional office. Candidates can be selected based on relevance to current events or topics studied in class. Step 2: Research Political Contributions: Utilize resources such as www.opensecrets.org, Federal Election Commission (FEC) filings, candidate websites, and news sources to track political contributions to the assigned candidate. Track individual contributions, including the names, occupations, and affiliations of donors, as well as Political Action Committee (PAC) donations. Analyze the various groups contributing to the candidate's campaign, including industries, interest groups, and ideological affiliations. Step 3: Prepare Brochure: Create a brochure detailing the following information regarding the assigned candidate: 1. Funds Raised to Date: Summarize the total funds raised by the candidate's campaign, including contributions from individuals and PACs. 2. Source(s) of Political Contributions: Identify the main sources of political contributions, including notable individual donors and PACs. Analyze the affiliations and interests represented by these contributors. 3. Impact of Political Contributions: Discuss the potential influence of these contributions on the candidate's candidacy, including any policy positions or priorities that may align with donor interests. 4. Use of Funds to Date: Outline how the candidate has utilized campaign funds thus far, including expenditures on advertising, staffing, travel, and other campaign activities. 5. Comparison with Competitors: Provide a comparison of the candidate's financial resources with those of their closest competitors, highlighting any advantages or disadvantages in fundraising efforts. Step 4: Presentation: Each group presents their brochure to the class, sharing their findings and analysis of political contributions to the assigned candidate. Encourage discussion on the role of money in politics, the influence of donors on political campaigns, and the transparency of campaign finance. Variation for State Candidates: Instructors may vary the project by assigning state candidates for governor, state legislature, or other statewide offices. Students would follow the same steps to research and track political contributions to their assigned state candidate, focusing on contributions from individuals, PACs, and other entities within the state. By engaging in this activity, students gain insights into the role of money in politics, the influence of political contributions on candidates and campaigns, and the transparency of campaign finance in both federal and state elections. INDIVIDUAL ASSIGNMENT Distribute the following instructions to each student: Select a corporation, labor union or other group that actively advertised for or against a federal candidate in the last election cycle. Prepare a written response that addresses the following questions: (1) Who did the group support? (2) Why did the group support this candidate? (3) What type of advertising did the group use? (4) What was the nature of the advertisement? (5) Was the advertisement consistent with the campaign strategy of the candidate? (6) What was the ultimate outcome of the election? (7) What impact will this spending have on a candidate’s future decisions? Selected Group: Corporation X 1. Who did the group support? Corporation X supported Candidate A in the last election cycle. 2. Why did the group support this candidate? The group supported Candidate A because of their stance on economic policies that align with Corporation X's interests, such as corporate tax cuts, deregulation, and trade policies favorable to businesses. 3. What type of advertising did the group use? Corporation X used various forms of advertising, including television commercials, digital ads, direct mail campaigns, and social media promotions. 4. What was the nature of the advertisement? The advertisements produced by Corporation X typically highlighted Candidate A's business-friendly policies and their potential benefits for the economy. They often emphasized job creation, economic growth, and the importance of supporting businesses to strengthen the country's prosperity. 5. Was the advertisement consistent with the campaign strategy of the candidate? Yes, the advertisements by Corporation X were consistent with Candidate A's campaign strategy, which focused on promoting pro-business policies and appealing to voters concerned about economic issues. 6. What was the ultimate outcome of the election? Candidate A won the election and assumed the federal office for which they were running. 7. What impact will this spending have on a candidate’s future decisions? The significant financial support from Corporation X and similar entities is likely to influence Candidate A's future decisions and policy priorities. They may feel indebted to these corporate interests and be inclined to prioritize policies that align with their donors' preferences, such as further tax cuts for businesses, deregulation, or favorable trade agreements. This support could also influence the candidate's stance on issues related to corporate governance, environmental regulations, and labor rights, potentially leading to policies that favor the interests of corporations over those of other stakeholders. Solution Manual for Business and Society: Ethics, Sustainability, and Stakeholder Management Archie B. Carroll, Ann K. Buchholtz 9780538453165