Smith And Roberson's Business Law, 17th Edition Solution Manual

Preview (16 of 1539 Pages)

100%

Purchase to unlock

Loading page image...

PART ONE:The Legal Environment of Business1-Part One:The Legal Environment of BusinessCONTENTSChapter 1Introduction to LawChapter 2Business Ethics and the Social Responsibility of BusinessChapter 3Civil Dispute ResolutionChapter 4Constitutional LawChapter 5Administrative LawChapter 6Criminal LawChapter 7Intentional TortsChapter 8Negligence and Strict LiabilityETHICS QUESTIONS RAISED IN THIS PART1.Are all laws moral? Should all laws be moral? How should morality be determined?2.Are laws always just?3.Which is more important, morality or justice?4.Why is there a difference between the treatment of cases brought under civil law and those brought undercriminal law? Should there be a difference?5.In some cultures being involved in a lawsuit is something about which to be ashamed. Our society has beencriticized for being overly litigious. In fact, we even go on television to sue in "Judge Judy" and othersimilar shows. Is our culture “sue-happy?” Should access to the court system be restricted?6.From an ethical perspective, what obligations does a person who has been harmed by another person or by abusiness have to attempt settlement of the matter through negotiation before resorting to a lawsuit?7.The Bill of Rights was drafted to protect individuals from their own government, not from criminals.Because of this, the defendant in a criminal case has rights that are constitutionally protected. The victims ofthe crime do not have as many rights in the criminal trial as does the defendant. Should our legal system paymore attention to the victims of crime? How should the victim's rights be protected in a criminal trial?8.Is a no-fault system covering torts ethically preferable to the fault-based negligence system we now have?9.Are businesses morally responsible for injuries that are caused by products they sell or manufacture? Whatabout copy-cat injuries?ACTIVITIES AND RESEARCH PROBLEMS1.Have students draw a diagram of two overlapping circles, with one circle labeled “Moral” and the otherlabeled “Legal.” The area of overlap would be both moral and legal. Then list several controversial topicsof current interest (e.g., abortion, capital punishment, marijuana smoking, etc.) for students to place withinan area of the diagram (or outside the circles if it is neither moral nor legal). Can any of these issues beabsolutely determined to be moral or immoral?2.Are there any laws in our country’s history that have been repealed on the basis of their immorality? Arethere any laws still in existence that should be repealed? Have students discuss their opinions.3.How does American common law differ from English common law?4.Have students write a fictitious case involving questionable ethics in a business decision.5.For a general discussion of law, or preceding the study of criminal law and procedure recruit someone

Loading page image...

2PART ONE:The Legal Environment of Business-outside the class to rush in and commit a "crime" such as stealing the professor's textbook. After the strangerleaves, have the students write a description of what happened. Then compare the details of theeyewitnesses and discuss the legal implications of the event.6.Have students make a list of the key events in their lives, then have them list and discuss laws that relate tothose events.7.Research the historic legal codes of other civilizations, such as the Hebrews and Babylonians, or of othersocieties around the world today, and compare the crimes, punishments, and criminal procedures to those inthe United States today.8.Have students prepare a survey form on crimes affecting businesses. The form could include types of crimethat affect the business (such as customer theft, employee theft, and bad checks); the amount of loss; the costof the crimes; and the cost of security. Then have the whole or part of the class interview the managers ofbusinesses. Have the students report to the class and compare the results with local and national statisticsavailable from law enforcement professionals.9.In recent years many states have instituted victim's assistance programs and crime victim's restitutionprograms. Investigate to find whether your state has such programs. Compare programs in various states.Chapter 1INTRODUCTION TO LAWNature of Law [1-1]Sources of Law [1-3]Definition of Law [1-1a]Constitutional Law [1-3a]Functions of Law [1-1b]Judicial Law [1-3b]Law and Morals [1-1c]Common LawLaw and Justice [1-1d]EquityClassification of Law [1-2]Restatements of LawSubstantive and Procedural Law [1-2a]Legislative Law [1-3c]Public and Private Law [1-2b]TreatiesCivil and Criminal Law [1-2c]Executive OrdersAdministrative Law [1-3d]Legal Analysis [1-4]Cases in This ChapterRyan v. Friesenhahn (Given as an example of how to brief a case)Chapter OutcomesAfter reading and studying this chapter, the student should be able to:Identify and describe the basic functions of law.Distinguish between (1) law and justice and (2) law and morals.Distinguish between (1) substantive and procedural law, (2) public and private law, and (3) civiland criminal law.Identify and describe the sources of law.Explain the principle ofstare decisis.

Loading page image...

CHAPTER 1INTRODUCTION TO LAW3-TEACHING NOTESLaw concerns the relations between and among individuals as those relations affect social and economicorder. It affects the rights and duties of every citizen and many non-citizens.Law is bothprohibitory, meaning certain acts must not be committed, andmandatory, meaning certainacts must be done, sometimes in a set way. Additionally, law ispermissive: certain acts are allowed, butnot required by the law.1-1 NATURE OF LAWThe law is a continuously changing process of developing a workable set of rules that balance the individualand group rights of an evolving society.1-1a Definition of LawLegal scholars have defined law in various ways, including:•“predictions of the way that a court will decide specific legal questions”•“a rule of civil conduct prescribed by the supreme power in a state, commanding what is right, andprohibiting what is wrong”•a general command that a state or sovereign makes to those who are subject to its authority bylaying down a course of action enforced by judicial or administrative tribunals.Most legal scholars would agree with Rosco Pound, that the term “law” has multiple meanings and thatdefining it is not a simple task.*** Chapter Outcome ***Identify and describe the basic functions of law.1-1b Functions of LawThe functions of law are to maintain stability in the social, political, and economic system through (1)dispute resolution, (2) protection of property, and (3) the preservation of the state while at the same timepermitting ordered change.1.Disputes are inevitable in a complex society and may involve criminal or non-criminal matters.Law provides rules to resolve disputes and avoid personal revenge.2.Law protects ownership of property and allows for agreements (contracts) to exchange property.(This text deals with many aspects of this including contracts, sales, commercial paper, andbusiness associations.)3.Law preserves thestate. It ensures that changes are result of elections, legislation, and referendarather than revolution, sedition, and rebellion.1-1cLegal SanctionsSanctions are the means by which the law enforces the decisions of the court, such as fines, imprisonmentand capital punishment.

Loading page image...

4INTRODUCTION TO LAWCHAPTER 1-*** Chapter Outcome ***Distinguish between law and justice. Distinguish between law and morals.1-1d Law and MoralsThough law is affected by morals, law and morality are not the same. Some actions have no moralimplications but have legal sanctions, whereas other actions have no legal sanctions but do have moralimplications. Some actions have both moral impact and legal sanction.NOTE: See Figure 1-1: Law and Morals.1-1e Law and JusticeLaw and justice are distinct but interrelated concepts.•Justice may be defined as “the fair, equitable, and impartial treatment of the competing interestsand desires of individuals and groups, with due regard for the common good.”•Justice depends on the law, but the law does not guarantee justice, since laws can be unjust.(Think back to “legal” slavery and the “legal” actions of Nazi Germanyorof the South Africanapartheid government.)1-2 CLASSIFICATION OF LAWBecause the law is vast, it is helpful to organize it into categories such as: (1) substantive and procedural, (2)public and private, and (3) civil and criminal.Basic to understanding these classifications are the terms right and duty. Arightis the ability of a person,with the aid of the law, to require another person to perform or to refrain from performing a certain act. Adutyis the obligation the law imposes upon a person to perform or to refrain from performing a certainact. Duty and right exist together: a person cannot have a right without some other person (or all persons)having the corresponding duty.NOTE: See textbook Figure 1-2 which outlines the classifications of law.*** Chapter Outcome ***Distinguish between (1) substantive and procedural law, (2) public law and private law,and (3) civil law and criminal law.1-2a Substantive and Procedural LawSubstantive law creates, defines, and regulates legal rights and duties. Procedural law sets forth rules forenforcing those rights that are created by the substantive law.1-2b Public and Private LawPublic law is the branch of substantive law that deals with the government's rights and powers and itsrelationship to individuals or groups.Private law is that part of substantive law governing individuals and legal entities (such as corporations) intheir relationships with one another.1-2c Civil and Criminal LawCivil law defines duties and deals with the rights and duties of individuals among themselves. (It is part of

Loading page image...

CHAPTER 1INTRODUCTION TO LAW5-private law.)NOTE: Civil law is not the same as a civil law system, discussed later in this chapter.Criminal law establishes duties and involves offenses against the community. (It is part of public law.)The purpose of the civil law is to compensate the injured party (plaintiff), while the purpose of criminal lawis to punish the wrongdoer. Typically, the civil law awards money for damages or an order for thedefendant to behave in a certain way, while criminal law imposes a fine or imprisonment on the guiltyparty. The party bringing a civil action has the burden of proof, which he must support with apreponderance of the evidence (meaning the greater weight). The government bringing a criminal casemust proof the defendant’s guilt beyond a reasonable doubt, which is a significantly higher burden of proofthan that in a civil case.NOTE: See textbook Figure 1-3, which compares civil and criminal law.*** Chapter Outcomes ***Identify and describe the sources of law. Explain the principle ofstare decisis.1-3 SOURCES OF LAW•Federal and state constitutions•Federal treaties (agreements between or among independent nations)•Federal and state statutes (laws passed by a legislative body such as the U.S. Congress or thelegislature of a state)•Executive orders (legislation issued by a President or governor)•Ordinances of local municipal governments•Rules and regulations of federal and state administrative agencies•Federal and state court decisionsNOTE: See Figure 1-3, Hierarchy of Law1-3a Constitutional LawA constitution sets forth the basic principles by which a government is guided, as well as the limitations ongovernmental authority. The U.S. Constitution is the supreme law of the nation; a state constitution is thehighest law within that state. Federal law is supreme in cases of conflict with state law.One of the fundamental principles of the U.S. Constitution isJudicial Review, which is the power ofcourts to determine constitutionality of all laws.1-3b Judicial LawCase decisions establish precedent in ourcommon law systemand must also be consulted whenresearching a legal question. In the common law system, parties to a dispute initiate and conduct litigation(anadversary system). The principle ofstare decisisrequires that inferior courts stay consistent with priordecisions of higher courts on cases with similar facts.Acivil law system, which is less prevalent than common law within the United States, depends oncomprehensive legislative enactments (called codes) and an inquisitorial system of determining disputes. Intheinquisitorial system, the court, rather than the parties, initiates litigation, investigates pertinentfacts, and conducts the presentation of evidence.

Loading page image...

6INTRODUCTION TO LAWCHAPTER 1-Common Law—a body of law established by previous rulings of courts in a common law system. Thesedecisions serve as precedents for later cases.Equity—asupplementary system of judicial relief separate from the common law, based upon settledrules of fairness, justice and honesty. Remedies include:specific performance, injunction,reformation,andrescission.In most jurisdictions, a single court administers both common law and equity.RestatementsofLaw—The large and growing volume of court decisions in the United States led to theRestatements of Law, an orderly restatement of the general common law. It is now regarded as theauthoritative statement of the common law of the United States. It covers many areas, including torts,contracts, agency, property, and trusts.The Restatements were written by theAmerican Law Institute(ALI),a distinguished group of lawyers, judges, and law professors.Currently the ALI is made up of morethan 4,300 members.1-3c Legislative LawLegislative law consists of statutes passed by legislatures. Statutes may repeal judge-made law as long as thestatute is not unconstitutional. Today, most new laws come through the legislative branch because they canchoose the issues that need attention while courts can only deal with issues in the cases brought beforethem.The need for uniformity among state statutes led to the codification of large parts of business law. Themost successful example of this effort is theUniform Commercial Code (UCC), prepared under thejoint sponsorship and direction of theALI and the Uniform Law Commission (ULC), which is also knownas theNational Conference of Commissioners on Uniform State Laws.All fifty states, the District ofColumbia, and the Virgin Islands have adopted the UCC. (Louisiana has adopted only part of the UCC.)TheULChas draftedmore than300uniform laws including the Uniform Partnership Act, the UniformLimited Partnership Act, and the Uniform Probate Code. The ALI has developed a number of modelstatutory formulations, including the Model Code of Evidence, the Model Penal Code, a Model LandDevelopment Code, and a proposed Federal Securities Code. In addition, the American Bar Association haspromulgated the Model Business Corporation Act.Treaties—Agreements between or among independent nations; if signed by the President and approvedby the Senate, it has the legal force of a federal statute.Executive Orders—The President has the power to issue executive orders, which carry the authority ofa law.1-3d Administrative LawThe branch of public law that governs the powers and procedures of governmental entities (other thancourts and legislatures); often involves public health, safety and welfare. Administrative law is created byadministrative agencies in the form of rules, regulations, orders, and decisions to carry out the regulatorypowers and duties of those agencies.1-4 LEGAL ANALYSISWhile all U.S. Supreme Court decisions are reported, not every case decided by the U.S. District Courtsand the U.S. Courts of Appeals are reported. Each circuit has established rules determining which decisionsare published.Decisions in state trial courts generally are not published but are filed in the office of theclerk of the court. Decisions of state courts of appeals are published in volumes called “reports,” numbered

Loading page image...

CHAPTER 1INTRODUCTION TO LAW7-consecutively. Some states rely on a commercial reporter and no longer publish official reports. Thedecisions of courts in the federal system are found in a number of reports.For instance,Lefkowitz v. Great Minneapolis Surplus Store, Inc., 251 Minn. 188, 86 N.W.2d 689 (1957),indicates that the opinion in this case may be found in Volume 251 of the official Minnesota Reports at page188; and in Volume 86 of the North Western Reporter, Second Series, at page 689; and that the opinionwas delivered in 1957.Normally, the reported opinion in a case includes:1. the essential facts, the nature of the action, the parties, what happened to bring about thecontroversy, what happened in the lower court, and what pleadings are material;2. the issues of law or fact;3. the legal principles involved;4. the application of these principles; and the decision.A serviceable method by which students may analyze and brief cases after reading and comprehending theopinion is to write a brief containing the following:1.the facts of the case2.the issue or question involved3.the decision of the court4.the reasons for the decisionExample of Briefed CaseThe following case is printed both in its entirety and in briefed form in the student’s textbook. It is printedonly in briefed form here. The purpose of including this case is to give an example of how to brief a case.BRIEF OF CASERyan v. FriesenhahnI.Facts:Todd Friesenhahn, son of Nancy andFrederick Friesenhahn, held an open invitationparty at his parent's home that encouragedguests to bring their own bottle. Sabrina Ryanattended the party, became intoxicated, andwas involved in a fatal accident after she leftthe party. Sandra and Stephen Ryan, Sabrina’sparents, sued the Friesenhahns for negligence,alleging that the Friesenhahns were aware ofunderage drinking at the party and of Sabrina'scondition when she left the party. The trialcourt granted summary judgment for theFriesenhahns.II.Issue:Is a social host who serves alcoholicbeverages to a minor liable in negligence forharm suffered by the minor as a result of theminor’s intoxication?III.Decision:In favor of the Ryans.Summary judgment reversed and caseremanded to the trial court.

Loading page image...

8INTRODUCTION TO LAWCHAPTER 1-IV.Reasons:Accepting the Ryans’ allegationsas true, the Friesenhahns were aware thatminors possessed and consumed alcohol ontheir property and specifically allowed Sabrinato become intoxicated. The Texas AlcoholicBeverage Code provides that a person commitsan offense if, with criminal negligence, he“makes available an alcoholic beverage to aminor.” A violation of a statute constitutesnegligenceperseif the injured party is amember of the class protected by the statute.Since the Alcoholic Beverage Code wasdesigned to protect the general public andminors in particular, Sabrina is a member ofthe class protected by the Code. Therefore, wefind that the Ryans stated a cause of actionagainst the Friesenhahns for the violation of theAlcoholic Beverage CodeIn considering common-law negligence as abasis for social host liability, the TexasSupreme Court has held that there are twopractical reasons for not imposing a third-partyduty on social hosts who provide alcohol toadult guests: first, the host cannot reasonablyknow the extent of his guests' alcoholconsumption level; second, the host cannotreasonably be expected to control his guests'conduct. However, this rationale does notapply where the guest is a minor. The adultsocial host need not estimate the extent of aminor's alcohol consumption because servingminors any amount of alcohol is a criminaloffense. Furthermore, the social host maycontrol the minor, with whom there is aspecial relationship, analogous to that ofparent-child.

Loading page image...

CHAPTER 2BUSINESS ETHICS/SOCIAL RESPONSIBILITY OF BUSINESS1-Chapter 2BUSINESS ETHICS ANDTHE SOCIAL RESPONSIBILITY OF BUSINESSLaw Versus Ethics [2-1]Ethical Responsibilities of Business [2-4]Ethical Theories [2-2]Regulation of Business [2-4a]Ethical Fundamentalism [2-2a]Corporate Governance [2-4b]Ethical Relativism [2-2b]Arguments Against Social Responsibility [2-4c]Utilitarianism [2-2c]ProfitabilityDeontology [2-2d]UnfairnessSocial Ethics Theories [2-2e]AccountabilityOther Theories [2-2f]ExpertiseEthical Standards in Business [2-3]Arguments in Favor of Social Responsibility [2-4d]Choosing an Ethical System [2-3a]The Social ContractCorporations as Moral Agents [2-3b]Less Government RegulationLong-Run ProfitsCases in This Chapter(NOTE: These are not actual court cases, but original vignettes which pose ethical problems in business situations. A discussion guidefor each is found prior to the answers to problems at the end of this instructor’s manual chapter.)Pharmacon Drug CompanyMykon’s DilemmaOliver Winery, IncJLM, Inc.Sword Technology, Inc.Vulcan, Inc.Chapter OutcomesAfter reading and studying this chapter,the studentshould be able to:Describe the differencebetween law and ethics.Comparethe various ethical theories.Describe cost-benefit analysis and explain when it should be used and when it should be avoided.Explain Kohlberg’s stages of moral development.Explain the ethical responsibilities of business.TEACHING NOTESEthicscan be broadly defined as the study of what is right or good for human beings. It pursues thequestion of what people ought to do and what goals they should pursue. Business ethics is not a special setof ethics that applies only in business settings, but rather a subset of ethics.Business ethics, a branch of applied ethics, is the study and determination of right and good in business.Ethical questions apply to relationships among and between:•a business and its employees, its customers,and its owners•competing businesses•a business and society at large

Loading page image...

CHAPTER 2BUSINESS ETHICS/SOCIAL RESPONSIBILITY OF BUSINESS2-•businesses and countries at an international levelIn business ethics, it is helpful to employ a seeing-knowing-doing model in which the decision-makerfollows these steps:•See (identify) the ethical issues in the proposed conduct and any alternative options•Know (resolve) which is the best option•Do (implement) the chosen option2-1 LAW VERSUS ETHICS*** Chapter Outcome ***Describe the difference between law and ethics.Law is strongly affected by moral concepts (ethics), but law and morality are not the same. Legality is often areliable guide to ethical behavior, but it cannot be relied upon as a perfect standard. Legal acts may beimmoral, illegal acts may be moral.2-2 ETHICAL THEORIES*** Chapter Outcome ***Compare the various ethical theories.Certain ethical rules are based on theory rather than experimentation (a priorireasoning).2-2a Ethical FundamentalismAlso called absolutism. Individuals look to a central authority or set of rules for guidance, e.g., the Bible,the Koran, the writings of Karl Marx.2-2b Ethical RelativismA theory under which actions must be judged by what individuals subjectively feel is right or wrong forthemselves. Although bearing some similarities, the doctrine ofsituational ethicsdiffers substantially inthat it requires one to judge another person’s actions by first putting oneself into that person’s situation.2-2c UtilitarianismThose actions that produce the greatest net pleasure, compared to net pain, are better in a moral sense.Act utilitarianismassesses each separate act in order to determine whether it produces net pleasure overpain.Rule utilitarianismsupports rules that at their inception would appear to be the best hope ofproducing maximum pleasure for the greatest number of people.*** Chapter Outcome ***Describe a cost-benefit analysis and explain when it should be used and when it should be avoided.Utilitarian notions of moral correctness are the basis for the general concept of making acost-benefitanalysisin a business or managerial decision. The purpose of a cost-benefit analysis is to choose the mostcost effective method for pursuing a goal after comparing the direct and indirect costs and benefits ofproposed alternatives. If increasing net wealth, especially on a short-term basis, is the goal, a sound cost-

Loading page image...

CHAPTER 2BUSINESS ETHICS/SOCIAL RESPONSIBILITY OF BUSINESS3-benefit analysis is a helpful tool.2-2d DeontologyFrom the Greek worddeon, meaning duty or obligation; stresses that certain principles are always right orwrong, no matter the outcome. Actions should be judged by means and motives, rather than only results.NOTE: See textbook discussion of Immanuel Kant’s deontological theories.2-2e Social Ethics TheoriesFocus on a person’s obligations to others and also on individual rights and obligations.Social egalitariansbelieve that society should provide all persons with equal goods and servicesirrespective of their contributions to the society’s overall wealth.Distributive justicealso considers the needs and rights of all people, yet stresses the equality ofopportunity, not of results.Libertariansclaim that differences in wealth simply demonstrate different levels of skill in themarketplace. Taking wealth earned by some and giving it to others is unfair.2-2f Other TheoriesIntuitionismholds that all rational people possess the ability to decide the rightness of an action, thoughsome people have more insight into ethical behavior than others.The“good person” philosophyis similar, and declares that to act morally, we should emulate thosewho seem to always choose the “good” or “right” choice.Television Test"judges the appropriateness of a decision based on whether we would be comfortablewith having that decision known by all the world, as if it had been broadcast on television.2-3 ETHICAL STANDARDS IN BUSINESS*** Chapter Outcome ***Explain Kohlberg’s stages of moral development.2-3a Choosing an Ethical SystemKohlberg’s Stages of Moral Developmentprovides insight into ethical decision-making. UnderKohlberg’s model, people progress through stages of moral development basically as a function of age andeducation. Thepre-conventionalor childhood stage, is one where a person’s moral perspective is based onlyon a punishment/reward concept. Theconventionalor adolescent stage is one where an individual conformshis behavior to meet group or peer expectations. Some people may reach the third, orpost-conventional,adult level where individuals conform to internalized moral principles simply because they understand whythe principles are right.NOTE: See Figure 2-1, Kohlberg's Stages of Moral DevelopmentSome psychologists assert that most people function in all three of Kohlberg's stages simultaneously.2-3b Corporations as Moral AgentsBecause a corporation is a statutorily created entity, is not clear whether it should be held to a standard ofmoral accountability.

Loading page image...

CHAPTER 2BUSINESS ETHICS/SOCIAL RESPONSIBILITY OF BUSINESS4-2-4 ETHICAL RESPONSIBILITIES OF BUSINESSSome regulation has always been necessary to check overreaching greed in our system of modifiedcapitalism.*** Chapter Outcome ***Explain the ethical responsibilities of business.2-4a Regulation of BusinessAccording to Adam Smith’s model for the perfect capitalistic system, governmental oversight is necessary,but should be limited. Beyond setting the rules and enforcing them, Smith felt government should standaside. Increased governmental intervention has occurred, however, because this model cannot be relied onto achieve objectives such as national defense, conservation of natural resources, health and safety, andsocial security. Successful government regulation involves carefully balancing regulations to preservecompetition and those that attempt to advance other social objectives.2-4b Corporate GovernanceThe demand for ethical and social responsibility of business also results from the sheer size, and thereforepower, of individual corporations. Many people—and even members of the corporate community itself—believe that companies have an obligation to sponsor projects that benefit society in ways beyond theeconomics of producing goods and services.InJuly 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) wasenacted, improving accountability and transparency in the financial system, protecting consumers fromabusive financial services practices, and improving corporate governance in publicly held companies.2-4c Arguments Against Social ResponsibilityProfitability—Since corporations are artificial entities established for profit-making, their onlyobligation should be to return as much money as possible to the direct stakeholders, the shareholders.Unfairness—Whenever corporations engage in social activities such as supporting the arts or education,they divert funds rightfully belonging to the shareholders and/or the employees to unrelated third parties.Accountability—A corporation may decide to support a variety of social causes but, unlike agovernmental body, will be required to submit to little public scrutiny.Expertise—Although a corporation may have a high level of expertise in selling its goods and services, itmay not be able to carry on social activities with the same degree of competence.2-4d Arguments in Favor of Social ResponsibilityA corporation’s primary objective is to make a return on its investment by producing a quality product at afair price. Most people agree, however, that corporations have obligations beyond making a profit andavoiding harm to others.The Social Contract—Since society allows for the creation of corporations and gives them specialrights, including a grant of limited liability, this argument holds that corporations reciprocally owe aresponsibility to our society.NOTE: See Figure 2-2, The Stakeholder Model.

Loading page image...

CHAPTER 2BUSINESS ETHICS/SOCIAL RESPONSIBILITY OF BUSINESS5-Less Government Regulation—When corporations act responsibly, regulation is unnecessary. Inaddition, by taking a more proactive role in aiding with society’s problems, corporations create a climate oftrust and respect that may make government more lenient in regulations.Long-Run Profits—Corporate involvement in social causes has the effect of creating goodwill whichsimply makes good business sense from a long-run profit perspective.

Loading page image...

CHAPTER 2BUSINESS ETHICS/SOCIAL RESPONSIBILITY OF BUSINESS6-CASEPharmakon Drug CompanyBACKGROUNDWilliam Wilson, senior vice president of research, development, and medical (RD&M) at Pharmakon DrugCompany, received both his Ph.D. in biochemistry and his M.D. from the University of Oklahoma. Uponcompletion of his residency, Dr. Wilson joined the faculty at Harvard Medical School. He left Harvard afterfive years to join the research group at Merck & Co. Three years later, he went to Burroughs-Wellcome asdirector of RD&M, and, after eight years, Dr. Wilson joined Pharmakon in his current position.William Wilson has always been highly respected as a scientist, a manager, and an individual. He has alsobeen an outstanding leader in the scientific community, particularly in the effort to attract more minoritiesinto the field.Pharmakon concentrates its research efforts in the areas of antivirals (with a focus on HIV), cardiovascular,respiratory, muscle relaxants, gastrointestinal, the central nervous system, and consumer health care (thatis, nonprescription or over-the-counter medicines). Dr. Wilson is on the board of directors of Pharmakonand the company’s executive committee. He reports directly to the chairman of the board and CEO, Mr.Jarred Swenstrum.DECLINING GROWTHDuring the previous eight years, Pharmakon experienced tremendous growth: 253 percent overall, withyearly growth ranging from 12 percent to 25 percent. During this period, Pharmakon’s RD&M budgetgrew from $79 million to $403 million, and the number of employees rose from 1,192 to 3,273 (see Figure2-3). During the previous two years, however, growth in revenue and earnings slowed considerably.Moreover, in the current year, Pharmakon’s revenues of $3.55 billion and earnings before taxes of $1.12billion were up only 2 percent from the previous year. Furthermore, both revenues and earnings areprojected to be flat or declining for the next five years.The cessation of this period’s tremendous growth and the likelihood of future decline have been broughtabout principally by two causes. First, a number of Pharmakon’s most important patents have expired andcompetition from generics has begun and could continue to erode its products’ market shares. Second, asnew types of health-care delivery organizations evolve, pharmaceutical companies’ revenues and earningswill in all likelihood be adversely affected.PROBLEM AND PROPOSED SOLUTIONSIn response, the board of directors has decided that the company must emphasize two conflicting goals:increase the number of new drugs brought to market and cut back on the workforce in anticipation of risinglabor and marketing costs and declining revenues. Accordingly, Dr. Wilson has been instructed to cut costssignificantly and to reduce his workforce by 15 percent over the next six months.Dr. Wilson called a meeting with his management team to discuss the workforce reduction. One of hismanagers, Leashia Harmon, argued that the layoffs should be made “so that recent gains in minority hiringare not wiped out.” The percentage of minority employees had increased from 2.7 percent eight years agoto 8.3 percent in the previous year (see Figure 2-3). The minority population in communities in whichPharmakon has major facilities has remained over the years at approximately 23 percent. About 20 percentof the RD&M workforce have a Ph.D. in a physical science or in pharmacology, and another 3 percent havean M.D.Dr. Harmon, a Ph.D. in pharmacology and head of clinical studies, is the only minority on Dr. Wilson’sseven-member management team. Dr. Harmon argued that RD&M has worked long and hard to increase

Loading page image...

CHAPTER 2BUSINESS ETHICS/SOCIAL RESPONSIBILITY OF BUSINESS7-minority employment and has been a leader in promoting Pharmakon’s affirmative action plan (see Figure2-4). Therefore, she asserted, all layoffs should reflect this commitment, even if it meant disproportionatelayoffs of nonminorities.Dr. Anson Peake, another member of Dr. Wilson’s management team and director of new products,argued that Pharmakon’s RD&M division has never discharged a worker except for cause and should adhereas closely as possible to that policy by terminating individuals solely based on merit. Dr. Rachel Waugh,director of product development, pointed out that the enormous growth in employment over the past eightyears—almost a trebling of the workforce—had made the company’s employee performance evaluationsystem less than reliable. Consequently, she contended that because laying off 15 percent of her groupwould be extremely difficult and subjective, she preferred to follow a system of seniority.Dr. Wilson immediately recognized that any system of reducing the workforce would be difficult toimplement. Moreover, he was concerned about fairness to employees and maintaining the best qualifiedgroup to carry out the area’s mission. He was very troubled by a merit or seniority system if it could notmaintain the minority gains. In fact, he had even thought about the possibility of using this difficult situationto increase the percentage of minorities to bring it more in line with the minority percentage of thecommunities in which Pharmakon had major facilities.ISSUES:Thegeneral issueis the appropriateness of affirmative action in the private sector. Does the use ofaffirmative action when a company is downsizing differ from when a company is hiring or conferring otherbenefits?Thespecific issueis how should Pharmakon implement its layoffs and what criteria should it use?OPTIONS:Layoffs and/or terminations should be based on which one or combination of the following?1)Cause2)Merit based on a newly established, reliable, and valid evaluation system3)Seniority4)Proportionate (maintain the current percentage of minority employees)5)Enhancement of minority (increase the percentage of minorities)6)Encourage voluntary retirement (either with or without incentives)7)Lottery8)Pay cuts across the board9)OtherANALYSIS OF THE VARIOUS OPTIONS:How does each of the options impact the following goals of Pharmakon?1)Productivity2)Fiscal soundness3)Minority presence and preservation of minority gains4)Employee morale5)Potential for lawsuits6)Public and community reaction7)Shareholder reaction8)Balancing of rights of current employees against past corporate/societal discrimination

Preview Mode

This document has 1539 pages. Sign in to access the full document!

Report

Study Now!

Document Details

Related Documents

Solution Manual for Smith and Roberson's Business Law, 18th Edition

Commercial Law Assignment 1-1

MRL3702 Assignment 1

Quiz-No-2-Labor-ED

BLAW 202 Sample Questions Spring 2025

Employment Law Duties and Misconduct under the Lab

Obligations and Contracts

Contract and Consumer Protection Law

Sarbanes Oxley Act of 2002

Whistle blowing and Sarbanes-Oxley

Company

Explore

Study Tools