Running head: BUSINESS REGULATION

Business Regulation University of Phoenix MBA560 Managing Enterprise Risk Instructor: William Davis June 4, 2007

Environmental regulation is perhaps the most stringent area of governments regulation of business. The government imposes technology investment demands on industry for regulatory compliance. However, the penalty for a single act of recklessness can be far greater. The level of importance government places on the preservation of the environment and its mean of enforcing environmental regulation. This paper deals with the ethical issues facing business managers involved in resolving potentially damaging lawsuits and the preferred legal way our of such dilemmas. A $4 billion aluminum maker, USA-based Alumina, Inc. operates in eight countries around the world, with the USA accounting for 70% of its sales. Situated on the fringes of Lake Dira in the state of Erehwon, Alumina has business interests in automotive components and manufacture of packaging materials, bauxite mining, alumina refining, and aluminum smelting. Alumina falls under the jurisdiction of region 6 of the EPA. Alumina was reported to be in violation of environmental discharge norms in a routine ELPA compliance evaluation inspection five years ago. The PAH concentration in test samples was above the prescribed limit. A clean up was ordered by the EPA, to which Alumina complied promptly. The subsequent environmental audit reported the violation as corrected. Barring this one incident, Alumina Inc, has enjoyed a good overall environmental regulation compliance record. Kelly Bates, a local resident, however, threatens to mar Aluminas good compliance record. I will have to lead Aluminas effort in managing a crisis arising out of allegations of environmental damages. My objective is to prevent extensive losses, environmental and commercial, preserve Aluminas public image, and abide by the pertinent environmental statutes.

Five years after the violation, a 38 year old single mother, Kelly Bates, has accused Alumina Inc. of repeatedly contaminating the waters of Lake Dira with carcinogenic effluents, and has alleged that consumption of thee contaminated water is the proximate cause of her 10 year old daughters leukemia. Bates also alleges that her daughters disease may be as old as Aluminas first instance of environmental law violation. Aluminas legal counsel, Arthur Todd, has experience in handling litigation and regulatory proceedings involving releases of solid and hazardous waste (under CERCLA and RCRA); natural resource damages; management of solid and hazardous waste; and water (including dredging of navigable waters and fillings of wetlands). Because of a double column editorial appeared in The Erehwon Reporter saying that Skeletons in Aluminas Closet. The editorial discusses Alumina getting defensive, evident in the immediate press release that confirms not all is well with effective systems. Arthur Todd has suggested sending a demand letter to The Erehwon Reporter demanding a retraction for not backing up their claims with facts and data. Because of this, The Erehwon Reporter has published a front-page retraction of sorts, admitting its editorial had little data support and that it was published prematurely. Senior management is happy with the outcome of the newspaper editorial and has conducted an independent site study and the PAH levels are evidenced to be lower than the prescribed 5 milligrams per liter for all hydrocarbons and that is wonderful news. Bates accusation of repeatedly contaminating the waters of Lake Dira has been blunted for now. The Erehwon Report and Kelly Bates have approached the EPA to get hold of the environmental audit report that documented Aluminas violation of the Clean Water Act five year ago. Under the Freedom of Information Act (FOIA), citizens can request information related to federal agencies and corporations, among others. Chris Blake, the second in command

has suggested that management allow partial release of the environmental audit report. By withholding information that qualifies as Confidential Business Information available under exemption 4 of the Freedom of Information Act, the company will not be jeopardizing Aluminas competitive position in the global aluminum trade. In spite of disclosing the environment audit information to The Erehwon Reporter, Kelly Bates has threatened to file a million-dollar personal injury lawsuit against Alumina Inc. to recover compensatory and punitive damages. Aluminas negligent conduct, evident in the serious violation of environmental laws five years ago, is proximate cause of her daughters leukemia, Bates alleges. Roger Lloyd, Chairman, suggested that the company should seek American Arbitration Associations (AAA) intervention in resolving the dispute through alternative means. This was a good decision. Mediation by a neutral third party was very helpful. The AAA, a leading provider of dispute resolution services, provided an experienced mediator who facilitated a winwin outcome between the parties. Alumina Legal Process Q and A

Q: Did the organization violate or break any laws, rules, or regulations as alleged? A: The organization must proceed systematically to gather all the relevant information, including all internal and public records, data, and reports that it reasonably can obtain. Evaluating this material establishes how the organization will make further decisions; how it will respond to the allegations; and how it will defend itself, if necessary. However, the organization must understand that the information gathered and the results may, in fact, be obtained later by its adversary in the process of litigation (i.e., through the courts discovery process). Accordingly, the organization must be committed to handling the results of such an investigation

in an appropriate and ethical manner (i.e., if problems are encountered that show violations of the law, the organization would be well advised to address them in a straightforward manner and with all due haste). The advice of legal counsel throughout the process is indispensable. Q: If a party in a potential legal matter requests records or reports from a governmental agency pertaining to the organization, should the organization object to the agencys release of any of the organizations information? A: The Freedom of Information Act (FOIA), 5 U.S.C. 552, ensures public access to government records subject to certain exemptions and exclusions. The policy behind FOIA is that of opening agency actions to the light of public scrutiny. However, before the agency may release any information, it must notify any affected organization to allow the organization to make an objection based on FOIAs exemptions or exclusions. The most frequently invoked basis of objection is that the information contains privileged or confidential information of the organization. If notified by the government agency that it has received an FOIA request affecting the organization, the organizations first efforts should be focused on ascertaining in a realistic manner what truly confidential information is contained in the agencys report. Q: What factors should be considered in deciding whether the organization should defend itself in court, attempt negotiations, or seek alternative methods to resolve the dispute? A: There are several considerations that make litigation generally undesirable, except in certain limited situations. Some of these are as follows: Financial Costs: The cost of a protracted legal battle can easily run into the tens of thousands of dollars for an organization. These costs often include expert witness fees, attorneys fees, lost employee productivity, and court fees. In addition, there is the uncertainty and risk associated

with the outcome of the litigation (i.e., the possibility of a large monetary judgment being assessed against the organization). Time: Litigation can take months and even years from the date of filing the case to judgment. Many courts are backlogged with cases, and delays are common occurrences. Most organizations do not want to spend the time and resources necessary for a lengthy legal battle. Publicity and Confidentiality: A trial is public and an organizations sensitive information or trade secrets could be revealed. In addition, the publicity generated from a court battle, especially one brought about by a citizen, could cause significant harm to the organization and its reputation, especially if the organization is defeated in court. With respect to these negatives, Alternative Dispute Resolution (ADR) offers an alternative to litigation with several advantages. First, the costs of ADR are generally much less than litigation (usually about one-third of the cost). Second, using ADR generally results in a more expeditious process. The parties have more input and control over the progression of the case, the choice of the decision maker, and the dates and locations of meetings and general scheduling issues. In addition, ADR can be binding (arbitration) or non-binding (mediation). By pursuing mediation in the first instance, the party may be able to avoid litigation altogether or at least gather a better understanding of the opponents position. Finally, through the ADR process the parties can agree to keep matters confidential and private. This is not possible with a decision rendered by a court. There are, however, some disadvantages to using ADR in certain situations. First, because of the ease of the ADR process, the organization may find that it has to defend more ADR cases then it would otherwise have to litigate. Second, ADR is not well suited for cases where an important principle is at stake or when the organization needs a favorable precedent set. Finally, ADR is not appropriate for certain kinds of matters due to the nature of those matters. An example would

be intellectual property infringement actions (where the organization may need to obtain a preliminary injunction to stop an infringing use of its trademarks). In many cases, when using mediation, parties may resolve matters amicably through the services of a mediator. To act as an effective mediator, one must gain credibility with all parties by reviewing the facts of a case and necessary documentation and by possessing the expertise needed to evaluate the case at hand. (Kramer & Connolly, 2006). Arbitration often allows you to resolve disputes more quickly and cheaply than by going to court. Instead of judges or juries, arbitrators decide if wrongdoing occurred and how to correct or compensate you for it. When the arbitration is over, the decisions of the arbitrators are final. If you are unhappy with the result, you cannot go to court to try again. The arbitrators' decisions can only be appealed under very limited circumstancesfor example, if you can demonstrate that an arbitrator was biased. (SEC, 2006). Where parties cannot reach an agreement, arbitration hearings may be conducted with similar efficiency, yielding decisions in a fraction of the time that congested courts dwell on important cases. Thus, it may well serve the interests of both sides to conduct a "cost-benefit" analysis and to consider alternatives to litigation before proceeding to a "war" in which all may lose in the end. (Kramer & Connolly, 2006).

Risk Analysis Matrix

Alternative Solution Risks and Probability Consequence and Severity Mitigation Techniques and Strategies Mediation Other party might not be interested in this process High Must gain credibility with all parties by reviewing the facts of a case and necessary documentation

Arbitration

When the arbitration is over, the decisions of the arbitrators are final. If you are unhappy with the result, you cannot go to court to try again. The arbitrators' decisions can only be appealed under very limited circumstancesfor example, if you can demonstrate that an arbitrator was biased.

Medium Will resolve matters fairly and equitably for all concerned in light of the evidence produced

Cost-benefit analysis

In most situations this might continue to introduce measurement problems

High

Weighing the total expected costs against the total expected benefits of one or more actions in order to choose the best or most profitable option

References Business Regulation. (2007). Business regulation. Legal environment of business. Retrieved May 30, 2007, from https://ecampus.phoenix.edu. Kramer & Connolly. (2006). AV-Rated arbitrators & mediators. Retrieved June 1, 2007, from http://www.kramerslaw.com/arbitration.htm SEC. (2006). U.S. Securities and exchange commission. Arbitration. Retrieved June 1, 2007, from http://www.sec.gov/answers/arbproc.htm