CHAPTER 4

Legal, Regulatory, and

Political Issues
Chapter Objectives
To understand the rationale for government regulation of
business
To examine the key legislation that structures the legal
environment for business
To analyze the role of regulatory agencies in the enforcement
of public policy
To compare the costs and benefits of regulation
To examine how business participates in and influences public
policy
To describe the governments approach for legal and ethical
compliance
Governments Influence on Business
Laws derived from the U.S. Constitution and Bill
of Rights influence business.
Laws are enforced through the judicial system.
Corporations have the same legal status as
a person.
Major Laws Affecting Business
Sherman Antitrust Act
Clayton Antitrust Act
Federal Trade Commission Act
Robinson-Patman Act
Lanham Act

Law Enforcement Agencies

Food & Drug Administration (1906)
Federal Reserve Board (1913)
Federal Trade Commission (1914)
Federal Communication Commission (1934)
Securities & Exchange Commission (1934)
National Labor Relations Board (1935)
Law Enforcement Agencies (cont)
Equal Employment Opportunity Commission (1970)
Environmental Protection Agency (1970)
Occupational Safety & Health Administration (1971)
Consumer Product Safety Commission (1972)
Commodity Futures Trading Commission (1974)
Federal Housing Finance Industry (2008)




Global Regulation
Import barriers
Product quality, safety, distribution, sales, and advertising
regulation
North American Free Trade Agreement (NAFTA)
European Union (EU)
Costs of Regulation
Administrative spending patterns of federal
regulatory agencies
Staffing levels of federal regulatory agencies
Business expenditures in compliance
with regulations

Benefits of Regulation
Greater equality in the workplace
Safer workplaces
Resources for disadvantaged societal members
Safer products
More information about products
Greater product variety
Cleaner air and water
Preservation of wildlife
Deregulation
Removal of all regulatory authority
Belief that less government intervention allows
business markets to work more effectively
Many industries have been deregulated.
Critics of deregulation cite higher
prices and poorer service/quality.
Companies attempt to regulate themselves to
demonstrate social responsibility and preclude
additional regulation.
Firms may chose to join trade organizations with
self-regulatory programs.
Best-known self-regulatory association is the Better
Business Bureau.
Benefits include lower costs and more practicality
and realism in programs.
Self-Regulation
The Contemporary Political Environment
Greater transparency in the congressional committee
process
Limiting campaign contributions from individuals,
political parties, and special interest groups
(Federal Election Campaign Act)
Many states have shifted their electoral process from
traditional party caucus to primary elections.
Special-Interest Groups
Seek to educate the public about significant social
issues and to support legislation and regulation of
business conduct they deem irresponsible

Corporate Approaches
to Influencing Government
Lobbying
Political Action Committees
Campaign Contributions
Federal Sentencing
Guidelines for Organizations
Passed in 1991 to streamline the sentencing and punishment of
organizational crime
Provides an incentive for organizations to establish due
diligence ethics and compliance programs
Seven Steps to Effective Compliance
and Ethics Program
Establish a code of ethics.
Appoint a high-level compliance manager, usually an
ethics officer.
Take care in delegation of authority.
Institute a training program and
communication system.
Monitor and audit for misconduct.
Enforce and discipline.
Revise program as needed.
Sarbanes-Oxley Act
Legislation to protect investors by
improving accuracy and reliability of
corporate disclosures
Many benefits