Unit III Course Project

DBA 7035, Business, Government and Society 1

Course Learning Outcomes for Unit III Upon completion of this unit, students should be able to:

1. Distinguish between the market and nonmarket environment of business by explaining the four Is of the nonmarket environment. 1.1 Articulate the need for appropriate regulatory oversight of business. 1.2 Explain the impact of government on business.

4. Summarize the three broad classes of political strategy, and compare their cost.

4.1 Identify the classes of political strategy. 4.2 Illustrate the application of political strategies and their importance to business.

5. Assess the effectiveness and propriety of grassroots lobbying strategies by political action

committees that represent business. 5.1 Summarize how corporations influence government decision-making. 5.2 Evaluate how a specific firm uses lobbying strategies.

Reading Assignment Chapter 4: Legal, Regulatory, and Political Issues

Unit Lesson Introduction Of course, businesses do not operate in a vacuum. Businesses are subject to the environment within which they operate. This environment includes the legal, regulatory, and political framework. These factors are dynamic and subject to considerable variance. Organizations must be cognizant of these changes and adapt as appropriate. Legal, Regulatory, and Political Issues In Chapter 4, we examine the influence of various stakeholders on public officials who regulate business. Governmental policies, public sentiment, and ethical dilemmas serve as principal factors restricting market opportunities, but they also serve as catalysts for value-creating opportunities. Of course, a key to our discussion in this unit is that the legal, regulatory, and political framework is subject to change. In that regard, businesses must monitor their environment and respond to change as it occurs. For example, the U.S. Food and Drug Administration (FDA) prevents food manufacturers from taking advantage of consumers with false and misleading advertising by allowing only FDA-approved nutrient and health claims to appear on food labels (FDA, n.d.). Meanwhile, health-conscious consumers are demanding more food choices that support healthy dietary practices. Food manufacturers and retailers can capitalize on the opportunity to meet the dietary needs of consumers by providing healthier food selections and enticing consumer purchases with informative labeling that not only meets FDA approval, but also serves as promotional advertising. Once held responsible for obesity and other dietary concerns, fast food businesses are expanding their menus to offer healthier choices and are becoming more transparent about the content of the foods served. An emerging issue of interest in this area is the regulation of sugar in drinks. For example, the City of New York has moved to regulate the sugar content of drinks because sugary drinks are viewed as driving obesity in many individuals ( n.d.).

UNIT III STUDY GUIDE

Legal, Regulatory, and Political Issues

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One important legislative response to framing the activities of business is evident in the Sarbanes-Oxley Act (SOX) adopted in 2002. Essentially, SOX established a set of standards to enhance internal control that would require reporting and transparency in light of a number of high-profile corporate malfeasance cases such as Enron (Ferrell, Thorne, & Ferrell, 2016). Table 4.10 on p. 141 of the textbook includes the key aspects of SOX, and the benefits of SOX are highlighted in Table 4.11 on p. 143 of the textbook. One example of the impact of SOX has been the introduction of whistleblower protections. These are designed to prevent an employer from retaliating in the event that an employee discloses wrongdoing by a private company. SOX represents a far-reaching effort by government to rein in the actions of business. Essentially, SOX requires that business decision-making be more open and transparent. Additionally, it requires that records, including electronic records, be maintained by the firm. SOX imposes significant financial and criminal penalties for noncompliance. Another key piece of legislation is the Dodd-Frank Act of 2010 that was designed as a sweeping overhaul of the financial regulatory system. Again, the purpose of the act is aimed at developing rules to protect consumers and preventing a future financial crisis by creating added financial regulations and rules that enforce transparency and accountability on companies. Some products are more vulnerable than others in that the product receives more political attention and, therefore, creates more risk for the firm. For example, in times of rising prices, oil becomes a politically sensitive product. This can lead to social and labor agitation, import quotas, expropriation, and nationalization. Indeed, the attitudes to politically vulnerable and sensitive products are subject to change with very short notice. Since political risk increases if the product is politically sensitive, marketers must find out or detect the degree of vulnerability by addressing the questions below.

 Is the product critical to the economic debate in the foreign market?

 Is the product critical to the political debate in the foreign market?

 Is the product in an industry that employs most of the people in the country?

 Do other local industries depend on your output?

 Is your product essential to national security?

 Are you competing with a local/domestic industry in the foreign market?

 Is your product a danger to health or the environment?

 Does your product drain resources?

 Does your product or firm drain foreign exchange? In terms of the application of these types of guidelines, Table 4.8 on p. 138 of the textbook includes seven steps that can assist a firm with respect to compliance and ethics. Businesses also operate in a political environment. Governments are responsible for crafting and implementing the rules by which society, including businesses, must operate. Adding rules and regulations adds costs to the conduct of business. These costs are listed in Table 4.5 on p. 129 of the textbook. Of course, as governments change, there may be changes in the laws and regulations that impact businesses. Hence, businesses monitor the political process carefully. Often, we see that there are coordinated efforts by business groups, such as the U.S. Chamber of Commerce, to encourage deregulation in an effort to improve the business climate. For an example of the deregulation initiative, see the article “Getting Out of the Way” in the suggested reading section of this unit. In fact, it is interesting to note that the Chamber of Commerce is an example of a lobby group. As a result of government oversight, many businesses have been increasingly active in the political process to achieve their goals. For example, there has been a rise in political action committees (PACs) and special interest groups that are interested in achieving their agenda. In Table 4.7 on p. 135 of the textbook, a list of organizations that engage in lobbying are listed, illustrating the range of business sectors that are engaged in this function. A concern related to the increasing importance of these types of groups is that they reflect the concept that money buys power. It is critically important that the average citizen has a role to play in the political process. Lobbying is a specific process by which an organization (business) aims to influence and persuade governments and public officials to make decisions that are favorable to its interests. Also, there are many

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more lobbyists that often work on behalf of the political elite. Increasingly, there have been efforts undertaken to develop laws and regulations that manage the roles of those lobbying on behalf of business (and others). An example of a lobbying group is the American Association of Retired Persons (AARP). The AARP is a nonprofit organization that is nonpartisan, serves more than 38 million people, and lobbies all levels of government on issues such as healthcare and pensions that are important to its members (AARP, n.d.) Legislative, social, and ethical concerns are also primary factors that influence an organization’s ability to capitalize on opportunities. Activists throughout the world are dedicated to making the business environment transparent as well as increasing the expectations of many business practices. Ecological, health, and social issues create opportunities and motivate managers to make necessary changes inside of their existing organizations to design more appealing products to consumers. Thus, pressures from the nonmarket entice opportunities from businesses within the market to make products with more sustainable value—a win-win for all. As technology changes, there are many impacts on the ways in which special interest groups can interact with governments. An example is the increasing use of social media as a way to influence governments. There are costs and benefits with respect to the regulatory framework guiding business. Fundamentally, there are three classes of political strategies available to businesses that we must understand. These strategies include 1) an information strategy as firms seek to provide government policymakers and decision makers with information that is designed to influence their actions and decisions, 2) a financial-incentives strategy in which businesses provide incentives that are designed to influence policymakers, and 3) a constituency- building strategy in which businesses look to develop alliances and gain from similarly affected organizations and to influence policymakers cooperatively. Often, we do see that the political framework is driven by events that arise as opposed to a strategic effort to manage business. In that regard, changes are to be expected in the environment that frames the operation of business.

References American Association of Retired Persons. (n.d.). About AARP. Retrieved from http://www.aarp.org/about-

aarp/ City of New York. (n.d.). Healthy beverages. Retrieved from http://www1.nyc.gov/site/doh/health/health-

topics/sugary-drinks.page Ferrell, O.C., Thorne, D., & Ferrell, L. (2016). Business and society: A strategic approach to social

responsibility and ethics (5th ed.). Chicago, IL: Chicago Business Press. U.S. Food and Drug Administration. (n.d.). Label claims for conventional foods and dietary supplements.

Retrieved from http://www.fda.gov/Food/IngredientsPackagingLabeling/LabelingNutrition/ucm111447.htm

Suggested Reading In order to access the following resource, click the link below: This article was referenced in the Unit III Lesson. It provides an example of deregulation in the trucking industry. Kinkade, D. (2014). Getting out of the way: How regulatory reform remade the trucking industry. Retrieved

from https://www.uschamber.com/above-the-fold/getting-out-the-way-how-regulatory-reform-remade- the-trucking-industry