Project 1: Introduction to the Legal Environment of Business

Learning Topic

Introduction to the Legal Environment of Business

The Legal Environment: Courts,

Alternative Dispute Resolution,

and Agency

by Rosemary Hartigan and Paula

O'Callaghan, Professors, UMGC

Why Should I Care about the Law?

Why do businesspeople need to know

anything about the law? Some people think

of lawyers in business as a necessary evil.

There is some truth to the "necessary" part:

if everyone were scrupulously honest and

had photographic memories regarding all

statements uttered that could constitute

promises, perhaps lawyers wouldn't be

needed. But, alas, we are mere mortals with

failing memories and sometimes failing

ethics.

A Systems View of the Roles of the Lawyer

and the Manager

One view of the respective roles of the

lawyer and the manager in a business is that

the lawyer should guide the manager in

analyzing risk—this is in the lawyer's

training, and it's the lawyer's responsibility

to accurately convey the nature of legal

risks to the client; however, it is up to

the manager to make the final business call.

Generally speaking, lawyers are inherently

conservative when it comes to risk.

Managers can't abdicate responsibility for

making the business call. This is one of the

main reasons for managers to have legal

literacy. You need to know when you need

legal advice, and then what to do with it.

Sometimes, basic legal knowledge is

necessary on the front lines of dealing with

customers and coworkers.

Knowing something about the law can assist

you in prevention. Legal analysis skills help

you to avert lawsuits and other

unpleasantness so that you can stay

focused on running your business. However,

there will be instances in which you have to

bring a legal-related matter to closure.

Perhaps you've taken over from an

executive who has left the department or

company and left behind a problem that

requires a legal solution. Or, you did

something that triggered a legal response

from a customer or vendor. If you know the

relevant legal rules for your area of

business, you'll know when it's appropriate

to involve legal counsel.

Let's begin with a basic overview of the two

types of law.

Differences between Civil and Criminal Law

American society highly values ingenuity

and entrepreneurship, but there are legal

limits on the conduct of commerce. Some of

these limits are statutory, which means that

a law-making body has enacted a specific

law to regulate a specific activity (e.g., the

Sherman Act statute regulating antitrust).

Some of these legal limits are found in

the common law (e.g., tort law imposing

liability on an infinite variety of behaviors).

Most of the legal limits on business fall into

the category of civil law.

One big difference between civil and

criminal law is in the potential

penalties. Civil law liability carries penalties

that are monetary—so-called damages. The

culpable party pays damages in an amount

the court believes will make the wronged

party whole. This contrasts with criminal

law, where the possible penalties are limits

on personal freedom (such as incarceration

or death), although monetary penalties are

also possible (such as a fine payable to the

government or restitution to the victim).

There is one major exception to the rule

that business contracts do not involve

criminal penalties for breach: this is in

government contracting. Because so many

students at UMGC have employment that

involves contracts with the US government

in some manner, this is often a point of

confusion.

Government contracting is a special

circumstance where the contracts involve

civil law, yet breach of contract potentially

involves criminal penalties. The criminal

penalties can include jail time for serious

violations. Those of you who work in this

area probably have attended or will attend a

professional development seminar about

contract compliance in which you learn the

particulars of your contractual obligations.

Trend Developments in Business Law

The past 20 years have seen a rise in the

criminalization of business law. While it's

still true that no one goes to prison for

breaking the terms of a contract (notable

exception: government contracting), there

has been a marked increase in the number

of business-related activities that carry

possible criminal penalties.

Business activities that are punishable by

criminal penalties (in addition to fines and

damages) are known as white-collar crimes.

Many of you are familiar with famous cases

involving business people—Martha Stewart

(ImClone), Kenneth Lay (Enron), Dennis

Kozlowski (Tyco), and, of course, Bernie

Madoff. Those businesspeople got

themselves into the criminal justice system

by committing fraud, lying to federal

authorities, or otherwise invoking specific

laws to deter commercial crimes such as

insider trading of stock. The possible

penalties for white-collar crime do include

imprisonment as well as fines and damages.

When you see a businessperson in

handcuffs doing the "perp walk," ask

yourself, "What law has allegedly been

broken?" Typically, there will be a law

(statute) or a regulation (e.g., Securities and

Exchange Commission [SEC] rule) that

allegedly has been transgressed.

Resources

Court System

(https://leocontent.umgc.edu/co

ntent/scor/uncurated/mba/221

8-mba630/learning-

resourcelist1/court-

system.html?ou=770958)

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