GEB 3453 Final Part One

The Pinto Case (product liability lawsuit)

- 1978: Ford Motor Company designed a car that exploded on impact. - The case is an excellent example of a product liability case. - survivor had 50+ operations and got $666,280 for dead drivers' family, $2.8M for compensatory damages, and $125M for punitive damages

The Ombudsman

- A growing due-process mechanism that has become popular for dealing with employee problems is the use of a corporate ombudsman - also known as ombud or ombudsperson. - "Ombudsman" is a Swedish word that refers to one who investigates reported complaints and helps to achieve equitable settlements.

Extensions of Strict Liability

- Absolute liability: A manufacturer could be held strictly liable for failure to warn of a product hazard, even if the hazard was scientifically unknowable at the time of manufacture and sale - Market Share liability: Manufacturers who made the product share in the liability for injury according to their market shares. This doctrine was applied in delayed manifestation cases, but limited to those.

Social Costs View

- An ethical theory of product quality stating that, even if a firm has met its contractual terms and exercised due care, it should pay the costs of injury if the product causes harm - an underpinning of strict liability and its extension into absolute liability

Whistleblower

- An organization member who discloses illegal, immoral, or illegitimate practices under the control of their employers, to persons or organizations that may be able to effect action.

doctrine of strict liability

- Anyone in the value chain of a product is liable for harm caused to the user if the product is unreasonably dangerous because of a defective condition. - Ex: DOT holds warehouses liable for violations of hazardous materials regulations even if they were going on instructions from the customer - The U.S. is a litigious society

Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley Act of 2002 or SOX or Sarbox)

- amended the securities laws to provide better protection to investors in public companies by improving the financial reporting of companies - limits non-auditing services and auditor can provide - requires auditing firms to rotate auditors - makes it unlawful for accounting firms to produce auditing services where conflicts of interest occur - enhances public disclosure ti require reporting of off-balance sheet transactions & personal loans to executives

biodiversity and land use

- an ecosystems biodiversity is the variety of life in the system; it serves as a key indicator of its health - we are losing biodiversity at high rates because of urban development and agriculture activities - naturally, species die off at a rate of 1-5 a year; we now have dozens going extinct each day - Land degradation threatens the livelihood of more than 1B people in Africa, the continent most affected by drought - It includes desertification, salinization, deforestation, alkalization, and overgrazing

good faith principle

- employers may run the risk of losing lawsuits to former employees if they fail to show that employees had every reasonable opportunity to improve their performance before termination - only recognized by 20 states

Due Care Theory

- focuses on relative vulnerability of the customer, who has less information and expertise than the firm, and the ethical responsibility that places on the firm. - Customers depend on the firm to live up to the claims of the product & to exercise due care to avoid injury

Contractual Theory

- focuses on the contractual agreement between the firm and the customer - firms must comply with terms, inform customers about the nature of the product, avoid misrepresentation, and not coerce the customer

Food and Drug Administration (FDA) (Wiley)

- grew from experiments by Harvey W. Wiley, Chief chemist for the agriculture dept - most famous experiment: feeding small doses of poison to volunteers; the poison was similar to food preservatives of the time - volunteers = Poison Squad & their publicity generated awareness for eating altered foods - Food and Drug Act of 1906 was also a result

Advertising to Children

- hotly debated, esp. on TV - Avg. child in the US watches 25k-40k commercials/yr - advertisers spend $15B-$17B marketing to kids

emissions trading

- intended to reduce a particular pollutant over an entire industrial region by treating all emission sources as if they were all beneath one bubble - "cap and trade" - businesses that reduce their emissions can trade their rights to other businesses that want to emit more

the separation of ownership from control

- major condition which has contributed to corp. governance problem - As companies sold more shares, ownership became hazy - top level mgmt. influenced the board members with like-minded people; control flowed from mgmt rather than employees - Agency Problems: interests of the shareholders were not aligned with interests of managers, so the managers begin to pursue self-interests

The Purpose of Corporate Governance

- question of legitimacy - Governance = steering - The way a corporation is governed determines the direction it's steered - Corporate Gov: the method by which a firm is being directed, goverened, administered, or controlled; theh goals for whihch it's being govered - concerned with roles, rights, and accountability of stakeholders

waste management (circular economy)

- reduce, reuse, recycle - recycling transforms waste into a resource; businesses can profit because less waste means less money spent on landfill expenses - companies recycling include Coke, Gap, and Lego - circular economy: system that businesses use to recycle by keeping resources and extracting value as long as possible, then recovering/regenerating the products; Done by Patagoina with Worn Wear

Audit Committee

- responsible for assessing the adequacy of internal control systems and the integrity of financial statements - Principal responsibilities: 1) ensure that published financial statements are not misleading 2) ensure that internal controls are adequate 3) follow up on allegations of material, financial, ethical, and legal irregularities 4) ratify the selection of the external auditor

Collective bargaining rights

- rights established through the process of negotiation - established by/for union contracts - Ex: seniority preferneces, job security mechanisms, and grievance procedures

employment at will doctrine

- says an employee may quit and an employer may fire an employee at any time and for any reason. - - - There are many exceptions to the at-will doctrine, but it is the most basic U.S. employment law - central issue is changing the views of the doctrine

Externalities

- side effects or by-products of actions that are not intended and often disregarded

Marketing to the poor

- significant profits can occur - lenders lend to high risk borrowers at high rates, leaving the borrower with a mountain of debt - recent years have been the worst for foreclosures because poor people were lured into loan they couldn't pay - deceptive marketing tactics used include concealed facts, ambiguous advertising, and psychological appeals

Roles of Four Major Groups

- the charter: gives the corporation the right to exist - shareholders: own stock in the firm, giving them ultimate control - Board of Directors: govern/oversee the management of the company - Managers: hired by board to manage daily business - Employees: hired to perform operational work

insider trading

- the practice of buying or selling a security by someone who has access to material information that is not available to the public - can be legal or illegal depending on when the trade occurs - allegations cause the public to lose faith in the stability of the financial because of information asymmetry - Regulation Fair Disclosure (FD): sets limits on the common company practice pf selective disclosure

The absolute-liability rule frequently involves cases with chemicals or drugs

- under this doctrine, the firm could be held liable for side effects or health problems that occur years later - the result is that a large amount of uncertainty is injected into the production process

carbon pricing

A policy that charges emitters of the waste products that cause climate change for the cost of their pollution, either by a monetary tax on the volume of emissions or the revocation of permits to operate.

What defines a sustainable business?

According to World Commission of Environment & Development (WCED), a sustainable business is one that meets the needs of the present without compromising the future generation abilities' to meet their own needs

The Need for Board Independence

Balance between inside directors (members of management) and outside directors (members who only serve on the Board but not in corporation management)

product tampering and extortion

Tampering: - most well known case was Tylenol in 1980s - other cases = Jello pudding, bottled water, oranges, candy, baby food, and Girl Scout Cookies Extortion: - when someone threatens to contaminate a product for money from the company - extorters don't want to harm, they just want money

As firms jockey for position in today's hyper-competitive marketplace, they compete to attract customers by increasing the value of the product/service

Value refers to a comparison of the quality received for the price spent

Exaggerated product claims

a) Induce people to buy things that do them no good b) Force companies to match puffery with puffery c) Drive out good advertising d) Generally result in consumers losing faith in the system because they get so used to companies making claims that exceed their products' capabilities.

carbon footprint - carrying capacity

the volume and intensity of use by organisms that can be sustained in a particular place and at a certain time without degrading the environment's future suitability for that use

Consumer Financial Protection Bureau

•Enforces consumer financial protection laws •Restricts unfair, deceptive, or abusive acts •Takes consumer complaints •Promotes financial education •Researches consumer behavior •Monitors financial markets •Enforces laws that outlaw discrimination

The History of Shareholder Activism

- Began in 1960s-70s - Campaign to Make GM Responsible = achieved - GM appointed Rev. Leon Sullivan as first black director - church activism gre and remains among the largest groups of institutional stockholders willing to take on upper management - corporate gadflies: activist shareholders who are no longer dismissed as nuisance and are viewed as credible

Enterprise Rights

- Employee rights that come from employer promises - Ex: right to opetition beyond one's supervisor, right to be free from physical intimidation, right to due process in discipline

Ralph Nader's Consumerism

- Father of consumerism movement - Book "Unsafe at any Speed": not only gave rise to auto safety issues but also gave rise to a new era of "the consumer" - In 2000, ran for President with the Green Party - Criticized the government for spending more money on roads, than improving safety of cars

4 Arguments against FSMA

- Health officials can only identify a fraction of those who get food poisoning - Regulators have new tools, but the industry doesn't trust them - The consumer's pantry is global and so are the chances of contamination - It's partially the consumers' fault too

The company 3M is one of the pioneers in the area of environmental protection and energy management. Accomplishments include:

- In the first year of its Prevention Pays program, 3M prevented 75K tons of air emissions - Scientists at 3M developed 3M HFEs to replace CFC - In just 15 years, 3M cut its volatile organic emissions by 95%

Poison Pill

- Intended to discourage or prevent a hostile takeover. - - Ex: when an acquirer tries to swallow a company (aka buy a lot shares), the poison pill makes the company very difficult to ingest (aka allows other people to buy more shares).

The Sustainability Imperative (Polman's contribution)

- Paul Polman = CEO of Unilever in 2009 - formost advocate of corporate sustainability - banned quarterly earnings reports to focus on long-term sustainability rather than profits - started a journey to half Unilever greenhouse gasses on some products from 2010-2020 - Carbon positive by 2030, meaning 100% of energy across operations would come from renewable sources so they can generate more renewable energy for themselves and make the surplus available to the communities they operate in

Legal challenges to Employment at Will

- Public policy exceptions: Protects employees from being fired for refusal to commit crimes or for exercising legal rights. - Implied contract exception: Protects employees who they believe have contracts or implied contracts. - Good faith principle: Employers may lose lawsuits to former employees if they cannot show that employees had opportunities to improve their performance before termination.

The Employee Rights movement

- Public sector employees have constitutional protections. - We focus on employees in the private sector, not subject to constitutional control because of the concept of private property. (Individuals and private organizations are free to use their property as they desire) - Although labor unions have been successful in improving pay, benefits, and working conditions, they have not been as active in pursuing civil liberties.

Truth in Lending Act

- Requires all suppliers of consumer credit to fully disclose all credit terms & to permit a three day right of recession in any transaction involving a security interest in the consumers' residence - Ex: home equity loans

The Consumer Movement (4 Basic Rights)

- Right to safety (dangerous products/food/drugs/cars) - Right to be informed (to know the use and cautions of use) (also in marketing) - Right to choose (have choices/competition) - Right to be heard (express grievances)

statutory rights

- Rights provided by the law - Ex: Civil Rights Act of 1964 & Mass. Right to Know Law both grant production workers the right to be notified of toxic substances they may be exposed to in the workplace

Categories of consumer products as being the most frequently associated with hospital treated injuries

- Sports & Rec - Toys and Children's Products - Fuel, lighters, and fireworks - furniture and decor - home maintenance - kitchen and dining

Freedom of speech in the workplace

- U.S. Constitution protects free speech; however, this does not apply to an employer, and some forbid conflicting political views - Employees are not generally allowed to speak out against their employers, due to legitimate interests of the business - Ex: Whistle-blower

Weasel Words

- Used in advertising to suggest a positive meaning without actually making any guarantee; leaves it to the viewer to infer the message - Ex: Helps, supports, is useful (friendly, no real value). Better, improved, gains (does not say how much).

The federal trade commission (FTC)

- a federal agency established in 1914 to investigate and stop unfair business practices - actively involved with advertising, warranties/guarantees, and packaging/labeling - 1938: Congress passed a prohibition against "unfair and deceptive acts/practices - Goals include: Protect consumers, maintain competition, advance performance

Energy

- a major issue is energy inefficiency, or wasting nonrenewable sources of energy - fossil fuels such as coal, oil, and natural gas were formed millions of years ago; once depleted, they're gone forever - businesses should use less non-renewable energy and more renewable sources like solar, wind, hydroelectric, and biomass - energy represents a challenge and an opportunity; firms that succeed will reap the profits

golden parachute

- a provision in an employment contract in which a corporation agrees to make payments to key officers in the event of a change in the control of the corporation - advocates say they're an incentive to not fight a wealth-maximizing takeover - critics say that executives are being paid enough& this rewards them even if they fail; it may make CEOs too eager to accept a takeover offer

internal carbon tax

- a tax on businesses within a company, based on energy usage, that goes into a common fund that invests in environmental sustainability projects

Concealed Facts/Advertising

- advertising abuse where a company doesn't reveal; the whole truth about a product, which a consumer would need to make an informed decision - excuse for use is that if the fact were released, the product would be less desirable - Ex: product placement and plot placement on TV

Food Safety Modernization Act of 2011 (FSMA)

- aims to ensure the US food supply is safe by shifting the focus from responding to contamination to preventing it - the FDA rule tightening focused on companies being required to create & implement plans for keeping food safe - 4 arguments against it (different card) - PulseNet: pathogen tracking system that allows information to get our faster and more accurately

climate change

- aka global warming - greenhouse effect - Melting glaciers, decline in crop yields, and the effects of sea-level rise are all signs of warming - Environmental Protection Agency's Clean Power Plan introduced in 2015 under the Clean Air Act address climate change issues - In 2016, the Paris Agreement on Climate Change brought 190 countries together with an aim to limit global warming to below 2 degrees Celsius. - Some businesses us internal carbon tax or carbon pricing to offset emissions with investments in sustainability projects.

Four important whistle-blower protections provided by Sarbanes-Oxley(SOX) act for employees in publicly traded corporations

1) the corporations are required to form independent audit comittees and develop confidential procedures for whistle-blowers to follow 2) The law establishes new ethical standards for attorneys who practice before the SEC that include specification for when the attorney is required to blow the whistle on the client 3) In a provision that applies to all employees, not only those in publicly held corporations, SOX criminalized retaliation against whistle-blowers who give truthful information to a law enforcement officer by amending the federal obstruction of justice 4) SOX gives the SEC jurisdiction over every aspect of the law, including the whistle-blower provisions, and allows for criminal penalties

Factors for a Successful Peer Review Panel

1.Be sure that people involved in the process are respected members of the organization. 2.Committee members should be elected rather than appointed. 3.They must receive training in dispute resolution, discrimination, fairness, legalities, and ethics for everyone involved. 4.Representatives of both employees and management should be involved in decision making.

Moral and Managerial Objections to Employment-at-Will (3)

1.Employees deserve respectful treatment. 2.Employees do not have the option of being arbitrary or capricious with employers. Employers should bear the same responsibility. 3.Employees are expected to be trustworthy, loyal and respectful with employers. Employers should show employees the same consideration.

Requirements of a due process system

1.It must be a procedure; it must follow rules; it must not be arbitrary. 2.It must be visible and well-known so that potential violators and victims are aware of it. 3.It must be predictably effective. 4.It must be institutionalized - a relatively permanent fixture in the organization. 5.It must be perceived as equitable. 6.It must be easy to use. 7.It must apply to all employees.

The Meaning of Employee Rights

1.Statutory rights 2.Collective bargaining rights 3.Enterprise rights

Major Activities of the FTC

1.To prevent unfair methods of competition and anticompetitive pricing 2.To protect consumers from unfair or deceptive acts or practices 3.Administers consumer protection laws

Packaging and Labeling

Consumers are frequently mislead by information provided to them on packaging/labeling. For example, the most high-profile labeling issue to enter the public debate in the recent past occurred in Europe. The issue was that frozen food products such as lasagna and beef burgers labeled as containing beef actually contained horse meat. Though not a safety issue, the horse meat scandal is, at minimum, a labeling issue and raises questions about the food supply chain.

Ethical Underpinnings of Quality

Contractual Theory, Due Care Theory, Social Costs View

The FTC in the 21st Century

Created the National Do-Not-Call Registry, which forbids telemarketers from calling consumers who sign up with the registry. •Required telemarketers to show their contact information on consumers' caller ID systems. •Sued firms that made misleading claims for weight loss products, and recovered millions in settlements. •FTC preference was that business self-regulate when possible, and FTC action a last resort.•Current issues include robocalls, children's online privacy, and data brokers.

The right to due process and fair treatment

Due Process - •The right to receive an impartial review of one's complaints and to be dealt with fairly. •The right of employees to have decisions that adversely affect them be reviewed by objective and impartial third parties.

The Peer Review Panel

Form of alternative dispute resolution in which management and nonmanagement employees trained in company policies, procedures, and work rules hear disputes and make decisions that, depending on the individual program, can be final and binding on both parties to the dispute.

It's estimated that litigation's cost to society is more than $250B/yr

The cost of litigation to companies has been said to represent about 30% of a stepladders cost, 50% of a football helmet, and 95% of a childhood vaccine

Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD)

rates and fees more fair and transparent