Management 200: Intro to LawProfessor DawsonMWF 7:30-8:50May 28, 2014Business Ethics“You get to choose how you treat others and the kind of person you’ll be”Why corporations?What do/should we accept?Ethics= study of good and bad human behaviorBusiness Ethics= study of good and bad business behaviorSchools of Social Responsibility (Schools of Thought)1. Profit School- A corporations sole purpose is to increase profits- Unintended consequences are just too bad- Corporations can’t be expected to do anything else but want more profits2. Managerial School- A corporation should balance conflicting interests- A corporations must have the trust of many groups (unions, consumers, regulators)- If a corporation maximizes profits but ignores the groups then the corporation won’t survive3. Institutional School- Corporations have a responsibility to act in a manner that benefits all of society- Civil and criminal sanctions that apply to individuals and apply to corporations4. Professional Obligation School (English School of Thought)- Corporate officers have a responsibility to the public beyond rights- They must be qualified and licensed5. Regulation School (what Dawson likes!!)- Corporations cannot be trust to act in a socially responsible manner- So, establish reasonable regulation for a certain activity, let the competition begin!- i.e. flammable baby clothing=reasonable regulationForms of Business Organizations- Sole Proprietorshipo Owner- one persono Complexity- lowo Regulation- minimalo Management- ownero Profits- go to owner, losseso Taxation- personal income tax rateso Liability- liable for wrongful conduct to others- Partnershipo Owner- 2 or moreo Complexity- lowo Regulation- low to mediumo Management- owners, good faith duty to eachothero Profits- go to ownerso Taxation- personal income tax rateso Liability- partners are liable for wrongful conduct to others Conduct involved in partnership business- Corporationo Owner- shareholderso Complexity- moderate to higho Regulation- medium to higho Management- officers (day to day) and board of directors (long term planning)o Profits- go to corporationo Taxation- corporate tax rates (dividend-money paid to shareholders)o Liability- corporation is liable for wrongful conduct but shareholders are not liableFinancing Corporations-Equity: sell shares in company, percentage of ownership, called “stocks”, buy low sell high-Borrow Money:Notes-short-term loansBond-long-term loans, secured by a lien, or mortgage on assetsProfessional Code of EthicsPhysician, attorney, architecture, etc.-Attorney Code of Ethics- Lawyer-Client Relationshipo Competenceo Diligenceo Feeso Confidentialityo Conflict of interestso Trust accounts- Advocateo Cander-can’t lieo Mentorious claims- Disciplineo Reprimando Censureo Suspensiono DisbarmentCode of Ethics-Corporate Codes of EthicsFocus is on relationship!!!- Do noto Pay bribeso Fix priceso Give giftso Use insider infoo Reveal trade secrets- What is the focus?o Moneyo Not safetyo Not environmento Not any other social goalsMay 30, 2014An Antitrust Story (replace fish with corporations to understand Antitrust)Let’s assume that fish produce a product that we all need. Capitalism says that the fish should all compete to produce that product.Competition=big supply and low priceCompetition is goodSome fish are better than others at producing the product, more efficient, smarter, stronger, bigger, some fish eat the other fish. That’s troubling but…Competition still=big supply and low pricesCompetition is goodBut one day… 3 big fish get to talking about how it would be nice if they didn’t have to compete. Competition is hard work, so they1. Eat some more fish2. Scare some fish away3. Combine to work together4. Now the three fish control the market for their product5. They can set prices very high because there is no competitionNow supply is controlledPrices are highThere is no competition=badMonopoly- one business has the power to fix the price of goods or servicesOligopoly- a market or industry is dominated by a small number of sellersHow did this happen?The old fashioned way-Money and PowerCompany 1  StockCompany 2  StockCompany 3  StockTrusts may be powerful enough to buy so many companiesDrive other companies out of businessThey create a monopoly-control supply-control profitsStill legalTrust- legal entityAntitrust Laws fight this**Not all trusts are bad!Two Schools of Thought-Chicago SchoolBusiness efficiency is sole criteriaConsumers must get goods at lower pricesBig is goodHave few antitrust laws-Harvard SchoolShould be many buyers and sellers in economyAccumulations of economic powers leads to accumulation of political powerA small elite may dominate society, close plants, downsize, etc.Antitrust Statutes1. Preserve small business and an economy of many buyers and sellers who compete with one another2. Prevent concentration of political and economic power in the hands of a few sellers in each industry3. Preserve local control of business and protect against labor dislocation4. Promote compensation in balance with consumer welfareSherman Act of 18901. Every combination or conspiracy (people or companies combine or conspire)2. In restraint of trade (harm trade, lower competition, fix prices)3. Is illegalClayton Act—19141. Prohibits discrimination in price between two purchasers of a commodity of like grade and quality that harms competition (this can run companies out of business)2. Limits mergers that substantially lessons completion or tends to create a monopoly/oligopolyHow to Buy Auto Insurance-Collision: covers damage to your car in a collision-Comprehensive: covers everything else for your car, flood, burglary, windstorm- Liability: covers your negligence to others-UIM: underinsured motorists, covers others negligence to you, 19-21% of people do not have insurance=illegal-PIP: personal income protection, pays medical bills and lost wages, pointless if you have good health insurance or don’t work-Umbrella: adds to all your coverages, all types of insurance, not just auto, cheap, not a lot of people buy it**Liability is the only required insurance by law**Liability and UIM are the most important!Why buy insurance?Protect yourself and protect othersYou want a minimum deductible of $1000, otherwise you’ll be paying a fortune, have a lot more small claims, makes insurance more expensive in the long run500/13Top number is deductibleBottom number is payment every 6 monthsLegally