Eighth Edition
Answers to A Manager‘s Dilemma and Questions
and Case Problems to Accompany
MANAGERS AND THE
LEGAL ENVIRONMENT
STRATEGIES FOR THE 21ST CENTURY
Constance E. Bagley
Yale University
Prepared by Constance E. Bagley
, Contents
UNIT I FOUNDATIONS OF THE LEGAL AND REGULATORY
ENVIRONMENT
Chapter 1 Law, Value Creation, and Risk Management 1-1
Chapter 2 Ethics and the Law 2-1
Chapter 3 Sources of Law, Courts, and Dispute Resolution 3-1
Chapter 4 Constitutional Bases for Business Regulation 4-1
Chapter 5 Agency 5-1
Chapter 6 Administrative Law 6-1
UNIT II THE LEGAL ENVIRONMENT
Chapter 7 Contracts 7-1
Chapter 8 Sales, Licensing, and E-Commerce 8-1
Chapter 9 Torts and Privacy Protection 9-1
Chapter 10 Product Liability 10-1
Chapter 11 Intellectual Property 11-1
UNIT III HUMAN RESOURCES
Chapter 12 The Employment Agreement 12-1
Chapter 13 Civil Rights and Employment Discrimination 13-1
UNIT IV THE REGULATORY ENVIRONMENT
Chapter 14 Criminal Law 14-1
Chapter 15 Environmental Law 15-1
Chapter 16 Antitrust 16-1
Chapter 17 Consumer Protection 17-1
Chapter 18 Real Property and Land Use 18-1
UNIT V CORPORATE GOVERNANCE, OWNERSHIP, AND CONTROL
Chapter 19 Forms of Business Organizations 19-1
Chapter 20 Directors, Officers, and Controlling Shareholders 20-1
UNIT VI SECURITIES AND FINANCIAL TRANSACTIONS
Chapter 21 Public and Private Offerings of Securities 21-1
Chapter 22 Securities Fraud and Insider Trading 22-1
Chapter 23 Debtor-Creditor Relations and Bankruptcy 23-1
UNIT VII INTERNATIONAL BUSINESS
Chapter 24 International Law and Transactions 24-1
, Chapter 1
Law, Value Creation, and Risk Management
A MANAGER’S DILEMMA: PUTTING IT INTO PRACTICE
JPMorgan and Its Hiring Practices in China: Networking or Bribery?
Issue Presented: Assume that you are the new manager of JPMorgan’s China operations. Would
you continue the Sons and Daughters program? Why or why not?
Whenever engaging in international business development, managers are expected to exercise
their responsibilities according to the laws and practices of the countries where they conduct business.
However, a manager should also consider the ethical standards in the home country, where the firm is
headquartered and where the board of directors will review his or her performance, as well as what the
shareholders would consider ethically acceptable.
The manager must comply with the U.S. Foreign Corrupt Practices Act, which is discussed in
Chapter 24. The manager should consult with qualified counsel to ensure that the firm‘s hiring practices
fall within the scope of both U.S. and Chinese law. Hiring the children of government officials is
common in China, particularly in the banking industry, and that business practice must be carefully
weighed against American expectations of ethical business conduct. Even though it might be difficult to
establish that hiring a particular individual resulted in business with a government official who was
related to that individual, U.S. regulators are increasing their investigations in this arena. For example, it
would likely be easier to prove a violation of the FCPA where ―hard‖ evidence, such as invoices or
receipts, showed that lavish dinners or gifts had been given to government officials and that business
contracts with those officials subsequently arose. This situation involves the benefit of human
relationships, something that is difficult to measure. As such, all aspects of the firm‘s hiring practices
could potentially be scrutinized by government regulators both in the United States and China, including
its recruitment strategies, the performance evaluations of the individuals hired, and e-mail correspondence
with the government officials. The manager should also review the firm‘s code of conduct and take full
advantage of any ombudsperson available. Although some firms apply different ethical standards
depending on the country in which they are doing business, others (such as General Electric) have
uniform global standards they apply to all their operations. Finally, while often difficult in practice, the
manager should not sacrifice her personal integrity.
QUESTIONS AND CASE PROBLEMS
Question 1.1
Issues Presented: What public policies are furthered by this law? To what extent are there conflicts
among the policies served and how will they affect the way the law in this area is interpreted,
applied, and changed?
The laws and regulations applicable to U.S. business in the early twenty-first century further four
primary public objectives: promoting economic growth, protecting workers, promoting consumer welfare,
and promoting public welfare. Other major economic powers tend to have laws that further these same
objectives, albeit with varying degrees of emphasis on the different objectives and varying ways of
, furthering them. Indeed, much of the current debate on what constitutes good corporate governance turns
on how much weight each country gives to the interests of shareholders, debtholders, employees,
customers, and suppliers and to the protection of the environment.
Sometimes those objectives may conflict. For example, intellectual property protection may
promote economic growth by giving incentives to innovate but may also create barriers to entry and
increase the likelihood of monopoly pricing, to the detriment of consumers.
Question 1.2
Issue Presented: What effect does this body of law or legal tool have on the competitive environment
and the firm’s resources?
Law helps shape the competitive environment and affects each of the five forces that determine
the attractiveness of an industry (buyer power, supplier power, the competitive threat posed by current
rivals, the availability of substitutes, and the threat of new entrants). Law also affects the allocation,
marshaling, value, and distinctiveness of the firm‘s resources. Under the resource-based view (RBV) of
the firm, a firm‘s resources can be a source of sustained competitive advantage if they are valuable, rare,
and imperfectly imitable by competitors and have no strategically equivalent substitutes. Conversely,
failure to integrate law into the development of strategy and of action plans can place a firm at a
competitive disadvantage and imperil its economic viability.
Question 1.3
Issue Presented: Where does this body of law or legal tool fit in the value chain?
Each activity in the value chain has legal aspects. From a firm‘s choice of business entity to the
warranties it offers and the contracts it negotiates, law pervades the activities of the firm, affecting both
its internal organization and its external relationships with customers, suppliers, and competitors.
Question 1.4
Issue Presented: How can managers responsibly help shape this aspect of the legal environment?
Managers can responsibly help shape this aspect of the legal environment by promoting economic
growth, protecting workers, promoting consumer welfare, and promoting public welfare. They can also
lobby for stricter laws that raise ethical standards rather than lower them. For example, rather than try to
water down the U.S. ban on bribes, a group of firms created Transparency International and fought for
international conventions to ban bribery. (This is discussed further in Chapter 2.)
Question 1.5
Issue Presented: How could the managers in this case have avoided the litigation that ensued?
At its core, legal astuteness is the ability of the manager to communicate with counsel and to
work together to solve complex problems. For example, legally astute managers can (1) negotiate
contracts as complements to trust building and other relational governance techniques to define and
strengthen relationships and reduce transaction costs, (2) protect and enhance the realizable value of the
firm‘s resources, (3) create options through contracts and other legal tools, and (4) convert regulatory
constraints into opportunities. Court cases are akin to autopsy reports on transactions gone bad. When
reading cases, students should be encouraged to ask how the managers involved could have avoided the
dispute or resolved it without resort to litigation.
