UNIT 3- LEGAL ENVIRONMENT

Legal environment factors

THE LEGAL ENVIRONMENT
The Concept of Law
• Law is a norm that prescribes what is assumed to be a
proper mode of behavior.

• Law prescribes certain pattern of behavior and also

requires that the prescribed mode be followed.

• Law includes a process approved by society for applying

coercive sanctions against those who do not obey and
therefore perform illegal acts.
Effective Legal System
• The people in the society must understand and have
knowledge of what the society prescribes as legal behaviour.
• The members of the society must have agreed that the laws
deserve to be obeyed.
• An effective system for punishing illegal behaviour must
be in place.
• The government duly elected by the people, provides the
machinery for an effective legal system.
• The legislative branch makes the laws and judicial and
executive branches together perform the task of
identifying illegal behaviour and punishing the law
breaker.
Functions of Law
• Promote law and order with justice
• Law communicates to individuals in a society their rights
and duties in their daily interactions with other people in
the society.

• Law helps in controlling and preventing behaviour that the

society considers undesirable.

• Government use law to promote social and economic

welfare of society.
• Laws of a society reflect the norms, values, aims and
general beliefs of a society.
International Law
• International treaties ( is an agreement in written form
between nation-states) and conventions (an agreement
between states covering particular matters, especially one
less formal than a treaty) establishing rules expressly
recognized by the contesting states.

• International customs as evidence of a general practice

accepted as law.

• General Principles of law recognized by civilized nations.

• Judicial decisions and the teachings of the most highly
qualified publicists of the various nations.
International Law….
• There is a general agreement among the nations of the world
regarding the nature and types of behavior's by nations and
their citizens that are acceptable and those that are not.

• Nations feel obliged to obey the law and

• There is a mechanism for applying sanctions against nations

and their citizens if they behave in a manner deemed to be
unacceptable according to generally recognized international
standards.

• https://openstax.org/books/business-law-i-essentials/pages/
13-1-introduction-to-international-law
Nature of International Law
International Laws

Conventions
Treaties Regional Laws

NAFTA
EU National
National
Laws
Laws

AFTA

WTO United Nations

ICJ and WTO
• Commercial Dispute
• Between two countries
• Between a country an a company
• Between two companies

• ICJ adjudicate disputes between two countries only when

both governments involved agree to submit to the
authority of the ICJ( International Court of Justice)

• WTO – Dispute Settlement System

Treaty : Sources of International Law
• Bilateral Treaty – only two states
• Multilateral – more than two states are contracting parties

• International Treaties General Principles of

Law
International Law

International Customs Judicial Decisions

and Teachings
International Treaty
• A treaty is an agreement entered into by two or more
states under general international law.
• A treaty like a contract is a legal transaction by which the
contracting parties intend to establish mutual obligations
and rights.
• Countries that have signed the treaty are legally obliged
and entitled to behave as they have declared or else they
are exposed to sanctions and punishment.
• International treaty is an international agreement
concluded between states in written form and governed
by international law.
International Custom
• International custom entails habitual patterns of
behaviour that evolve over a number of years to reach the
level of obligatory rules ie; international - law which
govern how nations and their subjects inter-acted with one
another.

• A rule of customary international law comes into existence

when almost all states behave almost exactly the same
way for a long time and feel a legal obligation to do so.
 General principles of law
• The list of sources of international law of the
International Court of Justice Statute are “general
principles of law recognized by civilized nations” (i.e.
general principles of fairness and justice which are
applied universally in legal systems around the world).

• Examples of these general principles of law are good

faith, res judicata, and the impartiality of judges.
International tribunals rely on these principles when they
cannot find authority in other sources of international
law.
General principles of law
• These general principles of law can be found in decisions
of international tribunals and national courts; references to
them may also be found in the teachings of the “most
highly qualified publicists” (i.e., eminent international law
scholars).

• In fact, Article 38 includes judicial decisions (of both

international and municipal tribunals) and scholarly
writings as “subsidiary means for the determination of
rules of law;” in other words, these are not authorities,
rather they are evidence of the sources of international
law.
General principles of law
• In international law, judicial decisions are not generally
considered binding on subsequent disputes, but are
evidence of international practice and can assist in the
interpretation of treaties and the definition of customary
law.
Ethics in International Business
Introduction
• Ethics - accepted principles of right or wrong that govern
the conduct of a person, the members of a profession, or
the actions of an organization

• Business ethics are the accepted principles of right or

wrong governing the conduct of business and people

• Ethical strategy is a strategy, or course of action, that

does not violate these accepted principles
 Ethical Issues in International Business

• The most common ethical issues in business

involve

• employment practices
• human rights
• environmental regulations
• corruption
• the moral obligation of multinational companie s
Employment Practices
Question: When work conditions in a host nations are
clearly inferior to those in a multinational’s home nation,
what standards should be applied?

• The standards of the home nation?

• The standards of the host nation?
• Something in between?
Human Rights
Question: What is the responsibility of a foreign
multinational when operating in a country where basic
human rights are not respected?

• Basic human rights taken for granted in the developed

world such as freedom of association, freedom of speech,
freedom of assembly, freedom of movement, and so on,
are not universally accepted
Environmental Pollution
Question: Should a multinational feel free to pollute in a
developing nation if doing so does not violate laws?

Answer:
• When environmental regulations in host nations are far
inferior to those in the home nation, ethical issues arise
• The tragedy of the commons occurs when a resource held
in common by all, but owned by no one, is overused by
individuals resulting in its degradation
Corruption
Question: Is it ethical to make payments to government
officials to secure business?

Answer:
• In the United States, the Foreign Corrupt Practices Act
outlawed the practice of paying bribes to foreign
government officials in order to gain business

• The Convention on Combating Bribery of Foreign Public

Officials in International Business Transactions adopted
by the Organization for Economic Cooperation and
Development (OECD) obliges member states to make the
bribery of foreign public officials a criminal offense
Corruption
• Some economists suggest that the practice of giving
bribes might be the price that must be paid to do a greater
good
• In countries where preexisting political structures distort or limit the
workings of the market mechanism, corruption in the form of black-
marketeering, smuggling, and side payments to government
bureaucrats to “speed up” approval for business investments may
actually enhance welfare
• However, other economists have argued that corruption
reduces the returns on business investment and leads to
low economic growth
Moral Obligations
Question: Do multinationals have a responsibility to give
back to the societies that enable them to grow and
prosper?

Answer:
• Social responsibility - the idea that business people
should take the social consequences of economic actions
into account when making business decisions, and that
there should be a presumption in favor of decisions that
have both good economic and good social consequences
Ethical Dilemmas
• Managers often face situations where the appropriate
course of action is not clear
• Ethical dilemmas - situations in which none of the
available alternatives seems ethically acceptable
• they exist because real world decisions are complex, difficult to
frame, and involve various consequences that are difficult to
quantify
• An ethical dilemma or ethical paradox is a decision-
making problem between two possible moral imperatives,
neither of which is unambiguously acceptable or
preferable. The complexity arises out of the situational
conflict in which obeying one would result in transgressing
another. Sometimes called ethical paradoxes in moral
philosophy, ethical dilemmas may be invoked to refute
an ethical system or moral code, or to improve it so as to
resolve the paradox.
Examples
• https://www.psychologytoday.com/us/blog/how-do-life/
201706/ethical-dilemmas
 The Roots of Unethical Behavior
Question: Why do managers behave in an unethical
manner?
Answer:
• Managerial behavior is influenced by
• Personal ethics
• Decision making processes
• Organizational culture
• Unrealistic performance expectations
• Leadership
Personal Ethics
• Business ethics reflect personal ethics (the generally
accepted principles of right and wrong governing the
conduct of individuals)
• Expatriates may face pressure to violate their personal
ethics because
• they are away from their ordinary social context and supporting
culture
• they are psychologically and geographically distant from the parent
company
Decision Making Processes
• Studies show that business people may behave
unethically because they fail to ask the relevant question
—is this decision or action ethical?
• decisions are made based on economic logic, without
consideration for ethics
Decision-Making Processes

• A moral compass can help determine whether a decision

is ethical.
• If a manager can answer “yes” to the following questions,
the decision is ethically acceptable
• does my decision fall within the accepted values of standards that
typically apply in the organizational environment?
• am I willing to see the decision communicated to all stakeholders
affected by it?
• would the people with whom I have significant personal
relationships approve of the decision?