I am a Businessperson.
Do I Need to Know
the Law?
Ignorance of law is no excuse
How does law impact business?
Before producing the Pinto, Ford crash-tested various
prototypes, in part to learn whether they met a safety standard
proposed by the National Highway Traffic Safety Administration
(NHTSA) to reduce fires from traffic collisions.
In 1970 Ford crash-tested the Pinto itself, and the result was the
same: ruptured gas tanks and dangerous leaks. Only Pintos to
pass the test had been modified in some way–for example, with
a rubber bladder in the gas tank or a piece of steel between
the tank and the rear bumper.
Source: Moral Issues in Business 8th ed. Shaw & Barry
What role managers can play in tackling this situation?
Should managers and business follow ethical perspectives in
addition to legal requirements?
Ford company decided to go ahead without any modification
Between 1971 and 1978, approximately fifty lawsuits were brought
against Ford in connection with rear-end accidents in the Pinto.
In the Richard Grimshaw case, in addition to awarding over $3
million in compensatory damages to the victims of a Pinto crash,
the jury awarded a landmark $125 million in punitive damages
against Ford. The judge reduced punitive damages to 3.5 million.
Source: Moral Issues in Business 8th ed. Shaw & Barry
Product liability- in case of defective products leading to
injury and death, manufacturers could be held liable
Trying to push industry to evolve self-regulatory code of
conduct, ethical standards at organisational level
Law attempts to tackle business practices which may lead to
moral issues by evolving stringent legal frameworks
“The Act has provisions for product liability action on account of
harm caused to consumers due to a defective product or deficiency
in services.
Personal injury, death or property damage could lead to product
liability claims
False and misleading ads at first instance would attract a two-year
jail term and a fine up to ₹10 lakh, which would go up to five years
and ₹50 lakh for every subsequent offence.”
(Source: Business Line )
“GM cars using gas powered engines require coolant to prevent
overheating in the summer and freezing up in the winter.
A lawsuit against General Motors stated the coolant in vehicle
engines contained a dangerous chemical.
GM had to pay out around $20 billion for its 25 million customers.
Each person ended up receiving from $400 to $800.” (Source:
Reuters, March 2008)
How the change in consumer law impact business practice in
India?
Nestle Maggie issue – this happened before the product
liability claim coming into picture
Social media influencers- Financial influencers could be fined
$133,000 for dud tips, regulator warns (Australian media)
Constance Bagley:
Managers should identify and anticipate legal changes from
business perspective
Managers should strive to ensure that no compliance failures occur
Do you agree with this point/view?
Government is evolving regulations in various emerging
business models
E-commerce
E-pharmacy sector
App based taxi services
Managers would have to play major role in anticipating legal
changes
Draft E-Commerce Policy- Key recommendations
deep discounts to be regulated, certain type of flash
sale to be regulated
Recent social media rules and OTT platform rules
Example/Situation: Ravi is Director at a reputed software
company ‘Great Software’
Ravi convinced the Board of Directors to invest in ‘Techsoft’,
another software company owned by Ravi
Later, it was found that the ‘Techsoft’ is in heavy loss and have
no good clients
Can Ravi as a director be personally liable?
In this case, attempt to take undue advantage and misuse of
his/her office is evident
Companies Act 2013- personal liability of Director- Rs. 1 lakh to
5 lakh
Chanda Kochhar, ICICI Bank conflict of interest issue
Conflict of interest as Videocon group was provided a
favourable loan.
It is alleged that Venugopal of Videocon group and Chanda
Kochhar’s husband have joint business interest.
According to Ernst & Young’s Eleventh Global Fraud
Survey, 92 per cent of directors in India are concerned
about their personal liability.
Of them, 64 per cent say they are ‘very concerned’ and 28
per cent say they are ‘fairly concerned’.
Increasing trend of personal liability for managers
Should the conduct of business leaders and managers in
business organisations regulated by law?
How can an important commercial information be protected by
the company?
Law provides framework for organizing business
Company
Partnership
Limited Liability Partnership
Law also provides mechanism to protect IPR
Business is primarily regulated through
Legislation
Decisions of Court/Interpretation of Court
Independent Regulatory Agencies (CCI, SEBI)
Legislation
Indian Contract Act,1872
Companies Act, 2013
Limited Liability Partnership (LLP) Act 2008
IPR law- Patent, Trademark , Copyright
Consumer Protection Act,1986
Competition Act,2002
What role does ethical values have in business and how does
law and policy perceive this?
Carroll 1991- talks about the corporate social responsibility
through the hierarchical pyramid structure
Does this structure places adequate accountability upon
corporate organisations?
“Autonomous vehicles will soon take over the road. This new
technology will save lives by reducing driver error, yet accidents
will still happen. The cars’ computers will have to make difficult
decisions: When a crash is unavoidable, should the car save its
single occupant or five pedestrians? Should the car prioritize
saving older people or younger people? What about a pregnant
woman—should she count as two people? Automobile
manufacturers need to reckon with such difficult questions in
advance and program their cars to respond accordingly”.
(A New Model for Ethical Leadership- HBR 2020)
Normative theories that examine the responsibilities of
corporations:
Shareholder/stockholder theory
Stakeholder theory
Milton Friedman’s statement
‘There is one and only one social responsibility of business—to
use its resources and engage in the activities designed to
increase its profits so long as it stays within the rules of the
game, which is to stay engaged in open and free competition
without deception or fraud.”
Basic Principle: managers (including BoD) not to spend the
available resources on any activity without the authorization
from their owners, regardless of any societal benefits that could
be accrued by doing
Managers/BoD are merely authorized to maximise profits
within capital provided
Firm is an instrument for coordinating stakeholder interests
and considers managers as having a fiduciary responsibility
not merely to the shareholders, but to all of them.
When conflicts of interests arise, managers should aim at
optimum balance among them.
Managers obliged to partially sacrifice the interests of
shareholders to those of other stakeholders - corporations do
have social responsibilities.
Environment
Employees
Consumers
Public Interest and Societal Interest
Investors
Carroll’s approach would suits Shareholder theory but may not
be appropriate for stakeholder theory
Legal frameworks are slowly embedding the stakeholder
theory approach
eg. Mandatory nature of CSR, Business responsibility reporting
Has COVID pandemic led to shift in the mindset of corporate
leaders?
Does it help to have more diverse representation on the
boards?
