BUSINESS LAW

Business Law

Business Law

Introduction

This paper highlights a contemporary issue in business, with its ethical and legal aspects and how the present issue has affected the current business environment. The issue of product liability has had a drastic impact on business firms.

Law is directly related to ethics, especially in a business context: Much of business law amounts to the formalization of “good business practices” or ethics, and neither ethics nor law can be meaningful without each other. Ethics without the authority and enforcement of law is a mere aspiration. The reverse is also true: Mere law, if it does not mirror societal expectations of behavior at least to some extent, is not likely to be enforced. For example, although there was contract law in place shortly after the dissolution of the former Soviet Union, that law was often not effective because post-Soviet society was not used to expecting people to keep their promises.

Discussion

When a community is appalled by an ethical violation, that violation may drive the development of law, whether through legislation, judicial decision, or both. For example, the Enron and WorldCom scandals of 2001 to 2002, which involved deceptive and fraudulent accounting practices, led to the prosecution of those involved and also led directly to the SarbanesOxley Act (SOX), which created new duties and accountability for corporate officers and accounting firms.

Much of the unethical behavior involved, however, was illegal before both these scandals and the act. Thus, the ultimate lesson of those scandals may well be that law alone cannot prevent such acts. In these cases, short-term business pressures led companies first to stretch the laws of accounting practice and then violate them in an effort to present a positive picture and preserve the stock market value of the companies involved.

The legal scandals that developed from these dishonest acts ultimately resulted in the demise of those companies. In the aftermath, it has been posited that law by itself is an insufficient deterrent for unethical practice, because under pressure of competition, companies will continue to look for ways to abide by the letter, rather than the spirit, of the law. Businesspeople must not only abide by the law, but they must also realize that unethical behavior ultimately leads to the destruction of a business, and they must be aware of the business virtue of absolute moral conviction.

Business Torts and Product Liabilities

The most fundamental purpose of law and government is to stop people from hurting each other, or at least to punish them or force them to make recompense when they do. The difference between a tort and a crime is that a tort is a civil wrong: One party sues another.

A crime is a societal wrong such that government sues (i.e., prosecutes) the malfeasor on behalf of the people as a whole. Businesses have long been held civilly liable for the intentional or unintentional torts of their agents and employees. Although they can be held criminally liable as well, this section will deal only with businesses' civil liability for ...