federal trade commission

All posts tagged federal trade commission

Administrative Law and Business

Published August 28, 2013 by Mayrbear's Lair

Administrative-Law

There are those that favor an increase of government regulation in the business arena in light of events like Enron and the credit crisis of 2008, while others believe that self-regulation is more effective without the intervention of government agencies and their administrative laws. Funk and Seamon (2009) suggest that administrative laws are like the air we ingest: invisible and ubiquitous.  Administrative agencies effect many areas of our lives that most people take for granted. In other words, they are part of the atmosphere that comprise modern society and like our physical environment, a necessary component (in some form) to help sustain civility (Funk & Seamon, 2009).  However many company leaders believe that government intervention is not effective and regard it as an unfair practice that forces financial burden on businesses, particularly small ones. Seaquist (2012) contends that the purpose of government agencies and their administrative laws is to help oversee and carry out specific government functions that help maintain a civil society (Seaquist, 2012). However, the effectiveness of these regulations are altered and evolve as society does and as administrations change and incorporate their political views.

government_regulation

In order to better comprehend what role government regulation should play to ensure ethical corporate conduct, we must first understand what role administrative agencies and their laws are meant to play and why they were established in the first place. Funk and Seamon (2009) purport that historically, the most significant agencies (or departments), consisted of the President’s Cabinet or close advisory members.  There are fifteen areas these departments oversee: Agriculture, commerce, defense, education, energy, health and human services, homeland security, housing and urban development, interior, justice, labor, state, transportation, treasury, and veterans’ affairs. The formation of these agencies and the demands placed on the leaders altered the historic importance of the cabinet members (Funk & Seamon, 2009). Subsequently, as these agencies evolved, they slowly began to take on a life of their own. For example, the agencies focus on implementing and managing their administrative laws, which are primarily about procedure and the systems they maintain, in order to take action that affect citizens. The administrative laws in turn, are determined from judicial opinions, driven by judicial decisions – as opposed to statutory or regulatory content.  In the meantime, growing concerns over costs and the efficiency of these government regulations, continue to lead to the creation of many new laws and executive orders designed to reform them. In theory, as society evolves and new technology expands, these regulations and agencies continue to make adjustments and the cycle continues.

961-300x300_FTC_Seal

One thing is for certain, administrative regulation agencies have been granted considerable power. Gellhorn and Levin (2006) purport that some of these powers are assigned on an industry wide basis like the FBI and IRS whereas other agencies enforce norms of conduct within the economy like the Federal Trade Commission (FTC) that enforces the ban on unfair methods of commerce and competition (Gellhorn & Levin, 2006). What makes these agencies dramatically unique is that each operates wielding the power of all three principal branches of government. In other words, they have legislative power to issue rules that control behavior, including the enforcement of heavy civil or criminal penalties for violations. They also have executive power to investigate possible violations and prosecute offenders. In addition, they have judicial power to adjudicate disputes that fail to comply with mandates. For example, the Securities Exchange Commission (SEC) created regulations that outline specific disclosures that must be taken into consideration in a stock prospectus. This later becomes a law that is passed by the legislature that the SEC uses to enforce and prosecute violators. Then, the SEC acts as the judge and jury by conducting adjudicatory hearings.  What makes this a unique situation is that these administrative agencies are typically unattached to any of the three branches of government (executive, legislative, or judicial). This then, raises questions of concern with respect to the constitutional distribution of authority in our government which is based on the principle of the separation of powers. We must remember that the division of these branches serves to provide a check and balance system of the power exercised by the other two branches. This means that the combined powers of the administrative agencies are not in alignment with the three part paradigm of the democratic government system the founding fathers designed. Institutions granted that kind of power can become dangerous because they have no one but themselves to answer to. In light of this significant information, it seems the real question is not whether government should increase or decrease their regulatory measures, the real question is how to make them effective at what they were designed to do, with checks and balances in place to ensure that these agencies and the government leaders that run them, manage society in a fair and ethical manner and that the distribution of power is more evenly divided to detect ethical misconduct before another crisis threatens the global economy.

********

References:

Funk, W., & Seamon, R. (2009). Examples and explanations: Administrative law (Fourth ed.). New York, NY: Aspen Publishers.

Gellhorn, E., & Levin, R. (2006). Administrative law and process: In a nutshell (Fifty ed.). St. Paul, MN: West Publishing Co.

Seaquist, G. (2012). Business law for managers. San Diego, CA: Bridgepoint Education, Inc.

Corporate Social Responsibility

Published July 22, 2013 by Mayrbear's Lair

Corporate-Social-Responsibility

Companies are in the business of making a profit for the benefit of their stakeholders.  This in turn means they have a responsibility to the employees, customers, suppliers, communities and society at large. Boatright (2009) posits that most organizations are cognizant of their responsibilities. They seek strategies to reach desired outcomes and initiate directives that adhere to corporate social responsibility (CSR). In fact, evidence suggests it is becoming more difficult for companies to gain sufficient competitive advantage in today’s cut throat marketplace without CSR. Together with regulations that are in place, more corporations are engaged in practices that monitor such things as fair prices, fair labor conditions, direct trade, democratic and transparent organizational behavior, community development and environmental sustainability (Boatright, 2009).  Top managers, however, are not always in the best position to make ethical choices because of various components. In one case study for example, a manager was thrust into a situation that required decisions and judgments based upon the organizational culture. In addition, as an expectant parent, the leader’s financial status changed temporarily because his wife was on unpaid maternity leave. This now left him as the sole breadwinner. In short, the supervisor’s new situation made it difficult for him  to make the best choices that were in alignment with his personal moral views because of the external pressures from his job and the internal pressures of a husband and an expectant father. He was feeling stressed from being in a position where he had to contemplate choices that could ultimately result in his termination.

ftc-clr

The legal issue he contemplated were having to conform to new policies that lead to behavior in violation of federal trade commission laws and mandates. Upper management was pressuring him to engage in practices that encouraged using information from trusted clients to give them an advantage in the market. This in turn created unfair competition. In addition, he did not have the support of many of his departmental staff members. In fact, many voiced  loudly their objection to the new direction the firm was taking. Ferrell et al. (2012) suggest that a company’s history consists of the unwritten rules that become part of its culture. Leaders at the helm are considered responsible for their behavior as well as that of their subordinates.  Corporations that follow the guidelines set forth in the Sarbanes-Oxley Act define parameters that institutions are expected to comply with, which includes systems that monitor and assess the internal and external auditing of financial statements (Ferrell, Fraedrich, & Ferrell, 2013). By adopting these new practices proposed from upper management, their company was in a unique situation to utilize information from trusted client relationships in order to profit over other organizations. This is a serious offense that raises the alarm for stakeholders.

right-and-wrong-decisions

There are advantages and disadvantages to the manager’s situation. The advantages are huge capital gains, status, recognition, and other enticing benefits. The disadvantage is conducting business unethically and illegally which can result in termination and incarceration. To incorporate these new practices, it encourages employees to chase monetary rewards based on commissions and fees on mutual funds that are risky, can go sour, and damage the credibility of the firm and its representatives. In short, chasing high profits unethically, will inevitably lead to the organization’s demise and the downfall of many respected careers. Because of the added pressures to provide for his expectant partner, the pressures from his superiors to engage in questionable practices, and the threat from one of his biggest clients, this leader had to face some very serious choices which could have long term negative outcomes. McGraw (2012) contends that surrounding yourself with the right people helps you learn the right actions to make the right decisions (McGraw, 2012). The financial industry tends to attract individuals that are drawn by power, which can turn to greed and corruption contingent upon personality traits. Many top executives find themselves in situations where they are called to participate in ethical misconduct from pressures like this leader faced. Their choices are: (a) comply and go with the directive of their superiors taking the risks that are involved with misconduct, (b) choose not to participate, which could ultimately cost them their job, or (c) find a solution that does not involve the exploitation of trusted client information to achieve similar positive outcomes. The last choice requires presenting a strong argument to upper management however, that supports changing the view of the superiors with reasons that urge them to engage in more ethical practices to achieve their goals. Ultimately it is up to each individual to come up with a strategy they can support and embrace with a healthy conscience.

References:

Boatright, J. (2009). Ethics and the Conduct of Business (Sixth ed.). Upper Saddle River, NJ: Pearson Education, Inc.

Ferrell, Fraedrich, & Ferrell. (2013). Business ethics and social responsibility (9th ed.). Mason, OH: Cengage Learning.

McGraw, P. (2012). Life code. Los Angeles, CA, USA: Bird Street Books.