BUSN370 Regent University Legal and Ethical Business Issues Assignment

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xelb2019

Business Finance

Regent University

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Utilizing the concepts from the chapters from this week, post a message identifying and discussing a liability issue or ethical issue you have witnessed or may arise in business. What concerns may arise for the business? What are the legal ramifications of the issue? What if an employee acts in a manner that may raise liability or ethical concerns? How would you handle the issue or try to deter the issue from happening?

Cite a minimum of two (2) scholarly peer reviewed sources (beyond your textbook or the Bible) applying APA guidelines (250-450 word count range).

  1. Liuzzo, A. L., & Hughes, R. C. (2019). Essentials of Business Law (10th ed.). New York, NY: McGraw Hill Education:
    1. Chapter 2, Ethics and the Law;
    2. Chapter 3, Criminal Law;
    3. Chapter 4, Tort Law;
    4. Chapter 34, Products Liability;
    5. Chapter 35, Professionals' Liability;
    6. Chapter 37, Business and the Environment; and
  2. Romans 7:7-25 (Law and Sin).

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Chapter 2 Ethics and the Law ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. 2-2 Unethical Behavior in Our World Some multimillion-dollar companies have been involved in acts society deemed unethical and illegal behavior; questionable accounting practices, fraud, deception, insider trading and attempts to influence both politicians and the media. As response to the unethical corporate behavior, Congress passed the Sarbanes-Oxley Act (2002), placing greater accountability on top management to closely monitor financial dealings and corporate disclosures. ©2019 McGraw-Hill Education. Example of Unethical Business Practices Facts: • Entrepreneur Martha Stewart (2004) was investigated for selling several thousand shares of ImClone stock after allegedly receiving and illegally acting on insider information. • Found guilty of a federal crime for lying to federal investigators, Stewart received a 10-month sentence, a $30,000 fine, and 19 months of supervised probation. ©2019 McGraw-Hill Education. 2-3 2-4 Ethics in a Global Marketplace (1) Group and individual values are influenced by religion, tradition, culture and customs. With expansion of businesses in a global marketplace, business professionals face different standards in different countries. ©2019 McGraw-Hill Education. 2-5 Ethics in a Global Marketplace (2) Culture and Subculture influence the development of individual and group values. Culture is of utmost importance. It is the values held those of a nation or an ethnic group. Subculture are the values held by a smaller group —for example, employees of a corporation, or a department within a company—and may differ from those of the larger culture. ©2019 McGraw-Hill Education. 2-6 Ethics, Morals, and Values Ethics - An individual’s beliefs as to what is right and wrong. Morals - Standards and principles society has adopted as a guide for acceptable behavior of individuals within society Values - Beliefs or standards considered worthwhile which establish an individual’s ethics and a society’s morals. ©2019 McGraw-Hill Education. Sources of Group and Individual Values Group and individual values are influenced by religion, traditions and customs. • An individual’s values are significantly influenced by groups to which the person belongs. • Other influences shaping an individual and group values are: • Culture: Values of a nation or ethnic group. • Subculture: Values held by employees of a corporation or a specific department (may be different from those of the larger culture). ©2019 McGraw-Hill Education. 2-7 Relationship between Law and Ethics Legal mandates are placed on individuals or groups by authorities or governments. Ethical considerations are generally derived from within individuals or organizations. Ethical ideas have been the foundation of most legislation enacted by governments. ©2019 McGraw-Hill Education. 2-8 Responses of Business Firms to Ethical Issues (1) Organizations are concerned about possible legal consequences of unethical behavior. Executives may embrace ethical practices due to favorable publicity it gives their firms. Businesses concerned with ethics usually focus on corporate responsibility and development of codes of conduct. ©2019 McGraw-Hill Education. 2-9 Responses of Business Firms to Ethical Issues (2) Corporate Responsibility • Actions taken by corporations are intended to demonstrate their wish to behave responsibly. • Corporate actions reflect a moral and ethical concern with observed social problems. Codes of Ethics • Companies understand the need to be ethical. • Some firms establish a code of ethics, sometimes called a credo or a values statement. • Sarbanes-Oxley requires codes for public firms. ©2019 McGraw-Hill Education. 2-10 Responses of Business Firms to Ethical Issues (3) Many firms expect employees to strictly follow codes; others require employees to sign contracts of adherence to ethics standards. Management should consider relevant stakeholders; those people or groups affected by a firm’s actions or decisions, when establishing codes or making ethical decisions. ©2019 McGraw-Hill Education. 2-11 Responses of Business Firms to Ethical Issues (4) A general list of topics covered in codes: • • • • • • • • • • • Fundamental honesty and adherence to the law Product safety and quality Workplace Health and safety Avoiding conflicts of interest Employment practices Fairness in selling and marketing practices Financial reporting Supplier relationships Pricing, billing, and contracting Trading in securities and using insider information Payments to obtain business ©2019 McGraw-Hill Education. 2-12 Responses of Educational Institutions to Ethical Issues Educational institutions have increased the need to examine ethics by adding internal policies, training courses, workshops, and programs. Typical topics include: • • • • • • Fairness in hiring practices Employment Promotions Ethical issues in multinational business Ethical issues arising from technology Economic justice, environmental ethics, and ecology ©2019 McGraw-Hill Education. 2-13 2-14 Responses of Governments Governments try to protect consumers, the environment and influence business ethical behavior. Governments enact laws, regulations and programs to ensure and encourage ethical behavior. • For example, Federal Sentencing Guidelines provide an incentive for corporations to act more ethically. • Under this mandate, when an employee violates a law a firm may reduce its liability by showing it took action to develop moral guidelines for its employees. ©2019 McGraw-Hill Education. Responses of Trade and Professional Associations Trade associations develop guidelines for ethical business practices. • Example: The direct marketing association (DMA) provides self-regulatory standards for: • • • • • Telephone marketing Sweepstakes Fund-raising Marketing to children Collection and use of marketing data ©2019 McGraw-Hill Education. 2-15 2-16 Ways to Ensure Ethical Practices (1) Sometimes the driving force for reform may be the individual whistleblower. • Whistleblower: A person who reveals to a governmental authority, or news media, confidential information concerning some wrongdoing or conduct he or she regards as unethical and/or illegal. The federal government and many states have laws that protect whistleblowers from retaliation. The usual motivation behind whistleblowing is outrage to a person’s sense of ethics. ©2019 McGraw-Hill Education. Ways to Ensure Ethical Practices (2) Federal government has now enacted laws to encourage whistleblowing by providing financial incentives for doing so. • For example, the Securities and Exchange Commission, in an effort to enhance its reputation, has established a program to reward whistleblowers with a percentage of penalties imposed. ©2019 McGraw-Hill Education. 2-17 Integration of Ethics into Business and Government (1) Business should be conducted in ways that will not harm the consumers or environment. A chief executive officer or board of directors may discontinue ethical practices if they reduce profits or adversely affect the firm. Likewise, firms of high ethics will maintain practices that enhance the firm’s profits. ©2019 McGraw-Hill Education. 2-18 Integration of Ethics into Business and Government (2) Additional government regulation could ensure compliance with ethical standards, but such enforcement proves costly and at times oppressive bureaucracy. Ideally, individuals, industry organizations, and watchdog groups should encourage business and governments to reach mutually agreed ethical practices. ©2019 McGraw-Hill Education. 2-19 Chapter 3 Criminal Law ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. 3-2 Crime versus Tort (Civil Law) Crime: Violation of a statute that is an offense against society; the public at large punishable by state or federal government. Tort (Civil Law): A private wrong causing injury to another person’s physical well-being, property, or reputation. Certain acts may be charged separately as a criminal violation and as a tort (civil violation). ©2019 McGraw-Hill Education. 3-3 Crime versus Tort While statutory law determines what constitutes a crime, many laws reflect legal principles derived from longstanding common law. A high degree of uniformity normally exists among states, thus a particular act to be legal in one state and illegal in another is rare. • A current exception is marijuana use: legal in a few states, illegal in others and illegal under federal drug laws. Legislatures attempt to reflect public interest enacting laws making certain acts a crime if there is sufficient public demand. ©2019 McGraw-Hill Education. 3-4 Classification of Crimes (1) Crimes in the U.S. are classified into three general categories according to seriousness of the offense: • Treason • Felony • Misdemeanor ©2019 McGraw-Hill Education. 3-5 Classification of Crimes (2) Treason: Levying war against the United States, or providing aid and comfort to the nation’s enemies. (U.S. Constitution, Art. 3, Sec. 3) Felony: A crime punishable by death or imprisonment in federal or state prison for a term exceeding one year. Misdemeanor: A less serious crime generally punishable by a fine and/or a prison sentence of less than one year. ©2019 McGraw-Hill Education. 3-6 Crimes in the Business World (1) Crimes, do not always involve force or violence against people or businesses. Business crimes may also occur in the office, over telephone, computer systems or in social occasions and locations where employees may meet. ©2019 McGraw-Hill Education. 3-7 Crimes in the Business World (2) Crimes in the business world include: • Securities Fraud • Arson • Bribery • False pretenses • Forgery • Larceny • Perjury • Embezzlement • Extortion • Consumer and Government Contract Fraud • Tax Evasion or Fraud • Other business-related crimes… ©2019 McGraw-Hill Education. 3-8 White Collar Crime (1) White-Collar Crime is a term used to describe categories of crimes typically financial related that do not involve force or violence by or against businesses. Depending on its seriousness and particular state or federal law, a white-collar crime may be a felony or a misdemeanor. Laws governing white collar crime have expanded at the federal and state level. ©2019 McGraw-Hill Education. 3-9 White Collar Crime (2) RICO -Racketeer Influenced and Corrupt Organizations Act of 1970 - is one of the most successful federal laws used to combat white collar crime. • RICO prohibits organization's employees from engaging in a pattern of racketeering or illegal acts. • Under RICO, it is easier to prosecute corrupt organizations and seize illegally obtained assets. ©2019 McGraw-Hill Education. 3-10 Securities Fraud (1) Securities Fraud occurs when a person or company provides false information to potential investors intended to influence decisions to buy or sell securities. Securities fraud encompasses: • Theft of investor's assets • Stock trading based on non-public information • Wrongful manipulation of financial statements and/or intentional false information. • Sales by unlicensed stock brokers. ©2019 McGraw-Hill Education. 3-11 Securities Fraud (2) A Ponzi scheme is a type of securities fraud in which large gains are promised to investors; but, in reality, newer investments are used to provide returns to earlier investors. Knows also as Pyramid Schemes, these schemes inevitably collapse over time as required returns to earlier investors become too large to cover income from new investors. ©2019 McGraw-Hill Education. 3-12 Arson Arson is a willful or malicious act of causing the burning of property belonging to the owner, another person or business. Most states have laws establishing particular criminal penalties to persons who burn their own property with intent to collect insurance money. Such statutes establish a special category of crime called burning to defraud. Insurance companies and law enforcement have developed sophisticated investigation techniques to combat these illegal practices. ©2019 McGraw-Hill Education. 3-13 Example: Arson Facts: • Filkins, the owner of a clothing manufacturer was losing money so he hired an arsonist to set the building on fire. • The building, inventory, and equipment were insured. • Insurance investigators and fire marshal found evidence of arson. • The insurance company refused to pay for the loss. • Filkins and the arsonist were charged with the crime of arson. ©2019 McGraw-Hill Education. 3-14 Larceny Larceny is a general term including most forms of theft. It may be a felony or misdemeanor based on size. • Classified as petty (small) or grand (large), depending upon the value of the stolen property. Types • Robbery: Taking of property in the possession of another person against that person’s will and under threat of bodily harm. • Burglary: Forcible entry to another person’s premises for the purpose of committing a crime. ©2019 McGraw-Hill Education. 3-15 Bribery Bribery consists of giving or taking money or property of value with intent of influencing someone (usually a public official or business official) to act contrary to performance of his or her duty. Some states have enacted laws that make it a crime to bribe someone other than a public official. Both the giver of the bribe and the receiver may be charged with bribery. Federal law prohibits bribery of foreign officials. ©2019 McGraw-Hill Education. 3-16 False Pretenses False pretenses describe a broad category of crimes involcing activities intended to deceive others by making false claims, or to obtain goods by using false pretenses. • Example: A person who makes false statements to a bank for the purpose of obtaining a loan. Federal and state statutes govern activities considered unlawful false pretenses. ©2019 McGraw-Hill Education. 3-17 Forgery Forgery consists of wrongfully making or altering the writings of another with the intent to defraud. • Example: Falsifying a signature on a check or on the endorsement of a check. The act of signing another person’s name to a credit card charge slip, contract, or, other official documents without permission is also considered forgery. ©2019 McGraw-Hill Education. 3-18 Perjury Perjury consists of intentionally giving false oral or written statements under oath in a judicial proceeding after having sworn to tell the truth. • Example: A person knowingly lies in court while under oath. Often, giving false information on a government form such as a tax return, trademark application and the like is considered perjury. ©2019 McGraw-Hill Education. 3-19 Embezzlement Embezzlement is the wrongful taking of money or other property entrusted to a person as a part of his or her employment. • Example: A computer programmer at a bank programs a computer so that interest earned on a depositor's account would be split; a portion diverted into a deposit into his personal account. ©2019 McGraw-Hill Education. 3-20 Extortion Extortion is the act of taking or demanding money or other property from someone by using force, threats of force, personal humiliation or economic harm. The difference between extortion and bribery is that in bribery both parties are willing participants, whereas in extortion, one person is willing and the other person is unwilling. ©2019 McGraw-Hill Education. 3-21 Other Business-Related Crimes The number of crimes involving businesses has grown with researchers suggesting there are now as many as 4,500 federal crimes in the U.S. Code. As business practices and technology change, new types of bad acts arise for which Congress and states increasingly enact laws carrying criminal penalties and forfeiture of illegal benefits. Some examples are: • Credit card fraud: Using stolen or counterfeit credit cards. • Identity theft: Stealing someone else’s identity to get credit cards or loans. • Environment: Discharging waste into waterways. ©2019 McGraw-Hill Education. 3-22 Criminal Penalties in Business Businesses convicted of crimes typically pay large fines, incur court injunctions, legal and other costs. Some laws allow Responsible Corporate Officers to be charged, convicted and jailed. In extreme cases (RICO) the business or its property may be seized by government authority. ©2019 McGraw-Hill Education. Chapter 4 Tort Law ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. The Nature of Torts Tort: A violation of the rights of an individual or business that has been damaged either intentionally or by negligence. • Law of torts does not deal with duties from contract but is concerned only with violation of private rights. Common torts include: • • • • • Defamation Assault or Battery Nuisance Conversion Negligence ©2019 McGraw-Hill Education. 4-2 Defamation Defamation: The harming of a person’s reputation and good name by communication of a false statement to 3d parties. • For an act to be considered defamatory, it is necessary to show the statement was made in such a way that others hear or read it. • Example: Writing an article that contains defamatory statements about someone in a newspaper. Defamation has been separated into two torts: • Libel • Slander ©2019 McGraw-Hill Education. 4-3 Libel and Slander Libel: Spreading of damaging statements in written form, including pictures, cartoons, and effigies (likenesses). • Defamation on radio, television, and Web sites is also considered libel. Slander: Spreading of damaging words or ideas about a person, directly or indirectly, in all other forms not considered libel. • The most common form of slander is spoken words. • Slander also can be committed by means of gestures and actions. ©2019 McGraw-Hill Education. 4-4 Characteristics of Libel While several libel cases involve defamatory statements published in books, media, and Web sites, the possibility of libel also exists in business e-mails, memos, and letters. • The libel need not be direct. Subtle suggestion or implication is enough to bring about legal charges. Example: In the case of a missing laptop computer, a manager might write an e-mail to his team asking them to check with Joe Anderson, who was known to “borrow” things. (Implication equals Joe is a thief) ©2019 McGraw-Hill Education. 4-5 Characteristics of Slander Slander describes almost all defamation that cannot be classified as libel. • It includes spoken words, gestures, actions, and even omissions. • Most cases of slander involve thoughtless statements that reflect badly on another person’s good name and reputation. • Anyone hearing a slanderous statement may be called upon later to testify to having heard it. • Slander does not require direct defamatory statement. Gestures and actions may be as damaging. ©2019 McGraw-Hill Education. 4-6 Trade Libel The tort of trade libel is similar to traditional defamation but deals with an individual’s title to property, or quality of product or service. • Example: A manager sends an e-mail to his suppliers claiming his competitor is having trouble with finances and is planning on filing bankruptcy. Humor and Slander • A quick apology might be enough to avoid some charges of slander, but not always. • Some forms are guilty on their face Slander per se. ©2019 McGraw-Hill Education. 4-7 Defenses to Defamation Two common defenses to charges of defamation are: truth and privilege. • Truth: If a defamatory statement proves to be true, the person claiming defamation cannot recover damages. • However, a person engaged in business should still be careful, since it is often expensive to go to court in order to prove the truth of a statement. • Privilege: If the person accused of defamation had a special privilege in making the defamatory statement (an attorney in a court proceeding who accuses a witness of lying), the defamed person cannot recover damages. ©2019 McGraw-Hill Education. 4-8 Nuisance Nuisance: An unlawful interference with the enjoyment of life or property constitutes a nuisance. • The law gives everyone the right to enjoy his or her land without unreasonable interference from others. Private nuisance: A person who acts in a way that denies this right to a specific person or group. Public nuisance: Affects the community or the general public. • Example: Loud noise or music, bright lights ©2019 McGraw-Hill Education. 4-9 Conversion The law gives each person the right to own and use personal property without interference from others. When this right is denied or abridged, the wrongdoer is said to have committed conversion. • Can involve a wrongful taking, a wrongful detention, or an illegal assumption of ownership. Example: A person who stole personal property, and damaged it in the process, may be sued for monetary damages in an action for conversion. Unlike larceny, conversion may occur without intent. ©2019 McGraw-Hill Education. 4-10 Negligence The tort of negligence is the failure to exercise reasonable care necessary to protect others from risk of harm. Negligence is classified as simple or gross. • The number of lawsuits negligence cases has grown greatly in recent years, in part due to news accounts of large jury awards have encouraged lawsuits. Example: Corporation is liable for the tort of negligence for negligent design or manufacture of products that cause injury. ©2019 McGraw-Hill Education. 4-11 Unavoidable Accidents and the “Reasonable Person” Unavoidable Accident • The concept of “unavoidable accident” is intended to focus attention on whether an accident could have been avoided if the person alleged to be responsible had acted reasonably. “Reasonable Person” • One way juries determine if a person is negligent is by using the doctrine of “reasonable person of ordinary prudence,” a fictitious individual who is assumed to have judgment and skill one would expect from a person with the strengths and limitations of normal personal behavior on which to be judged. ©2019 McGraw-Hill Education. 4-12 Kinds of Negligence (1) Vicarious negligence (liability) • This means charging responsibility for a negligent act by one person to another. • Example: An employer may be held responsible for the negligent acts of employees. Negligence per se • This occurs when a defendant charged with • negligence has violated a law enacted to prevent the type of injury that occurred. Example: A defendant, removes the safety shield on a tool loaned to a person who is later injured by its use. ©2019 McGraw-Hill Education. 4-13 Kinds of Negligence (2) Contributory negligence • This is a legal defense by the defendant arguing the plaintiff was negligent as well and contributed to his or her own injuries. • Another term for this principle is contributory fault. Comparative negligence • The injured party bringing the lawsuit is not prevented from recovering damages even if he or she was partly at fault. The jury determines percentage of fault by plaintiff and reduces the verdict by that amount. Negligence as a result of assumption of risk • This legal defense occurs when the defendant demonstrates the plaintiff voluntarily assumed the risk associated with the dangerous condition. ©2019 McGraw-Hill Education. 4-14 Liability When a person has been judged to be responsible for a loss, he or she is said to be liable (not the same as libel). • In most lawsuits, the court must decide if the defendant is liable for the damages as charged. Example: A customer who rents a defective car suffers bodily injuries in a car accident that was caused by the defect. The car rental company is liable for the injuries and payment of damages. ©2019 McGraw-Hill Education. 4-15 Vicarious Liability The law holds persons liable for the acts of others. The term for this shifting of responsibility is vicarious liability. • Example: When an employer is held responsible for the acts of employees, or when a general contractor is held responsible for acts of a subcontractor. ©2019 McGraw-Hill Education. 4-16 Example: Vicarious Liability Facts: • Stuart, owner of a cab services company, hired Ron to drive one of his cabs. • After six months, Ron has an accident as a result of negligent driving, injuring three persons traveling in the cab owned by Stuart’s company. • In this case, the injured parties may file a suit against the employer of the wrongdoer because the accident took place when the injured parties availed the cab services. The injured parties can hold the employer (Stuart) vicariously liable for the acts of the employee (Ron) as vicarious liability. ©2019 McGraw-Hill Education. 4-17 Strict Liability Certain events cause death or injury to others even when no negligence exists. Under this doctrine, business may be liable for injuries to others whether or not they have done something wrong. • Example: Damage caused by inherently dangerous activities, events, or animals. • Broad range of injuries suffered by employees on the job. In recent years, strict liability has also been applied to cases involving injury or death caused by manufactured products or business locations open to the pubic. Strict liability has been recognized and applied in at least two-thirds of the states in the United States. ©2019 McGraw-Hill Education. 4-18 4-19 Example: Strict Liability Facts: • Jack Builders, Inc. constructs a house on 65th Street. • Even after ensuring all necessary precautions were undertaken, employees of Jack Builders, Inc. damaged the adjacent building. • Under strict liability, it is not necessary for the owner to show negligence. If the owner can only prove the damage had occurred due to the wrongdoings of Jack Builders, Inc., then it shall be enough to sue the wrongdoer and not the owner. ©2019 McGraw-Hill Education. Chapter 34 Product Liability ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. 34-2 Product Liability and Tort Law (1) Breach of Warranty Lawsuit is based on contract law, where the buyer of a product sues seller for breaching either an express or implied promise that formed the basis of contract. Many purchasers or users of products, or third parties, who sustain injury or property loss resulting from product use, file a civil lawsuits based not on contract law but on tort law. ©2019 McGraw-Hill Education 34-3 Product Liability and Tort Law (2) Product defects causing injury and property loss are often the result of negligence, a tort. Product liability: Liability of seller manufacturer for injury to purchasers, users, and third parties. ©2019 McGraw-Hill Education Elements in a Product Liability Lawsuit Four elements plaintiff must prove to be successful in showing defendant’s negligence in product liability lawsuit: • Duty: Defendant owed plaintiff duty to either perform, or not perform, an action. • Breach: Defendant either acted improperly or failed to act. • Proximate cause: Defendant’s act or failure to act directly caused plaintiff injury or loss. • Damages: Plaintiff injured or sustained loss as a result of defendant’s act or failure to act. ©2019 McGraw-Hill Education 34-4 Bases for Product Liability Injury Claims 34-5 Product characteristics often become base of claims against manufacturers and sellers. • Product Flaw • Unintended abnormality or condition making product more dangerous than intended. • Failure to Warn • Manufacturers and sellers have duty to notice purchasers and users of product dangers. • Failure to warn is a dereliction of duty. • Design Defect • Product fault created hazardous condition causing injury. • Hazardous condition exists throughout product line. ©2019 McGraw-Hill Education Example: Bases for Product Liability Injury Claims Facts: Ritchie purchased toaster with wiring defect by manufacturer. Ritchie plugged in toaster and fire erupted causing home damage. Ritchie’s product liability lawsuit against manufacturer based on product flaw was successful. Even though manufacturer never met Ritchie, firm could reasonably foresee a purchaser would plug in toaster. Outcome: Manufacturer’s negligence in producing toaster proximately caused damage to Ritchie’s property. ©2019 McGraw-Hill Education 34-6 Who Can Be Held Liable for Product-Related Injuries? Obvious target of injured party is manufacturer of defective product in product liability case. • Others in distribution may also be liable. Joint and Several Liability: Retailers vulnerable when product manufacturer insolvent. company dissolved or unreachable such as a manufacturer in foreign country. • Retailers must take care to choose manufacturers that act responsibly and are financially secure. ©2019 McGraw-Hill Education 34-7 34-8 Strict Liability (1) In traditional tort law, injured party must prove manufacturer negligent in producing a product. • Often difficult for injured parties to prove negligence; defenses of manufacturers often effective. Strict Liability: Courts in some states have held it not necessary for injured person to prove negligence by manufacturer. • Legal theory is that the producer is in better position than user of a product to prevent injuries. ©2019 McGraw-Hill Education 34-9 Strict Liability (2) This legal reasoning has given rise to the doctrine of strict liability —liability without the necessity of proving fault. Today, concept of strict liability is generally accepted, although application from state to state varies greatly. • In some states, strict liability applies only to products inherently dangerous (firearms, fireworks, knives, etc.). • In other states, doctrine applies only when manufacturer is in violation of a statute. ©2019 McGraw-Hill Education 34-10 Strict Liability (3) Despite advent of strict liability, there is considerable activity in various state legislatures toward tort reform and other efforts to curb abuses of the system. • One consequence of strict liability is that companies are sometimes hesitant to introduce new or innovative products for fear of liability lawsuits. ©2019 McGraw-Hill Education 34-11 Product Safety Federal and state governments enact numerous laws and rules to reduce unreasonable risk of injury and death associated with consumer products. • Governments’ provide safety information to the public, developing voluntary and mandatory standards, and pursuing recalls of dangerous products. ©2019 McGraw-Hill Education 34-12 Drugs (1) Food and Drug Administration (FDA): The federal agency responsible for safety of food and drugs sold in United States. FDA requires all drugs sold be thoroughly tested to ensure they are safe and effective. ©2019 McGraw-Hill Education 34-13 Drugs (2) After testing in laboratory and animal studies, pharmaceutical companies subject drugs to four phases of testing: • Phase I: Small number of people tested to determine safety and dosage and identify side effects resulting from drug. • Phase II: Effectiveness of drug measured by comparing subjects who receive drug to those who receive placebo (usually water pill having no impact). • Phase III: Safety and effectiveness of drug evaluated in trials involving large number of people. • Phase IV: Continued testing occurs subsequent to FDA approval of drug. ©2019 McGraw-Hill Education 34-14 Drugs (3) Process of FDA approval has come under criticism over costs and time needed to obtain prescription drug approval. • Costs and time involved in manufacture and approval of prescription drugs, have made drugs very expensive to consumers. • Pharmaceutical companies earn most profits from drug during time drug patent effective. • Advertising of drugs is legal, so long as all detailed information about drug disclosed. ©2019 McGraw-Hill Education 34-15 Consumer Products (1) Consumer Product Safety Commission (CPSC): Federal agency responsible for safety of consumer products sold in United States. Products regulated by CPSC include: • • • • • • • • Clothing Hazardous household cleaners and substances Electronic devices Appliances Furnishings Building materials Toys Other juvenile products ©2019 McGraw-Hill Education 34-16 Consumer Products (2) Consumer products with restrictions include: • Wool products, fur products, and textile fiber products • Flammable products • Hazardous substances • Children’s toys • Paint • Radiation-emitting products If CPSC determines product is dangerous, it may order the manufacturer to recall it from market and consumers. ©2019 McGraw-Hill Education 34-17 Tobacco (1) Federal and state statutes regulate cigarettes and other tobacco products. • All cigarette packages must contain warning from surgeon general regarding smoking dangers. • Tobacco ompanies support foundation providing education regarding dangers of addiction to tobacco. ©2019 McGraw-Hill Education 34-18 Tobacco (2) Major cigarette manufacturers in the United States entered into a contract, referred to as the Master Settlement Agreement (1998), where the companies agreed not to engage in certain advertising strategies. ©2019 McGraw-Hill Education 34-19 Tobacco (3) Under the 1998 Master Settlement Agreement companies agreed to stop: • Advertising using cartoon characters (such as Joe Camel). • Placing advertising on billboards or stadium signs. • Paying for product inclusion in films and television shows. • Providing free caps, T-shirts, etc. • Distribution of free samples of cigarettes. • Targeting youth markets by sponsoring concerts, athletic events, etc. ©2019 McGraw-Hill Education 34-20 Tobacco (4) Tobacco Control Act (2009) provides FDA authority to regulate tobacco products to discourage children and young adults from smoking. FDA has introduced new labeling restrictions/ requirements for packaging and has banned production, distribution, and sale of flavored cigarettes. FDA now regulates so called “e-cigarettes.” ©2019 McGraw-Hill Education 34-21 Automobiles National Highway Traffic Safety Administration (NHTSA): Federal agency responsible for safety standards of automobiles sold in United States. NHTSA: • Requires automobiles contain safety features; • Proposes stricter crash test requirements for automakers and new regulations to provide vehicle occupants with maximum safety benefits; and • Investigates potential safety defects in automobiles. • Has authority to require automakers to issue recalls to repair dangerous defects and to cease production of certain vehicles. ©2019 McGraw-Hill Education 34-22 Example: The NHTSA Facts: • • • • NHTSA received reports from consumers describing unintended, sudden acceleration of Toyota vehicles—some resulting in fatal crashes. Toyota executives revealed company traced defect to faulty plastic part in accelerator pedal. Toyota did not have enough replacement parts to issue comprehensive recall. The NHTSA ordered Toyota to cease production of automobiles and imposed fine of $16.4 million, the maximum allowable. ©2019 McGraw-Hill Education Chapter 35 Professionals’ Liability ©2019 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. Professional Professional: Person who performs highly specialized work dependent on special skills, education, experience, and knowledge. Professionals generally are members of state and national professional societies. Many provide additional certifications affirming skills of professionals. • Example: Bar associations (attorneys) or medical societies (doctors). Many professionals must pass state-administered examinations, gain accreditation, certification, or a license before permitted to work in their field. • Examples of professionals: Health care providers (physicians, psychiatrists, nurses, and pharmacists), attorneys, accountants. Lawsuits by injured or damaged parties alleging negligence frequently target professionals. ©2019 McGraw-Hill Education. 35-2 Malpractice Malpractice: Professional’s improper or immoral conduct in the performance of his or her duties through carelessness, lack of knowledge or failure to follow professional standards. • Malpractice may be applied to applied to a wide range of all professionals. Malpractice is a specific type of negligence; that is, a negligence lawsuit in which a professional is defendant. For purposes of law, there is little difference between malpractice and negligence. ©2019 McGraw-Hill Education. 35-3 Elements of Malpractice Claim of negligence must generally prove each of four elements. Even if one not present, an action for negligence may be dismissed. • Duty: Plaintiff must show defendant owed them a duty to perform an action or not perform an action. • Breach: Plaintiff must show defendant either acted improperly or failed to act. • Proximate cause: Plaintiff must show professional defendant’s act or failure to act directly caused injury or loss. • Damages: Plaintiff must prove, as in all civil lawsuits, they were injured or sustained loss as a result of professional defendant’s act or failure to act (negligence). ©2019 McGraw-Hill Education. 35-4 Liability for Professional Malpractice Liability of Health Care Providers (1) Medical professional commits malpractice when their actions demonstrate failure to observe accepted standards of care which results in patient suffering injury or death. Good Samaritan laws, (vary greatly from state to state) provide medical professionals rendering emergency care or treatment to injured individuals outside the scope of regular employment immunity from malpractice lawsuits. • Good Samaritan laws do not protect reckless acts of medical professionals. • Example: Under most Good Samaritan laws, a doctor who happens upon a car accident and renders emergency aid to an injured passenger would be immune to a lawsuit resulting from the treatment. ©2019 McGraw-Hill Education. 35-5 Liability for Professional Malpractice Liability of Health Care Providers (2) Physicians • A physician’s malpractice liability might involve failure to: • • • • • Render a correct diagnosis of a patient’s condition. Order appropriate tests. Prescribe appropriate medications. Render an accurate prognosis. Follow standards of care and medical procedures. • A physician may be liable for failing to inform patients of risks involved in a particular treatment, surgery or other alternatives. • A physician must have informed consent of the patient prior to rendering treatment (except in emergency situations). ©2019 McGraw-Hill Education. 35-6 Liability for Professional Malpractice Liability of Health Care Providers (3) Physicians • Physician malpractice does not cause injury or loss to third parties, except in cases where physician’s negligence results in patient death or permanent disability. • If patient’s death, physician may be held liable to a surviving spouse, children, or parents for wrongful death. • If the physician’s negligence results in patient’s death or disability, a spouse may request damages for loss of consortium, that is, loss of companionship. ©2019 McGraw-Hill Education. 35-7 Liability for Professional Malpractice Liability of Health Care Providers (4) Psychiatrists • Psychiatrists and other counselors, such as clergy, psychologists, and social workers, who learn from a patient intention to do harm to another have the legal responsibility to inform the possible victim and the appropriate authorities. • Failure to do so is considered malpractice and is also unethical. Nurses • Even though nurses customarily work under the supervision of physicians, a nurse may be found negligent. Pharmacists • Pharmacists who dispense drugs other than those specifically prescribed by authorized professionals may be charged with malpractice if incorrectly dispensed drugs cause injury to the legal user. • Pharmacists are liable if they dispense multiple medications that, when taken together, cause injury. ©2019 McGraw-Hill Education. 35-8 Liability of Accountants Accounting professionals are liable to clients and third parties for failure to observe established standards of their profession if such failure caused clients or third parties to suffer a loss. Accountant is liable to clients when as a result of negligence, accountant fails to discover or conceals evidence that a client’s employee has been embezzling funds. Accountants are liable if they fails to file accurate, timely tax returns resulting in tax penalties assessed against the client. In most states, an accountant may be liable to a third party who has relied on the accountant’s work. Certified Auditors may be liable to the SEC for errors in certifying corporate accounting statements. ©2019 McGraw-Hill Education. 35-9 Liability of Financial Planners Financial planning: Profession where skilled financial practitioners advise clients of the best ways to manage their financial affairs. Work of financial planners involves an initial analysis of client’s personal and financial situation. • Financial analysis leads to recommendations typically involving insurance, investments, and pensions. • When the client relies on a financial planner’s recommendations and suffers a loss, the financial planner may be sued for negligence, but each of the four elements of negligence must be proved. • Some financial planners with certifications may have causes of action with their association. ©2019 McGraw-Hill Education. 35-10 Lawsuits against Financial Planners Most lawsuits against financial planners involve one or more of the following: • Churning: Unreasonably excessive buying and selling of securities to generate commissions. • Unauthorized trading: Exceeding authority agreed by contract between the financial planner and client. • Unsuitability: Recommendation of investments inconsistent with the client’s particular situation, needs, desires, and risk profile. • Fraud or misrepresentation: Intentional or negligent misstatement or nondisclosure of a material fact relating to an investment. • Transfer of account problems: Deliberate obstruction of client’s desire to transfer one or more accounts to another professional. • Failure or delay in processing: Neglect compliance with client’s directives to purchase or sell securities in a timely fashion. ©2019 McGraw-Hill Education. 35-11 Liability of Architects and Engineers Architects design and supervise construction of buildings and other large structures. Must be licensed in most states. Engineers usually design devices or installations of a complex nature, such as bridges and power-generating stations. Must be licensed in most states. Engineering profession includes many specialties, including mechanical, electrical, and civil engineering. • Each specialty involves work, if done negligently, might result in injury to others. Architects and engineers are subject to lawsuits for negligence if their work results in injury to parties with whom they have contracted or third parties. ©2019 McGraw-Hill Education. 35-12 Example: Liability for Professional Malpractice Facts: • Kane hired the architectural firm of Williams & Co. to design and supervise construction of a four-bedroom house. • Three years after the house was built, a consulting engineer determined the house had been built on unstable soil, and would gradually be uninhabitable. Kane can charge negligence on the part of Williams & Co., and she may collect monetary damages. ©2019 McGraw-Hill Education. 35-13 Liability of Attorneys Attorneys are liable to clients if they fail to exercise due care in handling a client’s affairs. Attorneys are licensed by states. • If attorney is in general practice, standard of performance is that of other attorneys engaged in similar practice in the area. • If the attorney is in a specialized practice, for example real estate, family law, immigration law, standard is performance of other attorneys engaged in similar practice by which they will be judged. Attorney may be found to have committed malpractice if they fail to act in a timely fashion in filing claims or bringing suit before the statute of limitations expires. Malpractice also may be established if an attorney fails to properly investigate matters related to client’s case. Attorney may be subject to liability and sanctions by their state bar, in extreme cases loss of license to practice. ©2019 McGraw-Hill Education. 35-14 Liability of Insurance Agents and Brokers Insurance agents and insurance brokers possess skill, superior insurance knowledge and have ability to use expertise to protect buyers from various kinds of losses. • When an agent or broker fails to recommend appropriate insurance and buyer suffers a preventable or reduced financial loss, the agent or broker may be charged with negligence. Malpractice of insurance agents and brokers generally relates to failure to recommend purchase of proper insurance to protect against specific losses or failure to recommend appropriate levels of coverage. • Example: Agent or broker must be able to distinguish whole life insurance from term insurance. ©2019 McGraw-Hill Education. 35-15 Example: Liability of Professional Malpractice Facts: • Saul consulted with Terry, a life insurance agent. • Terry recommended a whole life policy, with a face value of $100,000. Saul named his wife the beneficiary. • At same cost, Saul could have purchased term insurance of $700,000. • Saul later died in an automobile accident. • Saul’s wife realized the benefit was absurdly low and sued Terry and her insurance company. • It was revealed Terry earned a higher commission for selling whole life policy than would have received for selling the term policy. Both Terry and the insurance company may be found liable for negligence. ©2019 McGraw-Hill Education. 35-16 Other Professionals’ Liability Other types of professionals are subject to lawsuits for negligence when they fail to perform according to the standards of their profession: • Educators and their schools have been sued for failure to educate students to an expected level. • Travel agents have been sued for selling substandard hotel accommodations and tours. • Directors and officers of corporations have been successfully sued for breach of duty of loyalty and duty of care, resulting from negligence, error, or omission. • Shareholders of corporations have sued directors and officers, demanding reimbursement from the company for financial losses resulting from an action or inaction by directors or officers. ©2019 McGraw-Hill Education. 35-17 Reducing Professionals’ Risk of Liability Professionals must consider additional precautions. • Continuing Education: Professional groups conduct workshops and training sessions to help members reduce risks leading to negligent actions and lawsuits. (Required by many state license regulations.) • Malpractice Insurance: Today virtually all professionals purchase or are covered under their firm’s malpractice insurance, specifically tailored to cover legal and other expenses incurred in a malpractice lawsuit. • Loss Prevention: Both insurance carriers and associations offer suggestions for reducing risks of malpractice actions. ©2019 McGraw-Hill Education. 35-18
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Running Head: BUSINESS ETHICS

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Business Ethics
Student’s Name
Institutional Affiliation
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BUSINESS ETHICS

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Ethical issues in business

An ethical issue is a problem that arises when employees fail to conduct themselves
according to the moral principles of the organization. I have experienced many ethical issues
arising in businesses. Among the ethical issues I have experienced is fraudulent accounting
practices. It is essential for a company to maintain accurate accounts of money circulation.
However, you may find other employees acting contrary to this principle (Liuzzo & Hughes,
2007). Some of the unethical accounting practices that are p...


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