Transformation ‐ combining resources to create products and services Conversion – the process, in a regulated environment, of changing money into resources and products and services into money Regulation – the rules which control behaviour Stakeholders – individuals and groups who may affect or be affected by the actions, decisions, policies, practices or goals of an enterprise PESTLE – Political, Economic, Social cultural, Technological, Legal, Environmental or Ecological
1.2 Law Law – the total of rules at a certain point in time within a territory and or market, which companies and stakeholders must or can implement and which are created and enforced by bodies with the authority thereof Positive law – the sum of all legal rules in effect Jurisdiction – the geographical area over which an administration exercises legal authority Mandatory legal rules – the law does not allow any deviations (must) .
Supplementary law – applies only when parties do not arrange otherwise (can) Legal subjects – means that human beings and business entities are subject tot the law Legislature – the state’s bodies with legislative authority Legal system – the total of all legal rules and institutions involved in creating, interpreting and enforcing the rules
1.3 Business ethics Ethics – comprise the moral and value standards that act as behavioural guidelines Business ethics – studies ethics within a business and company setting Corporate culture – reflects the values, beliefs, assumptions and symbols that define the way in which the organization conducts its business Code of conduct – an agreement or set of rules not imposed by law, regulation or administrative provision which defines the behaviour of one or more companies who undertake to be bound by the code in relation to one or more particular commercial practices or business sectors
1.4 Law versus business Law Business Focus Justice and society Value creation and profit Orientation National International Organisation Sovereign states Headquarters and national subsidiaries Decision Making Centralized and Mix of centralized and delegated decentralized Adaptability Static, slow, reactive to Dynamic, fast, innovation change and change focus Relationships Focus on bilateral Multiple stakeholders to relations be managed 1
1.5 Regulatory environment Public regulation – the traditional regulatory system in which a legislature defines binding rules Hard law – the binding rules within a jurisdiction enacted by the legislature Legal pluralism – the co‐existence of hard law, soft law and self‐regulation Law Self regulation Hard law Soft law Company Industry or Other professional organizations associations Soft law – quasi‐legal instruments which do not have any or just a weak legally binding force.
Selfregulation or private regulation – individual companies, an industry association or the members of a profession voluntary develop and enforce rules Corporate social responsibility (CSR) – requires a company to act in a socially responsible manner towards stakeholders, the environment and society 2.1 branches of law Public law – the rules which regulate the relationship between the state and legal subjects with respect tot the typical authorities of an administration .
Private law – the rules on the private interaction between individuals and organisations Substantive/material law – describes rules by which rights are made available and duties imposed upon legal subjects Procedural/formal law – defines the institutions and processes for resolving disputes about substantive law Positive law Private law Public law Substantive/material Persons & family law Constitutional/state law Patrimonial law Administrative law Corporate law, trade law Tax law European union law Criminal law International private law European union law Procedural/formal Civil proceedings law Administrative Law on the judicial proceedings law organisations Criminal proceedings law Law on the judicial organisation.
Corporate law – the organizational dimension of governance of a company such as bodies, authorities and the distribution of authorities over the bodies Patrimonial law – deals with what in economics is referred to as assets, it encompasses property law and the law of obligations Property law – the rules with respect to the rights a person may enjoy in or over what the law defines as property .
The law of obligations – deals with obligations; performances to be rendered, because these were agreed upon in a contract or because there is a statutory basis for the obligations. Contract law is part of the law of obligations Conflicts of law/ international private law (IPL) – the sections in a country’s laws, which deal with disparities between that country’s laws and those of 2 another country.
Two fundamental questions and the subsequent legal principles to answer them are: i)Which law is applicable in the contract? The principle is that contracting parties are to decide and agree on which law shall apply and the law provides rules in case they have not made a choice. ii) Which court is competent and which alternatives to litigation are available? The principle is that contracting parties are free to choose a competent court or alternative dispute resolution method Constitutional law – the powers of and the relationship between the principal institutions of a state Administrative law – deals with the operation of a government as it affects the individual citizens and companies.
Criminal law – defines the actions which the state prohibits such as unfair competition and fraud and imposes a fine or imprisonment for violating the law The law of the European union – the combination of the rules in the Treaties on which the EU is based and the EU’s legislation based on the Treaties The law on the judicial organisation – outlines and details the organisational structure for dispute resolution by courts Commercial law – refers specifically tot the body of law that governs sales transactions Business law – encompasses all rules of positive law and none‐state law which businesses can or must use of choose to be binding in order to realise objectives 3.1 Functions.
The regulatory environment is considered to have three functions for business: i) a source of strategic inputs. Regulation has a strategic function ii) a source of value management tools. Regulation has an offensive function iii) a source of risk management tools.
Regulation has a defensive function 3.2 Strategic inputs An external regulatory risk – the probability of value destruction arising from changes in the regulatory environment An external regulatory opportunity – a change in the external regulatory environment which can help a company in developing a strategy to create, exchange or defend value.
A regulatory audit – analyses and assesses how the regulatory function is managed An internal regulatory risk – the probability of value destruction arising from ineffective management of the regulatory and compliance functions A regulatory strength – is a right, regulatory process or regulatory competence which supports value creation, exchange and protection.
3.3 value management Examples of using the positive regulatory environment to create, exchange and protect value in both strategic and operational decision making: i) tools to create value such as patents and trade mark rights ii) tools to exchange value such as the transfer of ownership and contracts iii) tools to protect value such as an infrastructure with procedural rules and courts to enforce and protect rights against infringements.
3.4 risk management A risk – the measurable, potentially value destroying effect of an uncertainty Two sources of internal risk – non‐compliance and contractual risks Lobbying – refers to the attempts by individuals or groups with a specific interest to influence the outcome of political or regulatory processes Compliant company – meets all internal and external regulatory rules and ethical expectations to avoid or reduce the risk of any impairment tot the organisation’s business model, reputation and financial condition.
The non compliant risk – the risk of value destruction, or loss to reputation which a company may suffer as a result of its failure to comply with laws, regulations, rules, related self‐regulatory organisation standards and codes of conduct applicable to its activities.
4.1 legal families Legal family – a group of legal systems from different jurisdiction that share distinctive common features AngloAmerican/ common law systems – legal system based on the English law system Civil/ code law systems – legal systems based on the system developed by the ancient Romans Islamic law systems – religious legal systems based on the interpretation of the Qur’an by the Shania’s Legal pluralism – within one country different legal systems, representing different legal families can co‐exist 4.2 civil law and common law Codification – the process of converting legal rules into a statutory form.
Act of Statue ‐ The statutory form in which legislation is enacted Codes – books where acts of statue are united in a structured manner Civil law – does differentiate between private and public law, Common law does not 4.3 Islamic law Sharia – Islamic notion of law Halal – in accordance with the rules of Islamic religion5.1 Analysis, Why?
From a business perspective an analysis of the regulatory environment is needed for strategic input in the following situations: i) in selecting new markets, the regulatory environment is a selection criterion ii) upon entering markets, the regulatory environment influences the entry strategy