menuLaw, the Legal System, and Business Ethics

Chapter 1: Law, the Legal System, and Business Ethics

Learning Objectives

  1. Explain what law is and why it matters to people who run, manage, or work in a business.
  2. Identify the main sources of American law: constitutions, statutes, administrative regulations, and case law.
  3. Distinguish between criminal and civil law, substantive and procedural law, and public and private law.
  4. Describe how common law and stare decisis work, and read and brief a court opinion.
  5. Compare the major approaches to business ethics and explain how ethics and law relate in business decisions.

Week 1. Chapter content to be written. The description below sets out what the chapter will cover.

This chapter introduces the legal environment of business and the vocabulary used for the rest of the course. It starts with a practical question: why would a marketing major, an accountant, or a startup founder need to understand law? The answer comes through short scenarios, such as a handshake deal that goes wrong, an employee injured on the job, or a logo that looks too much like a competitor's. Each one shows how legal risk comes up in ordinary business decisions.

1.1 Planned Sections

What Law Is and What It Does. Definitions of law, the functions law serves (keeping order, settling disputes, protecting rights and property, making commerce predictable), and schools of legal thought (natural law, legal positivism, legal realism, and the historical school) at an introductory level.

Sources of American Law. The U.S. Constitution and state constitutions, federal and state statutes, uniform laws such as the Uniform Commercial Code, administrative regulations, and case law. How these sources fit together in a hierarchy, and what happens when they conflict.

The Common Law Tradition. The English roots of American law, how precedent and stare decisis work, when courts depart from precedent, and the historical difference between law and equity, which still shapes the remedies available today.

Classifications of Law. Civil versus criminal, substantive versus procedural, public versus private, and federal versus state. A short note on international and comparative law.

Reading the Law. How to read a case citation, find a statute, and brief a judicial opinion (facts, issue, holding, reasoning). A sample case brief is worked through step by step.

Ethics and Business Decision-Making. The difference between what is legal and what is ethical. Duty-based (deontological) and outcome-based (utilitarian) ethics, stakeholder theory, and corporate social responsibility. A short framework for working through ethical dilemmas in business, which later chapters return to.

Dodge v. Ford Motor Co., 204 Mich. 459, 170 N.W. 668 (1919). In 1916 Henry Ford announced that Ford Motor Company would stop paying special dividends. He planned to put its large cash surplus into expanding production, hiring more workers, and lowering the price of cars, saying the company should spread the benefits of its success to as many people as possible. The Dodge brothers, who were minority shareholders, sued to force a dividend. The Michigan Supreme Court ordered the dividend paid, saying that "a business corporation is organized and carried on primarily for the profit of the stockholders." However, it declined to stop the plant expansion, deferring to management's business judgment.

Why this case: Students can practice the case brief template on a short, readable opinion, and the case sets up the ethics discussion that runs through the whole course. Should a company serve only its shareholders, or all of its stakeholders? This case also comes back in Chapter 12 with the business judgment rule.

Discussion question: Was Henry Ford acting ethically, legally, both, or neither? Would the result be different under today's benefit corporation statutes?

1.3 Planned Features