Ethical/Legal & Human Aspects

Ethical/Legal & Human Aspects : Interrelated & Integral Concerns for All Businesses

Ethical/Legal & Human Aspects are crucial and important for all business, both new and current. Thus, they have to be carefully considered, maintained and sustained from the startup stages due the strong interrelation between them and their deep effect in the businesses’ success & effectiveness. We highlight them in this session in your channel “Management with Merits-Manage to Prosper” as part of our discussion for the 2nd book in the channel “Entrepreneurship 2016”. Actually, we have introduced this book before in a previous video at our YouTube Channel, which conceptualizes entrepreneurship as a process that consists of major steps (parts) and minor ones (chapters). Besides, in our previous posts and videos, we have already finished the first step (part) of the process (Entrepreneurial Decision), and the second one (Developing Successful Business Ideas), which was concluded last session (Writing Business Plans). Today’s session starts the 3rd step in entrepreneurship “Moving from an Idea to an Entrepreneurial Firm”, specifically half of it (chapters or tasks 7 &9) that deals with ethical/legal and human aspects of businesses. To access all sessions related to this book, kindly go here. Also, to download the associated presentation (PDF) with this session, kindly go the video at our YouTube Channel and click on the appropriate link in the description section below the video.

Ethical/Legal & Human Aspects are discussed in the 3rd step (moving from ideas to firms), 7th & 9th chapters of Entrepreneurship 2016 Book.
Entrepreneurship 2016 Book – Part 3, Chapters 7 & 9
  Source: Barringer, R.B. & Ireland, R. D. (2016). Entrepreneurship, Successfully Launching New Ventures. (5th edn.). U.S.A.: Pearson

Ethical/Legal & Human Aspects : The Case of McDonald’s Huge Compensation of USD2.8 Million :

McDonald's  could have avoided a huge loss of USD2.8 millions compensation if they had taken ethical/legal & human aspects more carefully.
McDonald’s Logo

The famous case of McDonald’s (the American famous food company) of paying a compensation of USD2.8 million to one of its customers demonstrates how ethic/legal & human aspects are crucial for businesses. As stated at Huffpost Website, the story started in 1992 when a female customer ordered a cup of coffee (takeaway) from the drive-thru service of one of McDonald’s restaurants. After that, while she was at the car, trying to open the lid, the coffee spilled on her thigh’s skin. It was too hot in a way that caused severe burns to her, so she was hospitalized. As a result, she sued a case against McDonald’s for making the coffee too hot, which was much more than how other restaurants usually did, and for not putting a clear vivid warning on the cup stating the possible serious consequences of its spillage on skin, given that the company provided only ordinary “caution” on the cup regarding this matter. Unfortunately, McDonald’s didn’t cooperate with the customer and insisted to fight against the case. Therefore, the case escalated for two years until a decision was made in 1994 stating that the company must pay a consolidated compensation of USD2.8 million (Source: New York Times Website). Commenting on the incident, A. Gerlin stated in his study titled “A Matter of Degree: How a Jury Decided That a Coffee Spill Is Worth $2.7 Million,”, which was published in 1994 in Wall Street Journal, that McDonald’s could have avoided this problem and loss if it had taken the case with more concern, such as providing apology and agreeable solution to the affected customer.

Ethical Aspects in Businesses:

After we demonstrated the costs of neglecting the ethical/legal & human aspects in business, we can now start discussing the 1st and pivotal aspect of ethics. Ethical Foundation must be a priority for all businesses from the startup stage. Also, Ethics must be strongly integrated with all business operations. As a result, the book states the importance of building & maintaining a strong ethical foundation. Some benefits of that are shown in the below shape. Such culture can be made by various means, but the book states 3 primary ways which are leading by example, constructing an ethics code, and establishing ethics training. With respect to ethics, we remind the readers that we have previously discussed it within the 1st book in the channel (Management 2015), specifically in the 2nd part of the book (Basics of Management in Today’s Workplace). You can access all our sessions of this book from here. Besides, the channel will highlight all ethics-related matters when discussing one of the channel’s future books “Organizational Ethics 2019, 4th Edition”.

Strong ethical culture is a crucial aspect for ensuring ethics commitment in businesses.
Some Benefits of Strong Ethical Culture in Business
  Source: Barringer, R.B. & Ireland, R. D. (2016). Entrepreneurship, Successfully Launching New Ventures. (5th edn.). U.S.A.: Pearson
Organizational Ethics 2019 Book discusses all aspects of business ethics. Besides, ethical/legal and human aspects are discussed.
Organizational Ethics (2019) Book – One the Channel’s Future Books

Legal Aspects in Business:

Ethical environment and culture are strongly related to legal aspects, given that law helps maintain rights & obligations and solves disputes. However, we must distinguish between law and ethics. Usually, law is established to protect and maintain ethics. On the other hand, ethics are related to the values and norms of humans, and to what they consider personally and morally as right or wrong. Thus, law strives to fill any gaps that people might deceivingly use to perform things that are legally correct but ethically suspicious.

Emphasizing legal importance, the book provides guidance regarding establishing the legal foundation of businesses, depending on their conditions and environments. First, it shows the importance of hiring a specialized attorney who oversees all organizational legal issues. Second, it calls for drafting and writing a founder(s)’ agreement that sets out the legal and ownership status of the business (next paragraph) and rights/obligations of all founders. Finally, it explains that avoiding legal disputes saves plenty of costs and losses, which can be demonstrated by McDonald’s case above. This can be done by complying with contractual obligations, getting all memos, agreements and contracts in writing, and setting strong legal, business and operational standards.

Founder(s)’ agreement states clearly the form of the business’s ownership and legal status. The book provides an amazing table that provides 6 different ownership and legal forms, and compares between them in terms of 9 factors, as shown below. In addition, it states some of the points to be considered when deciding the ownership form of businesses. In fact, taking an ownership and legal status denotes that the business must match and meet all the documentary requirements for startup and operations such as licenses and passes, which vary depending on the nature of business and the regulatory environment.

To be legally viable, businesses must choose the correct form of legal or ownership status depending on several points.
Points Affecting Ownership Status Choice
  Source: Barringer, R.B. & Ireland, R. D. (2016). Entrepreneurship, Successfully Launching New Ventures. (5th edn.). U.S.A.: Pearson
Entrepreneurship book provides a great table that compares 6 different forms of legal and ownership forms for businesses.
Comparing Different Ownership & Legal Forms for Businesses
  Source: Barringer, R.B. & Ireland, R. D. (2016). Entrepreneurship, Successfully Launching New Ventures. (5th edn.). U.S.A.: Pearson

Ethical/Legal & Human Aspects : The Venture’s Team

 Finally, building the new venture’s team is extremely necessary to be able to run the business. The team must comply with all legal and ethical standards and requirements. Actually, humans are the ones who set-up & run businesses by turning abstract ideas to viable plans and then implementing them successfully. It is clear that the most important team for any venture is the founder(s)’ team. After that, depending on the nature of the business, the book provides 6 more teams that effectively interact with the founder(s) for the business’s success, as per below picture. With respect to this matter, we would like to note two points. First, the channel has discussed the human and team elements in the post titled “HR & Team Management” within its discussion of the 1st book in the channel “Management 2015”. Second, all the details of teams and humans aspects in businesses will be thoroughly discussed in one of the channel’s future books “Human Resource Management 2013”. For more information about the books that the channel discusses, please watch this video.

Ethical/Legal & Human Aspects can't be maintained without dedicated and qualified teams.
New Venture Team(s)
  Source: Barringer, R.B. & Ireland, R. D. (2016). Entrepreneurship, Successfully Launching New Ventures. (5th edn.). U.S.A.: Pearson
Ethical/Legal & Human Aspects  can't be understood and maintained without full comprehension of the teams and people who run the business; humans are the main focus of Human Resource Management 2013.
Human Resource Management Book (2013), One of the Channel’s Future Books

That was our session for today guys. Thank you so much for reading, watching and following us. Next session, we will conclude this step (3rd) of entrepreneurship by discussing the remaining two tasks (chapters), which focus on the details of the financial aspects, especially viability and financing. Watch and follow us each Thursday on your channel Management with Merits – Manage to Prosper. Please support your channel strongly so that it can continue its glorious mission and services. Subscribe to the channel in YouTube and activate the notifications bell there. Follow us, participate with us and share the channel and all its electronic contact platforms.