Business Regulation Simulation
Alumina Inc. is an aluminum maker that operates in eight countries worldwide. Accounts in the United States make up 70% of the companies $4 billion worth. Located on Lake Dira, in the state of Erehwon, Alumina has business interests in automotive components, manufacturer of packaging materials, bauxite mining, aluminum refining, and aluminum smelting. Five years ago, Alumina was in violation of environmental discharge norms in a routine EPA compliance evaluation. PAH concentration in test samples was above the prescribed limit. A clean up was ordered, with which Alumina promptly complied. A follow up audit reported the violation as corrected. Other than this single isolated incident, Alumina has a good record of compliance before and after. Now, Kelly Bates, a 38-year-old single mother, accused Alumina of repeatedly contaminating the waters of Lake Dira with carcinogenic effluents, and has alleged that consumption of the contaminated water is the proximate cause of her 10-year-old daughter’s leukemia. Bates also alleges that her daughter’s condition may be as old as Alumina’s first instance of environmental law violation.
The Key Facts, Regulations, and Legal Issues
This section discusses the main themes of the simulation and why they are important aspects in the decision making process. The first key fact in this simulation is that five years ago Alumina Inc. in a routine EPA compliance evaluation was found to be in violation of environmental discharge. The PAH concentration test samples were above the prescribed limit. The EPA ordered a clean up, which Alumina Inc. complied. Except for this one incident, Alumina Inc. has a positive overall environmental regulation compliance record.
The second key factor in the simulation is in regard to the Freedom of Information Act 5 U.S.C. 552, as Amended by Public Law No. 104-231, 110. 3048 (Freedom of Information Act, 1996). The Freedom of Information act was enacted by President Lyndon B. Johnson on July 4, 1966 and went into effect the following year (Wikipedia, 2007). This act allows any person a process in which to access any information or records held by government bodies. In the case of Alumina Inc., Ms Bates can request information from the Environmental Protection Agency (EPA) on their spill five years ago. Alumina has a right to with hold any information that the company feels is confidential business information. The courts would decide what is confidential and what is not. It would be in Alumina best interest to release as much information as possible to ensure they protect any possible confidential information.
The last key fact is that Alumina’s public image is in jeopardize because Kelly Bates, has accused Alumnia Inc. of repeatedly contaminating the waters of Lake Dira with carcinogenic effluents and alleged that consumption of contaminated water is the proximate cause of her 10-year old daughter’s leukemia. Bates also alleges that her daughter’s disease may be as old as Alumina’s first instance of environmental law violation. Bates allegation is bound to hit Alumina’s public image and will cause embarrassment for the company.
The environmental regulation is considered the most severe of governmental regulation of a business because of the costs involved for its rigid compliance. As a manufacturing company of hazardous material, Alumina is bound to compliance with the laws enforced by Environmental Protection Agency (EPA). Policies are set at the federal level, and the states devise plans to implement them. The penalties are strict because the government requires businesses to be responsible and ensure the preservation of the environment by complying with the EPA’s regulations. This avoids a company from experiencing further punishment.
Alumina’s legal issues were the threat of a potential damaging lawsuit brought on by a local resident, Kelly Bates. This was a legal issue that had all the elements of a large-scale scandal and bad publicity.
Values, Stakeholders, and Conflicts among the Stakeholders
As a corporation, Alumina’s first interest must be being profitable, and that keep them in business. To that end, they are responsible to their shareholders. Alumina also has a responsibility to the communities that it operates to be a good neighbor. That means to respect not only the surrounding environment, but also the people and animals that inhabit that environment. The stakeholders in this situation are as follows: Roger Lloyd, the company chairman, Chris Blake, the company Chief Operating Officer, Diane Richards, the Head of Public Relations, Arthur Todd, the company legal counsel, the Erehwon Reporter (the newspaper that initially broke the story), Kelly Bates who stake in this issue is the care of her daughter, and the shareholders who run the company.
The ethical dilemmas that lie in this situation are numerous. One of the options presented in the simulation was to investigate Kelly Bates. This option raises issues of invasion of an individual’s privacy. Almost all the options in the simulation bring a significant financial cost to the company. The company wants to protect its image and come up the best possible solution, but it must always keep the stakeholders interest at the top of the list. This means finding the most cost efficient solution.
Organizational Reaction to Regulatory issue
The first thing my organization would do was to deny any wrongdoing to any of the material facts in the simulation. Once Ms. Bates did not believe my company, the company would begin to search out legal counsel and try to find out as many facts as possible with the least amount of expense. The company would try to prolong this process as long as they could.
If the owner of my company believes that he was right, he would proceed to trial. He would not pay anyone no matter what the legal fees were if he felt the company was in the right.
Risk Analysis and Alternative Solutions

Risk Analysis Matrix
Alternative Solution Risks and Probability Consequence and Severity Mitigation Techniques and Strategies
Do nothing, ignore Bates allegations and let the truth come out. · Company will look like it has nothing to hide· Name of be insensitive Case may end up in court, which cost the company, but company is better prepared for long drawn out court battle than Bates. · Lowest severity · Press conference to let public know that the company intends to do nothing and let the truth come out eventually.Let Bates exhaust her financial resources before she even has an opportunity to get to court.
Conduct an independent study of the possible link between the water and leukemia · May be costly · May be time consuming· Makes the company look a concerned corporation Hire an independent party to test the waters of the lake and determine if there is any relation between the water of the lake and leukemia· Medium severity · Keep public informed with regular updates as to the progress of the study.
Seek American Arbitration Association’s intervention in resolving the dispute through alternative means. · It is costly · It may be time assuming · Ms. Bates may avoid litigation Agreement may be binding or non-binding. If it is non-binding, may not be any closer to settlement. · Medium severity · Try to settle differences prior to Arbitration.

First alternative solution other than what was determined in the Business Regulation Simulation could be to ignore the situation and do nothing. This could have risks of potential lawsuits by other people; reputation of being insensitive would be a problem. On the other hand the company will look like it has nothing to hide. This alternative may end up in court, which would cost the company, but the company is better prepared for a long drawn out court battle than Bates. The mitigation strategy would be to press conference to let public know that the company intends to do nothing and let the truth come out eventually. The second solution is to conduct an independent study of the possible link between the water and leukemia. It may cost company and be time assuming, but can makes the company look a concerned corporate citizen. Alumina can hire an independent party to test the waters of the lake and determine that the cause of the pollution was the increased harbor traffic. Meanwhile Alumina can keep public informed with regular updates as to the progress of the study. The third solution that I proposed in the risk matrix is to seek American Arbitration Association’s intervention on resolving the dispute through alternative means. Of course, it is costly and timely; also Ms. Bates might avoid litigation. The consequence is that the agreement may be binding or non-binding, if it is non-binding then may not be any closer to settlement. Alumina must try to settle differences prior to arbitration.
Alumina wants to assure they comply with all allegations and do not want to have pending lawsuits that can threaten their organization further. Even though they could have fought back on Ms. Bates possible lawsuit, the risks were greater for their organization due to the publicity and negative newspaper articles. The Chairman and the Legal Counsel discussed these matters in the simulation and the outcome was to offer to mediate a settlement for the allegations of the cause of the ill child.
My recommendation for Alumina Inc. is to seek out the American Arbitration Association (AAA) intervention in resolving the dispute through alternative means. I believe that this means will be the easiest, quickest and most cost effective means to resolution for the company. The company may be able to win a protracted legal battle but at what cost. Jury trials are never guaranteed and there are strong chances the jury may side with the little guy. Alumina choice to proceed with Arbitration was the best short-term as well as long-term solution for the company. Due to the facts in this simulation, Alumina could have chosen to proceed with a protracted legal battle, but at what cost? In the business world, being right on an issue and defending in court may be the wrong decision in the long time. References
Environmental Protection Agency (EPA) (2007). Clean Water Act History. Retrieved, from www.epa.gov/region5/water/cwa.htm
McCarthy, M., Flynn, T., & Brownstein, R. (2004). Risk from the CEO and Board Perspective: Executive Agenda. New York: The McGraw-Hill Companies.
Reed, O. L., Shedd, P. J., Morehead, W., & Corley, R. N. (2005), The Legal and Regualtory Environment of Business (3e ed.). New York: The McGraw-Hill Companies.
U.S. EPA (2006) Compliance Incentives and Auditing. Compliance and Enforcement, Retrieved, from www.epa.gov/compliance/incentives/auditing/auditpolicy.html
University of Phoenix, (2008, Week Three - rEsource course page), Business Regulation Simulation
Wikipedia (2006) Freedom of Information Act. Retrieved, from http://en.wikipedia.org/wiki/freedom_of_infromation_legislation#United_States