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Positive law as the ethic of our time.
Business Horizons
| September 01, 1990 | Fisher, Bruce D. | Copyright
Positive Law as the Ethic of Our Time
The number of businesspersons, political leaders, TV ministers, sports personalities, educators, and other role models for American society who in recent years have been fined, imprisoned, left private or public office in disgrace, or been denied Olympic medals starlets many. Others not only are alarmed by the rash of apparently unethical conduct by society's leaders, but also wonder if there is some character flaw in the present generation of achievers that dooms their ultimate success - and threatens the commitment of the average member of society to the ethics of work and integrity.
It is not unusual to read of self-studies by leading business firms that question the propriety of basic organizational values and ask hard questions about the institution. Certainly it makes institutions such as businesses and governments appear ridiculous to line personnel, who are micro-managed to death by institutional guidelines covering the minutes aspects of their work yet see leaders who appear to violate laws governing major phases of their business.
This article advances the notion that the "law on the books" - positive law - has become the basic ethic of our business and social culture today. That is, people have come to accept the notion that if they have followed the law on the books in a democratic society, that is probably all that society can and should expect of them. This is the ethic of legal positivism. The remainder of this article is devoted to exploring why positive law has assumed such a dominant ethical position in the United States, examining some situations supporting the thesis that positive law is our basic ethic, discussing possible problems with this notion, and evaluating the likelihood that this ethic will prove long-lasting.
POSITIVE LAW: DEFINITION AND RELATION
TO OTHER "LAWS"
Positive law refers to law that is laid down on society by government. The "positive" aspect comes not from the manner of the law's expression (that is, "Do something" as opposed to "Don't do something"), but from its being imposed or "posited" on the situation by the legally constituted lawmaker. A legislature, a court, an administrative agency, or a city council makes positive law. The someone on whom the law is imposed is referred to as a political inferior, body politic, or governed; the person with the power to impose law is the political superior or government. Penalties are customarily imposed if positive law is broken.
As can be seen, there is an obligatory aspect to this idea. Thus positive law is to be distinguished from "morals" in that morality - doing that which we would want everyone to do and which is regarded as fair and right - is not required except to the extent it is imbedded in positive law.
Classic examples of positive law include constitutions, statutes, judicial decrees, and municipal ordinances. Positive law is therefore to be distinguished from physical laws (such as the "law" of gravity) in that the latter is not decreed by a public official but is the result of some observed phenomenon. Positive law is also not the same as an economic "law" based on actual or perceived human conduct. Company rules are not positive law since the company is not a political body in the sense of a government, although the company surely is an economic superior with respect to the employees. Finally, a parent's admonitions to a child are not positive law, even though they may carry an authority far greater than that of the state in the mind of the child.
THE TRADITIONAL NOTION OF POSITIVE
LAW IN THE SPHERE OF ETHICS
Ethics refers to moral values or desirable conduct. Although there are situations in which ethical conduct could violate positive law, society has generally thought of ethics as imposing duties above those imposed by the law on the books, or suggesting desirable conduct in areas that are thought best left as areas of free choice to citizens in non-totalitarian societies. Thus it may not be required that a business contribute to the local symphony, public TV station, hospital, university, Girl Scouts, or United Way, but it has been thought ethical - that is, desirable - for the to business do so as part of its civic responsibilities. Few legislatures or city councils would consider it wise to mandate via positive law that the local business community support such worthwhile endeavors. To do so would, in effect, amount to a tax. It is thought better to appeal to the business's sense of ethical or moral responsibility than to force such conduct on it.
One of the major points of this article is that the traditional notion of positive law's being an ethical floor has changed in certain important areas, such as employer/employee relations and environmental protection. In effect, the positive law has in numerous contexts become the ethical ceiling and not the floor.
There are those who will assert that a thesis of this paper - namely that positive law has ascended to ethical primacy in our time - has already been staked out by others. For example, the economist Milton Friedman has made statements to the effect that corporate management's main function is to minimize profits provided that this is done by obeying the rules of the game (Metzger et al. 1989). Thus it could be observed that persons such as Friedman have implicitly, if not explicitly, stated that following positive law has always been assumed.
There are several responses to the preemption assertion. First, a thesis of this article is that positive law is an ethical ceiling that is caving in. Positive law has ascended to ethical primacy because obeying it is coming to be recognized as the most that we can expect of people in today's competitive society. Implicit in this thesis is the notion that not obeying positive law is a strategy that many are finding increasingly attractive as a way to advance. In a sense the positivistic ethic owes its ascendancy to economists, such as Friedman, who have vigorously pointed out the value of the free market in a world of rising expectations (but confronting severe resource scarcity). If we are committed to a competitive race - the free market - to determine who has the superior claim to scarce resources, then people are going to "cut corners" to win. Since the "corners" are positive law, it is obeying those rules and nothing more, if that, that we can expect of the vigorous competitors. As such, positive law is under siege. Consider the examples of noncompliance with positive law presented here: the widespread violations by the highest echelons of Wall Street; the efforts to escape U.S. positive law by the establishment of maquilas just inside Mexico; the efforts to reduce environmental monitoring in the early 1980s at a time when the positive law of environmental control was increasing in stringency; widespread cheating by persons receiving veterans' benefits; and very pervasive cheating on federal income taxes. The evidence is substantial - perhaps overwhelming - that positive law is at best an ethical ceiling and that disobeying it is widespread.
Friedman's statement that profit is to be made within the rules of the game simply does not withstand analysis when his approach to winning and making profits is compared to today's methods of winning in the competitive crucible. Winning is everything today, so much so that positive law is an ethical drag! Remove impediments to the achievement of your objective: cheat on the positive law! This is the way to get the competitive edge. There has even been an ad campaign by Burger King advancing the idea that the positive law may occasionally be broken ("Sometimes You've Gotta Break the Rules"). When mass marketing of hamburgers assaults the positive law, one knows that positive law is at best the ethical ceiling!
A second problem in interpreting Friedman's comments as saying that positive law is an ethical ceiling is that this profoundly misconstrues his statement and emphasis concerning ethical duties of corporate managers. Friedman takes aim at managers who go above the level positive law sets. For example, he would probably condemn corporate charitable contributions on the grounds that this reduces profits and usurps shareholder right as to the proper object of their charitable instincts. If a GM shareholder wishes to give to the United Way, let her; but GM should not make this decision for the shareholder. In so criticizing corporate managers, Friedman seems to be saying that positive law is both an ethical floor, in the sense that players should obey it, and a ceiling, in that managers should not do more than it requires lest profits be diminished. He thus concentrates on managerial conduct that goes above the "ethical waterline." A thesis of this article is that positive law is the most we can expect - that activity below the positive law "ethical waterline," where too much business and private sector activity is taking place in today's competitive society, is important. Friedman, it would seem, did not really focus on this development. It should be added that this author views noncompliance with positive law with alarm and disapproval.
There are those who argue that Friedman is ethically insensitive by urging corporate managers to do nothing greater than positive law requires, since exceeding positive law requirements would detract from profit maximization. Others have developed this criticism (Stone 1975), so this article concentrates on the fact that business has extensive and expensive positive law burdens that put tremendous pressure on business (and individuals) to drop below positive law. Worrying about what goes on above the positive law waterline for the business community when the real ethical challenges are below that level is akin to passengers on the Titanic fretting about the decline in civilization because the crusts are not removed from their cucumber sandwiches at the movement their ship is sinking into the ocean depths.
SOCIETY'S BASIC VALUES AND POSITIVE LAW
Every society has basic values. In American society, some of these values seem to have led to the ethical preeminence of positive law in business and society.
The Tendency to Legalize All Aspects of
Human Endeavor
There is a tendency for people to seek legal solutions to political and social problems. People typically have the following reaction to many problems: "There ought to be a law against that," or "That should be regulated so it can't happen again." Consider the following situation.
College students want to spend the summer in Europe. They learn of cut-rate fares offered by an upstart airline and convince Mon and Dad to let them go since the trip will cost "next to nothing." The parents relent and the students are off to Europe. While there, the upstart airline goes bankrupt and Mom and Dad receive an early morning phone call from the kids asking them to wire $1,000 for a one-way ticket back to the States. After sending the money, Dad, still steaming from the fact that airlines and travel agents can "pull these shenanigans," dashes off letters to his senator and representative saying that "airlines and travel agents should be bonded and some sort of regulation established insuring that American travelers will not be stranded in foreign countries when such things happen." Believe it or not, senators and representatives listen to constituent mail and react to it if it is numerous or visible, since not reacting creates political problems. What can a representative or senator do to show those constituents that she has the best interests of the voters in mind? Pass a law or encourage the appropriate federal agency to make a regulation. Both are appealing solutions since they are tangible evidence lawmakers can point to that something is being done. They are approaches that have led Congress to pass statutes and federal agencies to promulgate regulations. In fact, a regulation was promulgated by the Department of Transportation (and later challenged in court) that addressed the very airline fiasco described above.
Further illustrations of the tendency to turn every problem into a legal issue are found in the unbelievable avalanche of statutes and regulations that have found their way into federal and state law books in the past 20 years. Consider a sampling of the number of environment, consumer, and employment laws enacted since 1970: The National Environmental Policy Act (1970), the Occupational Safety and Health Act (1970), the Clean Air Act Amendments (1970), the Fair Credit Reporting Act (1970), the Federal Water Pollution Control Act of 1972 (renamed the Clean Water Act), the Federal Noise Control Act of 1972, the Maritime Protection, Research, and Sanctuaries Act of 1972, the Endangered Species Act (1973), the Safe Drinking Water Act (1974), the Employee Retirement Income Security Act (1974), the Equal Credit Opportunity Act (1974), the Fair Credit Billing Act (1975), the Federal Privacy Act (1974), the Resource Conservation and Recovery Act (1976), the Toxic Substances Control Act (1976), the Fair Debt Collection Practices Act (1978), the Electronic Fund Transfer Act (1978), the Bankruptcy Reform Act (1978), the Nuclear Waste Policy Act (1982). As a result of this onslaught, in many areas of our lives there has been a distinct late-twentieth-century tendency for law to become all-encompassing.
Greed
"Greed is good," said Gordon Gekko, the high-powered deal maker in the movie Wall Street. This sentiment expresses what many think is the overriding value of modern society. In the real world, both individuals and groups appear to have adopted this credo.
Among individuals, the name Leona Helmsley, described by her ads as the "Queen of the Helmsley hotel chain," would be at or near the top of most lists espousing the philosophy of She was recently sentenced to a four-year prison term and fined $7.1 million for conduct including a scheme to bill her businesses for more than $3 million for improvements to her 26-acre estate. (Her conviction is being appealed as of this writing.) In sentencing her, federal district court judge John M. Walker, Jr., reportedly said, "Unlike many defendants who come before the court, you were not driven to this crime by financial need. Rather, your conduct was the product of naked greed" (Glaberson 1989).
In reviewing the many convictions of highlevel Wall Street investors and brokers, one is struck by the fact that many, if not all, of these individuals earn at least six-figure incomes - as much in one year as the average person makes in a ten- to thirty-year time span. Yet these market mavens had to have more! The largest investor/broker income was the unbelievable $550 million made by Michael Milken in 1987. He recently pleaded guilty to six felony counts in connection with his securities dealings. On a lesser financial scale but in a more prestigious firm, Mr. Robert A. Freeman, once a partner and department head at Goldman, Sachs & Company, recently entered a guilty plea to mail fraud after admitting that he had received advance information on an impending leveraged buyout and restructuring of the Beatrice Company by Kohlberg, Kravis & Roberts. Partners in firms such as Goldman, Sachs often make seven-figure annual incomes. Why the need for more? The answer has to be greed.
The greed syndrome affects groups as well as individuals. A recent Government Accounting Office study reports that U.S. veterans cheat the federal government out of millions of dollars annually by lying about their outside incomes. Veterans Administration pensions are based on a veteran's total income. Thus veterans must report dividend, interest, and earned income (the sum of which is outside income), which are taken into account in calculating pensions. The more the outside income, the lower the VA benefits. This induces many veterans to understate or simply not report dividend, interest, and earned income. The GAO estimated that the potential overpayment of benefits is at $182.5 million and that 549,000 pensioners failed to report outside income ("Study ..." 1988).
Another large group of greedy people would be the elderly who are receiving Social Security transfer payments beyond what they paid into the Social Security system and beyond their current needs. In effect this is welfare for the middle and high economic classes. It should be noted that one important difference between Social Security recipients and the aforementioned Wall Street crooks and chiseling veterans is that recipients of Social Security are not doing anything illegal in obtaining economic benefits beyond their need. It is perfectly legal, although this system and resistance to reform it illustrate significant greed. When the commission on Social Security reform in the early 1980s examined possible adjustments to that system, it was discovered that the average social security recipient receives in retirement benefits five times what his or her tax contributions to the Social Security system were. Since many retirees receiving Social Security payments until their death often have adequate savings and investments to live comfortably in retirement. without Social Security, the potential economic injustice is apparent: Persons not in need of financial assistance are receiving it from the wage-earners presently paying Social Security taxes. Even millionaires continue to receive Social Security benefits long after having withdrawn their contributions to the system. Do such people need this money? No! On the other hand there are old impoverished people who should have their Social Security benefits increased. The correction, from an economic (not political) standpoint, seems obvious: Allow all retirees to draw benefits up to the amount they paid in taxes to the system, but beyond that base benefits on need. This correction would help eliminate the ugly greed that now corrupts the existing Social Security system, which has done much for the average person as well as the nation.
A final and perhaps the largest group that demonstrates the greed mentality consists of tax cheaters. An Internal Revenue Service (IRS) study done in 1983 showed that the average taxpayer reports only 94 percent of his or her income. This means that most people are cheating a little on their federal income taxes. This revelation has its disturbing aspects, given the voluntary nature of federal tax compliance. The breadth of noncompliance also shows yet another example of the pervasiveness of human greed.
The Stakes for Winning Today
Encourage Cheating
The world idolizes the people who "make it." To be a winner a person has to take chances. Today's students, businesspersons, and athletes are told to "go for it, take risks." Thus records are being broken in every sport from golf to football to tennis to hockey to basketball. Records are being set in business. Companies are told that to be successful they have to be larger, make more profits, and produce better products. Record salaries are being set in every walk of business and professional life.
A business example of the high stakes of winning concerns one of the largest piles of money in the U.S. government: the Pentagon budget, which runs into hundreds of billions of dollars. A large part of this budget is spent for military procurement. Competition is keen to obtain defense contracts, and federal prosecutors are reported to have obtained their twentieth conviction or guilty plea in military procurement fraud. Often defense contracts are for weapons costing in the millions, if not billions, of dollars. With that kind of money at stake, military contractors have an incentive to learn what Pentagon procurement plans are. Often such fraud involves military contractors' paying "consultants" for secret procurement plans that give bidders a "leg up" in the bidding process.
Be a Team Player
Japan is ever on the mind of U.S. business-persons. One of the identified characteristics of Japanese society is its apparent "team spiritedness." Sociologists and journalists point to the willingness of Japanese to act for and within the group. Evidences of this in Japanese life are strong: workers gather outside the factory for exercise classes before beginning the daily jobs; workers perform their work in groups or teams and assess their performance in this manner. On a macro level the team philosophy manifests itself when government and business work in harmony rather than as adversaries. This is frequently contrasted to the U.S., where many businesses see themselves as having to stay one step ahead of the government inspectors.
One of the corollaries of being a team player is not to rat on the team when it makes a mistake. Criticize within the enterprise but not to third parties. Be a company person, since your well-being is tied in with the company's continued well-being. This is the credo of the team player. Don't speak out of school. Don't criticize the boss behind her back. Don't criticize the company to the media. These sentiments are writ large in the minds and hearts of the team player.
But what if the team's - company's - product violates the law, as it did in the recent Beech-Nut case, where highly diluted apple juice/sugar water was sold as apple juice for babies? Should one shut up and protect the boss or report the violation and suffer possible censure or job loss? Unfortunately, the U.S. legal system is very uncomfortable about protecting whistle-blowers. Given the multijurisdictional nature of the U.S. legal system, one would have to answer that legal protections for such persons vary from state to state.
OTHER CAUSES OF ETHICAL
PREDOMINANCE
One might ask what accounts for the ascendancy of positive law to ethical primacy. This article poses some possible causes, and although it is beyond the scope of this paper to address this question comprehensively, one might speculate that as mediating institutions such as the family, community, and religion decline, positive law is asked to perform a larger social control role than ever before. Such thoughts evoke a number of questions, however.
In the matter of religion, one must first ask what religion is. If one defines religion broadly, as have some sociologists, to include belief systems involving sacred rituals that bind people into social groups, it has been suggested that any public activity, even football, could be regarded as a religion. If this admittedly farfetched definition were accepted, one could easily claim that religion has increased given the attendance at football games and other sporting events.
Even if one follows more limiting religious definitions, however, finding empirical evidence for the perception that religion today plays a lesser role in setting values for us is difficult. One can find statements asserting that mainline Protestant religions are on the decline (Kammeyer et al 1990), but statements alone are not evidence. Such individuals might argue that church membership and attendance have dropped. However, recent statistics compiled by the Gallup Poll and reported in the Yearbook of American & Canadian Churches (1989) do not uniformly support this view. In 1939 church/synagogue attendance in the U.S. was reported as 41 percent of the adult population; while it has fluctuated to as high as 49 percent in years 1955 and 1962, it hovered around 40 percent through most of the 1980s and was 42 percent in 1988 - a bit higher than in 1939! However, church/synagogue membership has, according to the same source, decreased from 73 percent in 1937 to the high 60-percent level throughout most of the 1980s until it hit 65 percent in 1988. This would support the "decline in religion" theory, although presumably attendance is more important than membership. One other aspect of religion that might portend its increase over the long term is teen-age church attendance, which was reported at 52 percent in 1988. However, religious service attendance drops off as teens age. Thus, claims that religion is on the decline, though possibly true, lack conclusive support. And claims that positive law owes its ethical ascendancy to the decline in religion remains a hypothesis - not a thesis.
Similarly, the assertion that the decline in community has reduced the value consensus that serves the mediating function now occupied by positive law is open to question on many fronts. For example, one source notes that the word "community" is elusive, vague and "without specific meaning." The term "community" is not even found as a separate entry in the subject index in some basic sociology textbooks. Thus it must remain for others to develop and find support for the intriguing hypothesis that the decline in community values contributes to the ascent of positive law as an ethical force.
Finally, in the same vein, some argue that the decline in the family has contributed to the decline in ethical values that positive law has filled. In sociology the term "nuclear family" refers to a man and woman who live in the same house with their children. Nuclear families are compared to extended families, which are three or more generations of the same family living in the same house. According to some authorities, the idea that pre-industrial revolution families were all of the extended family structure is inaccurate. Further, the notion that industrialization has totally broken down the extended family structure and resulted in isolated nuclear families is not true either. Telephones and other means of communicating have resulted in modified extended families. Hence one might claim that rather than being on the decline, the family structure is undergoing modification. And while families are thought to influence social values, the reverse is also true. Thus establishing cause and effect in the area of the family and values is difficult. Do values come from outside the family and shape the family members? Is the reverse true? Or is there a cause and effect both ways? Statements can be found in basic sociology texts suggesting that cause and effect indeed move in both directions. Once again, suggestions that positive law is filling a value void left by the demise of the family remain a hypothesis to be proven by others.
RECENT BUSINESS EXAMPLES
As noted earlier, positive law traditionally has been seen as an ethical floor, while ethics aside from positive law have usually been thought to impose duties above positive law. There have been instances, however, in which society via positive law has forced business to engage in certain conduct society deems desirable but which many businesses regard as too burdensome.
The Environmental Movement
Until recently, the environmental movement was considered by some to require beyond what is reasonably necessary for human survival on our planet. The link between people and protecting birds, for example, was not readily apparent to some. But birds eat insects; without birds, farmers often are forced to increase the use of insecticides, which can become part of farm products as well as run into streams and be ingested by fish. The fish in turn can be part of the human food chain, causing human body tissue to build up harmful substances. Thus water pollution control costs, which can go through the roof, were once seen as a frivolous expenditure mandated by people more concerned with wildlife welfare than preserving jobs for working men and women.
Today the positive law burdens in the area of pollution control are regarded as costly, but there is less overt opposition to them. Total national pollution abatement and control expenditures from 1972-1983, as shown in the Council on Environmental Quality's 1984 report, increased from $10.96 billion in 1972 to $39.24 billion in 1983, an apparent increase of approximately fourfold in 12 years. However, when those expenditures are put in constant dollars, the 1983 business pollution expenditures are about 40 percent - not 400 percent - above those in 1972. Nonetheless, environmental clean-up costs are a significant, nonproductive "social overhead" cost. The incentive to obey the positive laws imposing such costs is small, since such expenses do not translate into any visibly better (or cheaper) product on the store's shelf. Furthermore, since the costs of pollution control become part of the product's cost but the benefits do not translate into product benefits, why not try to cut corners in obeying these positive laws?
One other interesting angle on efforts to circumvent environmental law is the decline in total dollars spent on environmental monitoring at the federal and state sectors starting in 1983. Even worse, in 1972 dollar figures, the decline in money spent on environmental monitoring began even earlier - in 1981. It is curious that as the law gets tougher (with attendant incentives to cheat heightened), the surveillance declines. Does this support the notion that the positive law in this area is a ceiling and not a floor?
The Maquiladora Movement
Further evidence that positive law is an ethical ceiling is the rise of the maquiladora sector in northern Mexico near the U.S. border. Essentially the maquila plants are U.S. businesses fleeing a legal system that imposes costly protective labor laws on business. A whole sector has sprung up in Mexico along the U.S. border where manufactured goods are assembled, often with parts made in the U.S. or from other countries. The principal reason for the maquilas - as these sub-U.S. wage and fringe standard operations are called - is cost. One maquila owner told this writer that his labor costs are about half those in the United States.
U.S. protective labor laws such as the Occupational Safety and Health Act are designed to provide workers with a safe and healthy workplace. The Fair Labor Standards Act, which sets minimum wage for most workers at $3.80 presently (with exceptions) and up to $4.25 by April 1, 1991, helps workers earn enough to live without the indignity of seeking welfare. Workers' compensation statutes, which treat as part of the cost of doing business virtually all employee work-related injuries, diseases, and deaths, protect U.S. workers from the ravages of these ills.
A major problem with the maquilas is that they defeat the broad social goals of U.S. protective labor laws. In passing these laws civilized nations such as the United States have tried to show respect for the average man and woman by giving them a living wage, providing a relatively safe, clean place to work, and giving them some benefits if there are job-related injuries, diseases, or deaths. The maquila movement undercuts all of these lofty goals to the extent that Mexican labor laws are less protective than those in the U.S., in addition to robbing U.S. workers of jobs. The rise of the maquilas shows that the U.S. labor laws are a ceiling, not a floor, for many U.S. workers.
SOME ADVANTAGES OF POSITIVE LAW
Some might find it distasteful to simply "consult the statute and case books to find out if something is ethical," but there are several advantages to this approach.
Acceptance
There generally is widespread social acceptance of a value or position as the ethic of society if the matter has been addressed by statute or case law. For instance, few would challenge the notion that it is "wrong" to commit fraud or misrepresent some material aspect of a business transaction.
When ethics other than positive law become our guides to proper conduct, we have the "multiple conscience" problem: What one thinks is right is not necessarily what others might regard as proper. Consider two business executives' use of the Kantian "categorical imperative" to "act in such a way as one would want the universal law to be" (Bodenheimer 1962) to decide whether the sale of furs from animals should be allowed in the local community. The two executives could come out with opposite results even though they applied the same moral precept. On the other hand, if the positive law permits such conduct, the matter is settled in favor of allowing such sales - as recently happened in Aspen, Colorado. One may or may not approve of the legal resolution of the issue, but at least one knows what may be done and what is not allowed.
Positive Law's Arbitrariness
One aspect of positive law that would appear to be negative turns out on reflection to be a virtue: Its arbitrariness. Consider the situation in which someone is stopped for speeding 26 miles per hour in a 25 zone. One might say that there is very little difference between 26 and 25, and in truth one would be right. One might also say that the added risks to public safety in driving 1 mile per hour above the legal speed limit are negligible; again, one would probably be correct. Yet positive law says that 25 mph is legal and anything above this figure is illegal. The arbitrariness of positive law stems from society's willingness to lay down discrete lines between legality and illegality: 25 is legal and 26 is illegal. By having known, identified limits to the law, society is able to get things done. We do not have to waste time with incessant debate about what is right and wrong, desirable and undesirable. Thus arbitrariness promotes efficiency. Also, if the rules, which are admittedly arbitrary "at the line," are democratically formulated to allow citizen input during the formative stage, and they are announced prior to enforcement, the unfairness element one associates with arbitrariness is reduced.
The Penalties Can Be Great
Until several recent high-profile cases, the incentives to obey positive law in the area of white-collar crimes were, frankly, weak. Today sentences in certain white-collar crime cases suggest that the courts might be shifting from lighter to heavier sentences and fines for such offenses. Ivan Boesky received a three-year prison sentence in March 1988 and agreed to pay a record $100 million to settle civil insider trading charges (although he reportedly received a tax break on his fine). Paul A. Bilzerian, a Floridian who obtained control of the Singer Corporation, received a four-year prison sentence and was fined $1.5 million for various federal securities law violations (including "stock parking," which involves not reporting stock one owns to conceal possible takeover attempts) in September 1989. This was reportedly the longest prison term for such violations. He must also serve two years probation after completing his prison term. Unquestionably the most high-profile white-collar criminal case in recent times involves Leona Helmsley. Many believe her sanctions were above those typically imposed on tax evaders.
The aforementioned cases are surely not a representative sample, and all three involved felony, rather than misdemeanor, offenses. But they could signal a shift in judicial philosophy regarding disposition of white-collar criminal defendants. To the extent that the judiciary imposes heavier sentences on white-collar criminals, this lends support to the thesis that positive law will be the major ethic in our society. Given the incentive to cheat with the huge gains in white-collar situations, perhaps the courts should give greater thought to the message their sentences send to the public and business sectors.
SOME DRAWBACKS
There are many reasons for the ascendancy of positive law as the ethic of our time. This is not to say that regarding positive law as the principal ethic is without philosophical and practical problems. A few of these dilemmas are noted below.
Ethical Exclusivity
A great danger in having positive law as the principal social ethic lies in people's regarding it as the only ethic with which they must comply. If this became the case, people might obey the law but do nothing else for their fellow human beings or society. It is disturbing to think that desirable conduct should be based solely on legal obligation. Charity, volunteerism, and neighborliness would be extinct; narcissism would be the order of the day. As noted before, there are good reasons for not requiring certain types of voluntary social efforts, but society would be the lesser if such conduct ceased. Fortunately, the spirit of volunteerism is far from dead.
The Vastness and Unknowability of Positive Law
The difficulty of knowing positive law is apparent to anyone who has ever studied it. There are more than 210 one-inch thick (or thicker) books containing United States statutes. In addition, there are more than 180 books containing regulations promulgated by federal agencies such as the Department of Agriculture, the Federal Trade Commission, and other agencies. Beyond this there are more than 1,000 books containing federal judge-made laws (cases decided by federal courts). But there is still more! Each state has its own constitution, statutes, cases, and regulations; cities have ordinances and various codes. We are all bound by these positive laws, and not knowing them is usually no defense!
A simple case, Federal Crop Insurance Co. vs. Merrill (1947), illustrates the problem average citizens have in coping with the enormity of the law. An Idaho farmer named Merrill went to the local agriculture office to see if he could insure his crop should it fail. Merrill told the official that the crop was reseeded. The official informed him that reseeded crops were insurable. The crop later failed, and Merrill submitted a claim against the federal crop insurer, which was rejected on grounds that reseeded crops were not covered, as was clearly pointed out in the Federal Register - which is incorporated by reference into each federal crop insurance policy. Merrill sued the federal crop insurance agency and won until the case went to the U.S. Supreme Court, where Justice Felix Frankfurter denied Merrill's claim on the grounds: "Ignorance of the law is no excuse; people are expected to know the law even if it appears in an obscure federal publication such as the Federal Register" (even if they are negligently misinstructed by government employees).
Even though Merrill was decided a generation ago, it is still "the law" and is probably correct. Citizens must be held responsible for the law's mandates, even though such directives might appear in arcane government publications such as the Federal Register. To hold otherwise would be to establish ignorance as an excuse for noncompliance with the law, clearly an untenable position in a civilized society. Yet one cannot help but feel compassion for poor Mr. Merrill, the Idaho farmer, who a dissenting Supreme Court Justice declared would have no time to farm if he spent his time reading the Federal Register, which the justice labeled "voluminous and dull."
The dilemma facing Mr. Merrill is a real problem confronted by everyone in today's highly legalized society. We must know - and are held responsible for knowing - the increasingly voluminous and complex laws, yet no honest person can actually expect to know more than a few. Perhaps such cases should remind us of the importance of having some universal exposure to basic legal principles as part of our undergraduate education.
THE ETHICAL FUTURE
The specter confronting the business community if positive law assumes ethical dominance is an explosion of laws even greater than at present, introducing new regulatory conflicts and contradictions. At first blush, this appears to be a very likely consequence. An increase in positive law is possible in a democracy such as ours, where legislative action - passing laws - is usually equated in the voters' minds with responsible, caring, concerned, "get off your duff," problem-solving lawmakers. Lawmakers who secure passage of legislation benefiting constituents' concerns tend to be reelected. What better way to prove to the voters that a legislator is concerned about them than by introducing and shepherding through new legislation?
Even if legislatures should become more circumspect in the passage of major new positive laws imposing vast regulatory schemes on society, there remain the administrative agencies that promulgate the regulations governing much of our lives and litigants who can resort to the courts (adding to the stock of positive laws with new interpretations of laws). When one considers that there are many new social concerns giving rise to a demand for greater regulation, the likelihood of a significantly larger number of positive laws becomes almost a certainty. Consider the concern about the environment, which is, with several notable exceptions, only about a generation old. In 1969 there were no regulations of the U.S. Environmental Protection Agency because it did not exist before 1970. Today there are several volumes of EPA regulations to which business and other members of the public must conform.
Although courts are another source of positive law, they are perhaps more indicative of the use of positive law by citizens. Courts are passive: litigants and their lawyers must sue before courts can act. To have lawsuits there must be lawyers. All signs are that the rise in the number of lawyers is likely if law school attendance continues to climb - which, with some dips, it continues to climb - which, with some dips, it continues to do. There are some crude measures indicating that lawsuits are increasing. In the U.S. we have a dual court system - federal and state courts exist side by side.
One very rough measure of the increase in and use of positive law in federal courts is the number of volumes reporting federal court cases at the trial and appellate levels in the United States. At the trial level, from 1950 to 1959, 93 books contained all the reported cases decided by all of the federal district courts. From 1960-69, 127 books were needed to report cases from the same courts; between 1970-79, 191 books were required for the same task; and between 1980-89, 228 books were needed. To make these comparisons truly meaningful one would have to hold constant many factors - the length and number of opinions, the number of pages in each book (in fact, this has tended to increase), the number of cases disposed of without opinion (which has tended to increase), and many other variables. Nonetheless, objective evidence supports the idea that the use of positive law in the federal trial courts is on the increase. There has been a similar increase in the number of books needed to report federal courts of appeals decisions, which adds credence to the idea that there is more positive law from that source.
One source suggests that state courts handle five times as many appeals and 100 times the number of trials as federal courts (State Court . . . 1989). In 1987 (the latest year for which data are available) there were 94,271,941 state trial court filings. Of this number, 16,027,139 were civil cases, 11,271,768 criminal cases, 1,338,737 juvenile cases, and 65,634,297 traffic and other ordinance violation cases. The interest of business in these figures should focus on the 16 million civil cases - a considerable number. In recent years much has been made of the explosion in tort cases - those involving breaches of civil duties not arising by contract. For example, many product liability cases fall into this category (although they could also be contractual or hybrid - involving both contract and tort claims - in nature). In 1987 torts constituted between 3 percent and 31 percent of total state civil cases filed in general jurisdiction trial courts, depending on the state. In Maine the percentage was 31.1 percent, in New York 28.2 percent, in California 20.4 percent, in Michigan 17.4 percent, in Texas 9.2 percent, in Florida 8 percent, and in Kansas 3.1 percent. Thus torts, which receive much media notoriety, compose a small percentage of all civil cases. Further, they constitute an even smaller percentage of all cases - both civil and criminal. Of course, when counting case filings one treats a $25 case the same as a $1 million product liability case. This suggests one failing in merely counting cases, since even one huge case could put a Fortune 500 company into bankruptcy.
More important from the standpoint of the growth in the use of positive law are the trends in state court tort cases. From 1981 to 1987, tort filings from 26 U.S. jurisdictions fluctuated in most states, with six states showing a consistent upward trend, five with a less certain upward trend with year-to-year variations, and no state with a consistently downward trend (although in New York, Massachusetts, and Colorado the general trend is downward). Unfortunately, the data are insufficient to draw conclusions over the growth or use of tort or other civil positive law over longer periods in state courts. One study recently revealed that in federal courts. One study recently revealed that in federal courts, contract - not tort - cases are increasing faster, although federal civil filings constitute a much smaller percentage of total case filings than do those in state courts (State Court . . . 1989).
Some facts indicate a slowing in the increase (although not a decline) in the number and use of positive laws. First is the admittedly crude measure: the recent decline in the number of pages in the Federal Register, the federal publication that chronicles, among other matters, new proposed and promulgated federal regulations. For the entire year of 1970 there were 20,036 Federal Register pages; in 1980 that document had mushroomed to 87,011 pages! However, by 1988 there was one tangible evidence of the Reagan de-emphasis of regulation - a decline in Federal Register pages to 53,375. One caveat is in order: Many if not most existing federal regulations remain in place, so the reduction in the Federal Register refers mainly to the number of newly added federal regulations. (Existing regulations are found in another set of books called the Code of Federal Regulations, which registered no perceptible decrease during the same period.) State and local governments are becoming ardent regulators and probably will step in to fill or surpass any perceived federal deficiencies. The Bush administration managed to control regulation in its first year, as evidenced by the number of Federal Register pages - 53,821 - in 1989.
A second hopeful sign that positive law wanes as well as waxes comes from a recent study by two Cornell University law professors (Labaton 1989). It supports the notion that a more conservative judiciary may be cutting back on legal protections in the expensive and highly visible product liability area. Their conclusions are the result of several years' study of thousands of federal and state court decisions in that area. They conclude that judges are not buying novel and expansive new theories of liability. Their explanations run the gamut from more conservative appointees to the federal judiciary (although most product liability cases arise in state courts) to a perceived receptivity of all judges to buy into manufacturers' claims that they were being treated unfairly by the legal system. Whether this recent decline in the use and expansion of positive law in the product liability area is isolated or will spread to other areas of the law remains to be seen. It does show, however, that positive law and its use can contract as well as expand.
Keep in mind, though, that the U.S. has a dual court system with 50 state court systems that are - with some notable exceptions - separate from the federal courts. Thus even if the federal judiciary is becoming more conservative, state supreme courts have the final say on state law, subject only to being told that their laws do not pass federal constitutional muster.
With all of the aforementioned factors in mind, legal expansion in the courts will probably continue but at a slower rate - at least until conservatives appointed by Reagan and Bush are replaced by other appointees. In the legislative domain the public might well question the assumption that more positive law means a more just society. The public is not as gullible in this respect as many think; future voters are likely to ask their representatives what has been the effect of laws they have passed. If the answer is, "The new laws have increased the cost of goods and services with no demonstrable benefits," the voters might well reflect on the value added by more positive law and throw the legislators out of office.
ETHICAL UNITY
Ethical unity, as used here, refers to the idea that although there might be several values or ethics positive law could conceivably adopt regarding a problem or matter, positive law has the greatest strength and chance for longevity if it is ethically embracing. That is, if positive law is in agreement with other legal ethics, it should endure for a long time.
To understand ethical unity it is helpful to note that there are a number of legal ethics other than the positivism developed in this article. One of these ideas is natural "law," which is not law at all but each person's idea of what is right, just, or fair. According to natural law proponents, an unjust positive law is not law at all and a person is under no duty to obey it. One would hope that all positive laws would be universally regarded as fair, but unfortunately such is not always so. The judgment at Nuremburg following World War II established the principle that high-ranking government officials must not obey positive laws of their own country if those laws violate natural law principles. The positive laws that sent Jews, gypsies, and gays to the work camps and took away their property would fall into the category of "illegal laws," according to most persons' view of natural law. An example in which natural law and positive law are "in synch" occurs in the law against murder (although many people disagree on whether capital punishment is a just sanction).
Another example of a legal ethic that on occasion can challenge positive law is long-standing custom (known as the historic school of juris-prudence). During the early part of the twentieth century someone had the bright idea that the manufacture and sale of alcoholic beverages was evil and that the law should prohibit this. As a result, the Eighteenth Amendment to the U.S. Constitution was passed, which established national prohibition. Unfortunately, the long-standing custom of being able to sell and manufacture alcoholic beverages could not tolerate prohibition's constraints. The "noble experiment" ended with the Twenty-first Amendment's repeal of prohibition. Thus a positive law must reflect the spirit of the people.
The ethic of utility should also be inherent in positive law for the law to endure. The English philosopher Jeremy Bentham argued that the law must promote "the greatest good for the greatest number." Strong evidence of this truism lies in the collapse of the Soviet empire in the face of abominable living standards brought about by positive law that attempted to repeal the economic laws of supply and demand with state mandates. Positive laws requiring social resource allocations that ignore the average person's wants and desires for long periods are doomed.
There are examples of other legal ethics that can occasionally topple positive law. When this occurs, positive law has not embraced and appropriately synthesized other ethical considerations. Thus, in a sense, positivism is not an absolute but a calculus of myriad ethical values. Determining the proper mix and proportion of the ethical values embraced by positive law is a dynamic process that those charged with shaping positive law must constantly monitor and to which they must respond.
The convergence of social and political factors has led to the "legalization" of U.S. society in general and business in particular. As such there has bee a proliferation of positive laws - rules promulgated by governmental bodies - that have, to a large extent, displaced conventional notions of "right" and "wrong." No longer do people ask if something is "right"; they ask, "Is it legal?" If the answer is "Yes," the ethical inquiry is over.
Although there are some disturbing aspects of the ascent of positive law to its stature as the ethic of our time, this development has its benefits. First and foremost, positive law establishes a baseline of civility that each of us owes to others. This article has chronicled a disturbing number of instances of greed and selfishness that positive law condemns and is prepared to punish. Positive law provides a much needed frustration of base instincts in a world that today, more than ever, is driven by greed and hypocrisy. Recognizing positive law as the principal ethic could lead society to enforce the rules vigorously and in an even-handed way regarding persons of privilege as well as those from the "wrong side of the tracks." A few recent high-profile cases suggest that this may be so, although it would be premature to suggest that a discernible trend is in progress.
In the meantime, perhaps members of society should give pause when the suggestion is made to "solve" social problems with the passage of additional laws. Who knows, we could end up like that farmer in Idaho who did not have time to read the Federal Register but was bound by its contents.
References
Eric Berg, "3 Brokers Plead Guilty in Commodity Fraud," New York Times (nat'l. ed.), Aug. 9, 1989, p. D2.
Edgar Bodenheimer, Jurisprudence (Cambridge, Mass.: Harvard University Press, 1962).
Auguste Comte, The Positive Philosophy, 2nd ed., transl. and condensed by H. Martineau (London: Trubner, 1875).
Council on Environmental Quality, Environmental Quality 15th Annual Report (1984), p. 614.
Allison Leigh Cowan, "An Exercise in Introspection Lets Goldman Bare Its Soul," New York Times (nat'l. ed.), Jan. 15, 1990, p. CI.
Kurt Eichenwald, "Milken Defends Junk Bonds As He Enters His Guilty Plea," New York Times (nat'l. ed.), April 25, 1990, p. 1.
Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380 (1947).
"Former Beech-Nut Officer Pleads Guilty on Baby Juice," New York Times (nat'l. ed.), Nov. 14, 1989, p. 32.
William Glaberson, "Helmsley Gets 4-Year Term in U.S. Prison for Tax Fraud," New York Times (nat'l. ed.), Dec. 13, 1989, p. 19.
"GM College Donations," New York Times (nat'l. ed.), February 28, 1990, p. C2.
Daniel Goleman, "The Tax Cheats: Selfish to the Bottom Line," New York Times (nat'l. ed.), April 11, 1988, p. 1.
David Hume, Inquiry Concerning Human Understanding (1748).
David Johnston, "No Free Lunch in Washington," International Herald Tribune, May 25, 1989, p. 3.
Kenneth Kammeyer et al, Sociology, 4th ed. (Boston: Allyn and Bacon, 1990).
Stephen Labaton, "Ex-Goldman Trader Enters a Guilty Plea," New York Times (nat'l. ed.), Sept. 6, 1989, p. 30.
Stephen Labaton, "Product Liability's Quiet Revolution," New York Times (nat'l. ed.), Nov. 27, 1989, p. 26.
"Law School Applicants Up," New York Times (nat'l. ed.), March 3, 1989, p. 21.
Michael Metzger et al, Business Law and the Regulatory Environment (Homewood, Ill.: Richard D. Irwin, Inc., 1989).
National Tour Brokers Association v. United States, 591 F.2d 896 (D.C. Cir. 1978).
The Penguin Dictionary of Sociology, 2nd ed. (London: Penguin Books, 1988).
"Publisher Gives $50 million to United Negro College Fund," New York Times (nat'l. ed.), March 5, 1990, p. A11.
"Reagan Testifies He Did Not Order Any Illegal Acts," New York Times (nat'l. ed.), Feb. 23, 1990, p. 1.
State Court Caseload Statistics: Annual Report 1987, Conference of State Court Administrators, State Justice Institute and National Center for State Courts' Court Statistics Project, Williamburg, Va., 1989.
Christopher Stone, Where the Law Ends (New York: Harper and Row, 1975).
"Study Finds Veterans Cheating on Pensions," New York Times (nat'l. ed.), May 18, 1988, p. 11.
"Tempers Are Sizzling Over Burger King's New Ads," Business Week, Feb. 12, 1990, p. 33.
Views of Senator William L. Armstrong, Report of the National Commission on Social Security Reform, Statement 7, p. 6.
Webster's Third New International Dictionary (Springfield, Mass.: G. & C. Merriam Co., 1976).
Michael Wines, "Guilty Plea in Pentagon Fraud Case," New York Times (nat'l. ed.), Sept. 2, 1989, p. 15.
Michael Wines, "Guilty Pleas in Pentagon Fraud," New York Times (nat'l. ed.), Sept. 27, 1989, p. 29.
Yearbook of American & Canadian Churches 1989 (Nashville, Tenn.: Abington Press, 1989).
Bruce D. Fisher is a professor of business law at the University of Tennessee, Knoxville.

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...Business Entities, Laws, and Regulations Trudy E. Hartis BUS/415 November 20, 2011 Mark Rorem Business Entities, Laws, and Regulations A business assumes limitations and liabilities when building the structure of the organization. There are several types of business entities, hiring an accountant or attorney can help you decide what type of business structure best fits the need of the organization or business that you want to establish. Sole proprietorship, is a form of business with the least amount of legal formalities and the owner assumes sole responsibility for finances and operations of the business. “C” Corporation, are separate entity from its owners. Providing shareholders protection from liability and debts. “S” Corporation, similar to a corporation and is exempt from federal income tax. General Partnership, require an agreement between two or more individuals or entities to own and operate a business. Limited Partnership, form of business that offers some of the partner’s limited liability. Limited partners contribute capital and have limited liability but assume not active role in the daily business affairs. Limited Liability Partnership, LLP’s is organized to protect individual partners form personal liability for the negligent acts of others partners or employees not under their direct control. Limited Liability Company, LLC is a combination of the corporate and partnership forms of business (Types of Business Entities,......

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