Chapter One
Law, Value Creation, and Risk
Management
A MANAGER’S DILEMMA: PUTTING IT INTO PRACTICE
Guanxi: Networking or Bribery?
Issue Presented: Should a business leader in China encourage a manager to run for office?
Engage in guanxi lobbying to encourage district leaders to impose stiffer emissions and
mileage requirements for heavy trucks? Hire the son of a prominent local official?
Whenever engaging in international business development, managers are expected to
exercise their responsibilities according to the laws and practices of the countries where they
conduct business. However, a manager should also consider the ethical standards in the home
country, where the firm is headquartered and where the board of directors will review his or
There are several caveats, however. First, the Criminal Law of China prohibits
businesses from paying bribes to government officials. Lu must consider whether Dexter’s local
manager could be considered a government official if elected to the local or national congress. If
so, would his salary amount to a bribe? Is there any ethical difference between bribing an
elected official to advocate on behalf of your corporation, and electing an employee to the
government as a corporate advocate?
Lu should first consult with qualified counsel to ensure that she complies with both U.S.
and Chinese law. She must then carefully weigh common business practice in China against
American expectations of ethical business conduct. Although it is essential that Lu work
cooperatively with Chinese government officials in order to compete with officers at rival
companies, she should not sacrifice her personal integrity or elicit criticism from stakeholders
outside of China. She should review her firm’s code of conduct and take full advantage of any
ombudsperson available. Although some firms apply different ethical standards depending on
the country in which they are doing business, others (such as General Electric) have uniform
global standards they apply to all their operations.
QUESTIONS AND CASE PROBLEMS
Question 1
Issues Presented: What public policies are furthered by this law? To what extent are there
conflicts among the policies served and how will they affect the way the law in this area is
interpreted, applied, and changed?
The laws and regulations applicable to U.S. business in the early twenty-first century
further four primary public objectives: promoting economic growth, protecting workers,
Question 2
Issue Presented: What effect does this body of law or legal tool have on the competitive
environment and the firm’s resources?
Law helps shape the competitive environment and affects each of the five forces that
determine the attractiveness of an industry (buyer power, supplier power, the competitive
Question 3
Issues Presented: Where does this body of law or legal tool fit in the value chain?
Each activity in the value chain has legal aspects. From a firm’s choice of business entity
Question 4
Issue Presented: How can managers responsibly help shape the legal environment in which
they do business?
Managers can responsibly help shape the legal environment in which they do business
by promoting economic growth, protecting workers, promoting consumer welfare, and
Question 5
Issue Presented: How could the managers in this case have avoided the litigation that
ensued?
At its core, legal astuteness is the ability of the manager to communicate with counsel
and to work together to solve complex problems. For example, legally astute managers can (1)
Question 6
Issue Presented: What are the “moral aspects of choice” implicated by the conduct at issue?
The systems approach to business and society recognizes that “business decisions
Question 7
Issue Presented: Does this conduct meet societal expectations? If not, what new laws would
be likely to result if a substantial number of firms acted this way?
Legally astute management teams appreciate the importance of meeting society’s
expectations of appropriate behavior and of treating stakeholders fairly. They accept
Question 8
Issue Presented: Did the manager in this situation exemplify the four components of legal
astuteness? If not, what could the manager have done differently?
The four components of legal astuteness are: (1) a set of value-laden attitudes about the
importance of law to the firm’s success, (2) a proactive approach to regulation, (3) the ability to