Newco Project

Business Regulation and

Corporate Decision Making:

The Legal Strategy of Alumina, Inc.

Our team was tasked with advising Alumina, Inc., the aluminum maker in the simulation that had one Environmental Protection Agency (EPA) compliance violation in five years and is being threatened in a million-dollar personal injury lawsuit. The team is to recommend a strategy in the lawsuit defense and advise whether to settle the dispute or defend the company's position in court as if we were acting as the CEO of the company. We will also discuss the pitfalls of other areas of corporate government regulation in addition to environmental controls.

The team recommends that the key decision-maker in this scenario take a multi-level approach at the onset of this problem. The first thing Alumina, Inc. should do is conduct an independent site study to check current compliance with the applicable EPA regulations. If the study results showed additional violations, the company should voluntarily disclose them to the EPA, and then take action to promptly correct them. By doing this, Alumina would be taking advantage of the EPA Audit Policy's incentive for self-policing (EPA's Audit Policy, 2000). By voluntarily discovering violations, companies can reduce their EPA penalties by 75%. If this type of self-policing were done by Alumina on a systematic basis, they would receive no penalty for the reported and corrected violation. Even though the independent site study is costly, due to the nature of the aluminum business, Alumina's potential for EPA penalties is very high. Systematic independent site studies would ensure no potential penalty liability and the public relations department could capitalize on the concept that Alumina was a highly responsible company that valued the environment of Lake Dira and the health and well-being of the citizens of Erehwon.

If the study results showed compliance with EPA regulations, this fact could be highlighted in public relations releases to reassure the community that Alumina was a responsible, law-abiding company that was devoted to protecting human health and the environment.

Regardless of the outcome of the independent site study, Alumina should release a news story stating the facts. Since accusations have been made public, they should discuss the violation discovered by the EPA five years ago, the prompt action by Alumina to correct this problem, their clean environmental regulation record for the past five years and their determination to continue protecting the citizen's of Erehwon by voluntarily monitoring their environmental discharge to guarantee compliance with EPA regulations. Legal council would need to be consulted to see if a partial disclosure of the environmental audit report that pertained exclusively to the EPA's adjudication of the violation would be available. This news story would help the community to discern rumors from facts and the public relations department could then begin damage control to ensure continued positive community relations.

Due to the strict liability doctrine, if the case were to go to trail Alumina might be found negligent because of the inherently hazardous nature of the aluminum production business. At the same time the news story was going to press, Alumina should contact the mother Kelly Bates to relay their regret for any damage their past violation may have caused to her and her family and their offer for a settlement. If she refused the settlement, they should remind her that Alumina would show in court that her accusations of "continued serious violations" were false and that it would take years to see a court settlement. Then she should be offered the compromise of an alternative dispute resolution through third party mediation, which would allow for quick and easy resolution of the issue.

According to Sullivan and Agardy (2001), the majority of environmental cases settles and never goes to court. If we were advising the CEO of Alumina, Inc., we would recommend accepting a mediated settlement than to pursue the matter in court. If the case of the Alumina scenario, it seems that the company had a strong case that could be easily defended in court. If the decision were based on principle alone, we would defend the company's position in court, but would have an obligation to pursue the more practical alternative dispute resolution. The decision for either party to settle a case, but particularly for the defendant, is one based on a cost-benefit analysis.

Alternative dispute resolution (ADR) has become a very practical alternative to litigation. Using ADR, disputes are often resolved more quickly, with both parties directly involved in the settlement process. More creative solutions can be reached than through litigation. The ADR process is private and confidential, which is a great advantage for companies whose reputations may be harmed by simple lawsuits being prompted by the settlement. Perhaps the greatest advantage of ADR is the cost savings. Litigation is a lengthy and therefore expensive process, involving countless hours of legal fees. Even if a company should successfully defend a case against them, they are likely to spend a great deal of money to do it. ADR provides substantial advantages to litigation (Newhall, 2004).

Another strong reason I would consider ADR instead of litigation is the success rate of ADR. Mediations administered by the American Arbitration Association (AAA) result in an 85% settlement (Newhall, 2004). This settlement takes place during mediation administered by the AAA, often as a stipulation of a contract. In the 15% of cases that are not settled during mediation, the case moves into the arbitration stage. "Arbitration is the submission of a dispute to one or more impartial persons for final and binding determination" (Newhall). Depending on the state law, courts may intervene or facilitate in the arbitration process. Given this information, as CEO of Alumina, I would conclude that the odds of a positive conclusion to the dispute involving Ms. Bates would be much better accepting a mediated settlement.

In recent years, there have been many changes taking place in corporate regulation, particularly since the advent of the Sarbanes-Oxley Act of 2002 which was formed to ensure a higher level of financial corporate compliance from publicly held companies. Although federal regulations have been developed covering various issues including corporate finance, labor standards and human rights, environmental codes have a longer history and have tended to be less conflicted than those dealing with labor or human rights issues. Each of the fifteen cabinet posts from the Department of Labor to the Department of the Treasury