Problem Solution: Bcc Ltd

Week 3 Problem Solution: BCC LTD

University of Phoenix

MBA 560 - Enterprise Risk

Aug 29, 2006

Abstract

Using situations from three University of Phoenix simulations, a fictitious company BCC endeavors to identify common ground in minimizing legal risk for its many unrelated subsidiary companies. Simulations deal with environmental regulation and toxic torts, contractual obligations and mutual understanding of obligations and contractual terms, employment law and termination decisions. BCC explores alternative solutions and implements a holistic approach to minimizing legal risk.

Week 3 Problem Solution: BCC LTD

Problem Statement

In today's litigious business environment, it is imperative that upper management and boards of directors make ethical decisions geared toward mitigating legal risk. Decisions in the running of a business enterprise, should meet three tests. The decision should be profitable or make business sense, it should be legal and it should be ethical. For-profit enterprises are un business to earn profits; as such, decisions in the day-to-day running of the business should have a primary focus of ensuring the continued profitability of the organization. A decision to implement a new CRM (Customer Relationship Management) should be based on the net present value, and not whether it will cause a friend to be laid off or hired as a consultant. Business decisions must also be legal. Business leaders should have enough understanding of the law to make decisions that are legal or they should hire competent counsel. Legal business decisions become more challenging when dealing with regulatory and administrative law, therefore it is imperative to understand the law as it impacts the business. The third test is that the decision be ethical. In the wake of Watergate, many business schools such as the University of Texas required all students to take a class in ethics. In the wake of Enron and other high profile recent scandals, our business leaders are under additional pressure to make ethical decisions.

Situational Background

In Scenario One, BCC LTD owns three unrelated business entities experiencing legal problems. These problems are detailed in simulations one through three. All three problems must be resolved and symptomatic larger issues must be surfaced and resolved.

In Simulation One: Business Regulation - Negligence, dealing with environmental regulation Alumina Inc. is surprised by a lawsuit claiming damages from environmental pollution. Alumina hired an independent party to test the waters of the lake and determined that the cause of the pollution was the increased harbor traffic. By knowing Alumina's rights to protect confidential business information under the Freedom Of Information Act, Alumina was able to avoid additional problems when a partial release of the EPA report from prior years was released. "The third concept that founds the marketplace in the modern nation is property,

which establishes private exclusive rights in resources. It is through the law of

property that individuals and business organizations can possess, use, and transfer

their private resources "(Reed, p 21. 2005).

In Simulation Two: Contract Creation and Management-Contractual Conflict, Span Systems was surprised when Citizen-Schwarz their client wanted to pull the plug on their project because they felt Span Systems was in violation of the contract. Span Systems was able to salvage the situation by helping Citizen-Schwarz and themselves arrive at a mutual understanding of the terms of the contract. "Levels of Performance A party to a contract may not always perfectly perform duties under it. The more complex a contract is, the more difficult it is for a party to complete every aspect of performance. Courts generally recognize three levels

of specific performance"(Reed, p 243, 2005). Their understanding of how progress would be measured and their ability to manage the ever-increasing scope of the project was not the same for both b parties. By not losing sight of the fact that keeping the business relationship moving forward was more important than being right, Span was able to implement a strategy that met with the client's expectations and not only kept the business but gained an advantage in future business.

In Simulation Three: Legal Issues of Workforce reduction, FastServe was required to layoff three of five employees. The employment decision was based on job performance, the business need or lack of need for specific skill sets, and mindful of legal requirements. Brian, Sarah and Jenny were let go without conflicting with EEOC or discriminatory practices. "Under contract theory, several courts have stated that at-will employment contracts (which are not written and are little more than an agreement to pay for work performed) contain an implied

promise of good faith and fair dealing by the employer. This promise, implied by law, can be broken in certain cases by unjustified dismissal of employees" (Reed, p417, 2005).

In these simulations, the problems were rather simple to solve; however they were indicative of underlying issues and opportunities.

Issue Identification

The common issues to these simulations is the need to be aware of the most likely legal risks in each area of the business, understanding the companies rights, staying focused on the business, and having procedures and policies in place the ensure compliance. Alumina had previously resolved problems with the EPA and pollution; however while they may have monitored their own processes to ensure that illegal pollutants were not being released; they were surprised to learn that the lake was polluted. Span Systems did not have a mutual understanding of the terms of the contract. FastServe had to reduce headcount and avoid harming the rights of the employees affected.

Opportunity Identification

To minimize legal risk, BCC has an opportunity to apply lessons learned from the three simulations to other entities. By having, a better understanding of the potential legal risks associated with the various businesses and an understanding of their rights the companies could have created contingency plans for