BUSINESS ETHICS AND LAW

2006

COURSE OVERVIEW

• Legal forms of business

• Regulation (laws)–Contracting–Employment–Property–International trade–Product liability–Insurance–Industry-specific laws

• Ethics and morality

LEGAL FORMS OF BUSINESSES

• Sole Proprietorship (Enterprise)

• Partnership

• Corporation

• Joint Venture

SOLE PROPRIETORSHIP

A sole proprietorship or enterprise is an unincorporated business owned by one individual or family and advisably licensed by the municipality in which it operates

Advantages of sole proprietorship:

•Easy and inexpensive to form

•Subject to few governmental regulations

•Business is taxed like an individual, not separately like a corporation

LIMITATIONS OF SOLE PROPRIETORSHIP

Limitations of sole proprietorship:

•Proprietor has unlimited personal liability for business debts (can result in losses that exceed amount invested)

•Difficult for the proprietorship to obtain or raise large sums of capital

•Transferability (marketability) of ownership is somewhat difficult

•Life of the business is often limited to the life of the owner

PARTNERSHIP

Partnership is an unincorporated business owned by two or more distinct persons or entities (owners)

A Limited Partnership consists of general partners (liable for the firm’s debts and obligations) and limited partner(s) (who, at the time of entry, contribute a sum as capital or property which is valued at a stated amount)

A partnership is not a legal entity distinct from the persons who compose it

PARTNERSHIP (CONTINUED)

Advantages of partnership:•Formation is relatively easy and inexpensive

•A partnership is subject to a few government regulations

•The business income is allocated to and taxed to the individual owners, not like a corporation

Disadvantages of partnership:•Unlimited liability

•Limited life of the organisation

•Difficult to transfer or market ownership interest due to lack of independent fair market value

•Difficulty in raising large amounts of capital

DISSOLUTION OF A PARTNERSHIP

A partnership may be dissolved by:

•Completion of the purpose for which established

•Expiration of the period for which it is to last

•Notice of dissolution

•Illegality

•Order of court of law or an arbitrator

•Death or bankruptcy of a partner

•Force of a clause giving right to claim dissolution on the occurrence of a specified event

• Frustration of the object

CORPORATION

A legal entity created by a state, separate and distinct from its owners and managers, having unlimited life, easy transferability of ownership and limited liability (also known as a “body corporate” or “incorporated company”)

Features of a corporation:•May be established by Act of Parliament•May be formed/regulated by Companies Code 1963 (Act 179)•Considered an artificial legal person•May own property, enter into contracts, inflict or suffer wrong, sue and be sued

•The rights and liabilities of a corporation belong to it alone and cannot be enforced by or against its directors, agents or members personally

FEATURES OF A CORPORATION (CONTINUED)

•Has a common seal

•Has (potentially) perpetual succession, i.e. the corporation is not affected by a member’s death, bankruptcy, resignation or becoming of unsound mind

•Is managed by directors by passing resolutions at directors meetings

•The powers of directors are collective

•Members, as members, do not manage corporations

ADVANTAGES OF A CORPORATION

•Unlimited life (potentially in perpetuity)

•Easy transferability of ownership interest

•Limited liability for owners which reduces the risk born by the owners

•Ease of raising larger amounts of capital in the general capital markets for growth opportunities

•Corporations are taxed differently and some of the differences are beneficial to them

DISADVANTAGES OF A CORPORATION

•Corporate earnings are potentially subject to double or multiple taxation

•Setting up a corporation and filing required reports is more complex and time-consuming than for sole proprietorship and partnership

•Potential agency problem arises from conflict of interest between the principals (outside shareholders) and the agents (managers) or between shareholders and creditors (debt holders)

•Corporations must file quarterly and annual financial accounting and tax reports

TYPES OF CORPORATIONS

There are six types of corporations that are formed or regulated by the Code:

•Private company limited by shares

•Private company limited by guarantee

•Unlimited private company

•Public company limited by shares

•Public company limited by guarantee

•Unlimited public company

Private company limited by shares:•Liability of its members is limited to the amount, if any, that is unpaid on the shares respectively held by them (s. 9 (1) (a))

Private company limited by guarantee:•Liability of its members is limited to such amount as the members may respectively undertake to contribute to the assets of the company in the event of it being wound up (s. 9 (1) (b)

Unlimited private company:•Does not have a limit on the liability of its members (s. 9 (1) (c ))

Public company:•Any company other than a private company (9 (4))

TYPES OF CORPORATIONS (CONTINUED)

SETTING UP A CORPORATION

Although sole proprietorships and partnerships can commence operations without much paperwork, setting up a corporation may require that the incorporators hire a lawyer to prepare a corporate charter and a set of bylaws

A corporate Charter includes the following information:•Name of the proposed corporation

•Types of activities it will pursue

•Amount of authorised capital stock to issue

•Number of directors

•Names and addresses of directors

•Name and address of auditors

CORPORATE BYLAWS

The Bylaws are a set of rules drawn up by the founders of the corporation to aid in governing the internal management of the company, including:

•How directors are to be elected

•Whether the existing shareholders will have the first right to buy any new shares the firm may issue in the future

•Procedures for changing the bylaws themselves should conditions require it

CORPORATE GOVERNANCE

Corporate governance refers to a set of behavioural patterns and a normative framework

Why corporate governance?

•Mobilisation of capital by corporations•Efficient allocation of capital•Monitoring of the use of capital

CORPORATE GOVERNANCE

Good Corporate Governance is required by the Companies Code 1963, Act 179; a Corporation’s Charter and Bylaws; and international principles Good Corporate Governance involves the following elements at a minimum:

• Participation

• Integrity

• Accountability and Transparency

• Responsibility

• Efficiency And Effectiveness

• Ethics And Morality

DISCLOSURE AND TRANSPARENCY

A strong financial and non-financial disclosure regime is the heart of good corporate governance:

•Financial and operating results

•Company objectives

•Ownership and control structure

•Board and executive information/compensation

•Foreseeable risk factors

•Stakeholder information

•Governance information

•Independent audit and high-quality dissemination channels

SHAREHOLDERS

Protection of shareholders’ rights and the capability of shareholders to influence behaviour of the corporation are pillars of good corporate governance

•Secure ownership and registration

•Participation in basic decisions (pre-emption and appraisal)

•General shareholder meetings: accountability procedures, in- absentia voting, proxy rules

•Disclosure of capital and control structures

•Fair and transparent transfers of control: transparency and fair treatment of all

•Institutional voting: pointing to the trend  

SHAREHOLDERS (CONTINUED)

Most stakeholders’ rights are protected by laws (labour law, environmental law, etc.)

•In some countries, the Board is also accountable to all stakeholders, particularly the employees (but not only)

•Formal stakeholder participation

•Transparency, including to stakeholders

•Incentives for stakeholder participation as a value enhancing mechanism driven by the corporations themselves: i.e. encouraging firm-specific investment

EQUITABLE TREATMENT OF SHAREHOLDERS

All shareholders - including foreign shareholders - should be treated fairly and equitably by controlling shareholders, boards, and management

•Insider trading prohibition for market integrity

•Self-dealing and the disclosure of potential conflicting interests

•Effective redress: the possibility to seek remedies in courts for all shareholders - a key implementation aspect

•Ex ante transparency with respect to distribution of voting rights and ways voting rights are exercised

•Beneficial ownership and the role of custodians

THE BOARD

The Board is the main mechanism for monitoring management and developing strategyKey characteristic of the Board: Independence from managementKey purpose of the Board: Non-executive participation on specific tasks: audit, remuneration, nomination

Roles of the Board:•Act and deal fairly with respect to various groups of stakeholders

•Assure compliance with laws•Review strategy and planning•Manage potential conflicts of interest•Assure integrity of accounting, reporting and communications

GOVERNANCE AND SOCIAL RESPONSIBILITY

Business entities are required to be good corporate citizens, which means going beyond mere profit goals.

Social responsibility is interpreted to include:

•Profitability•Offering employment opportunities•Choices in location•Paying taxes•Caring for the environment •Helping the community with needed social facilities•Offering scholarships and educational funding and other assistance related to development

COURSE OVERVIEW

• Legal forms of business

• Regulation (laws)–Contracting–Employment–Property–International trade–Product liability–Insurance–Industry-specific laws

• Ethics and morality

REGULATION

Basic objectives of regulation:

Safety: of assets of entity to meet obligations

Stability: of the economy from the changes in the industry

Structure: protection of citizens from arbitrary power of the environment and businesses

Public confidence: in the ability of leadership

Convenience: geographic, cost, quality, in use, features

CONTRACTING

A Contract is a legally binding agreement. It is a promise or set of promises which the law will enforce according to its terms.

Contracts, when entered into freely and voluntarily shall be held sacred and shall be enforced by the courts of justice or through Alternate Dispute Resolution methods specified therein.

The reality of the enforcement of legally binding contracts in Ghana…

TYPES OF CONTRACTS

•Contracts under seal (deed or specialty contracts)

•Simple contracts including oral contracts and contracts which require no or only some writing

•Express and Implied contracts (arising from the assumed intentions of the parts)

•Contracts of record arising from obligations implied by a court of record

•Bilateral or unilateral contracts

•Formal and Informal

•Divisible and Indivisible

•Open or closed contract

•Valid, Void or Voidable contracts

ESSENTIAL ELEMENTS OF CONTRACTS

To be valid in law, a contract must have the following essential elements:

•Offer and unqualified or unequivocal acceptance/agreement

•Consensus ad idem

•Consideration

•Intention to create legal relations

•Genuineness of consent – no force

•Contractual capacity of the parties

•Legality of object of the contract

•Possibility of performance

•Certainty of terms – mistakes

•Valuable consideration or sacrifice

DISCHARGE OF CONTRACT

Discharge of Contract means in general that the parties are freed from their mutual obligations through either:

•By performance

•By express agreement

•Under the doctrine of frustration

•By breach

COURSE OVERVIEW

• Legal forms of business

• Regulation (laws)–Contracting–Employment–Property–International trade–Product liability–Insurance–Industry-specific laws

• Ethics and morality

EMPLOYMENT LAW

In Ghana, employment is regulated by the Labour Act, 2003 (Act 651)

The Labour Act:

Amends and consolidates the laws relating to labour, employers, trade unions and industrial relations, to establish a National Labour Commission, and provides for matters related thereto

The act applies to all workers and all employees except the Armed Forces, the Police Service, the Prison Service, and the Security and Intelligence Agencies

RIGHTS OF EMPLOYERS

Rights:•Discipline, transfer, promote and terminate the employment of the worker

•Execute plans and programmes to set targets

•Determine the types and prices of products to make/sell

•Modify, extend or cease operations

•Formulate policies

DUTIES OF EMPLOYERS

Duties:•Provide work and appropriate raw materials, machinery, equipment, and tools

•Pay agreed remuneration at contractually agreed time and place without any deductions except those permitted by law or and those previously agreed upon

•Take all practicable steps to ensure that worker is free from risk of personal injury or damage in the course of the worker’s employment or while lawfully on the employer’s premises

•Develop the human resources through training and retraining•Develop and implement a disciplinary procedure•Furnish the worker with a copy of his/her contract of employment

•Keep open channels of communication with workers •Protect the interests of the workers

OCCUPATIONAL HEALTH AND SAFETY

Government has legislated (Act 329, Act ) on factory conditions, health, safety, and welfare to protect the Ghanaian workers.

It covers such areas as:•Registration of factories, offices, and shops•Health, safety, and welfare of employees therein •Notification of accidents, dangerous occurrences, and industrial diseases

•Dangerous conditions and practices•Child labour

RIGHTS OF WORKERS

•Work under satisfactory, safe and healthy conditions

•Receive equal pay for equal work without discrimination

•Have rest, leisure and reasonable limitation of working hours

•Have a period of leave and public holidays with pay

•Form or join a union

•Receive training to continue developing skills •Receive information relevant to the work

DUTIES OF THE WORKER

•Work conscientiously in the lawfully chosen occupation

•Report for work regularly and punctually

•Enhance productivity

•Exercise due care in the execution of assigned work

•Obey lawful instructions regarding the organisation and execution of the work

•Take all reasonable care for the safety and health of fellow workers

•Protect the interest of the employer

•Take proper care of the property of the employer entrusted to the worker or under the immediate control of the worker

FAIR TERMINATION

Termination of a worker’s employment is fair if the contract of employment is terminated by the employer on any of the following grounds:

•The worker is incompetent or lacks the qualification in relation to the work for which the worker is employed

•Proven misconduct of the worker

•Redundancy under section 65 of Act 651

•Due to legal restrictions on the worker prohibiting the worker from performing the work for which he or she is employed

(section 63 deals with ‘Unfair Termination of Employment’) The reality of the difficulties in firing an employee

COURSE OVERVIEW

• Legal forms of business

• Regulation (laws)–Contracting–Employment–Property–International trade–Product liability–Insurance–Industry-specific laws

• Ethics and morality

REAL (IMMOVABLE) PROPERTY LAW

Land law in Ghana is derived from:•Ghanaian custom and tradition•Assimilated law from English common law and equity

The highest title in land in Ghana is the Allodial TitleAllodial title holder is not the absolute owner of his land without concurrence of the Lands Commission

“No interest in or right over any stool land in Ghana shall be created which vests in any person or body of persons a freehold interest, however described” (Art. 276(5))

IMMOVABLE PROPERTY LAW

Not even members of a stool or members of a family can acquire a freehold interest in any land in Ghana in which the stool or family holds the allodial title.

The state has the power of compulsory acquisition of land which when exercised extinguishes all title and interest of the owner of the land so acquired.

The public utility services (EC, GWC, GHA) all have powers to enter any land for the purpose of performing their functions.There is a constitutional restriction on interests which land owners can lawfully grant to Ghanaians and non-Ghanaians (Article 266)

What does this mean for your business?

INTEREST IN LAND

In Ghana, with regard to tenure (basis of holding land), not all land is vested in the Presidency or state as the allodial title holder. Traditionally, allodial title in land in Ghana is held by various stools, skins,families or clans. The state holds land by acquisition from the traditional allodial title holders.

The interests which can exist in land in Ghana follows •The allodial title •The freehold title or interest which may be either:–Customary freehold –Common law freehold–Leasehold for 50 or 99 years–Customary tenancies: a lesser interest created by virtue of any right under contractual or share-cropping or other customary tenancy arrangements

INTEREST IN LAND (CONTINUED)

No interest in, or right over, any land in Ghana shall be created which vests in a person who is not a citizen of Ghana a freehold interest in any land in Ghana

Certain English common law rights in land recognised by the law in Ghana include:

•Easements•Profits a prendue•Restrictive covenants• reversions•Common law licenses

INTELLECTUAL PROPERTY LAW

The law protecting and guaranteeing to the originators a group of rights e.g. patents, registered designs, copyright, trade marks, know-how, etc. nationally or internationally for specified periods of time

What does this mean for business owners?

How can business owners protect their own IP and ensure that they do not infringe upon the rights of others?

COURSE OVERVIEW

• Legal forms of business

• Regulation (laws)–Contracting–Employment–Property–International trade–Product liability–Insurance–Industry-specific laws

• Ethics and morality

INTERNATIONAL TRADE LAW

Regional trading groupings and concern of the world for free and liberalised trading has resulted in many international trade laws. These are designed to protect the seller, buyer, and the importing country’s infant industry – especially in developing nations.

Challenges of international trade include:•Differences in language•Cultural•Social customs•Laws•Regulation•Product standards•Currencies•Reliable market data

INTERNATIONAL TRADE LAW

Issues including…• Compliance legislation• Dumping• Unfair trade practices• Lower prices• Transfer pricing• Competitive advantage• Tariffs• Import quotas• Unfair competition• Foreign exchange controls• Repatriation of income

…are of concern and are the subject matter of international bilateral and multi-lateral agreements and legislation.

INTERNATIONAL TRADE LAW

Some relevant international trade laws and organisations include:•GATT and WTO•European Union•ECOWAS•NAFTA•Asian-Pacific Trade

International Trade Laws and regulations aim to:•Provide rules of non-discrimination in trade•Negotiate trade concessions•Reduce or eliminate import quotas, quantitative restrictions, embargoes, and unreasonable tariffs

•Stimulate world economic growth•Prevent dumping and removes ignorance and risk•Regulate market conditions for the trade•Strengthen economic relations•Clarify conditions for export and import

COURSE OVERVIEW

• Legal forms of business

• Regulation (laws)–Contracting–Employment–Property–International trade–Product liability–Insurance–Industry-specific laws

• Ethics and morality

PRODUCT LIABILITY LAW

Generally, the liability of persons (manufacturers, sellers, or others) for damages or injuries caused by defective products as a result of various warranties

Where damage is caused wholly or partially by a defect in a product, the following are liable:•The manufacturer or producer•Any person who, by using a distinguishing mark or his own name on the product, has held himself out to be the producer

•Any person who, in the course of business, has imported the product into the nation from outside

Damage means death or personal injury or any loss or damage to property

WARRANTIES OF TITLE

Of Good Title: that the sellers have good title to the goods they are selling

Of No security interest: that the goods are free from any third-party security interests, liens, or encumbrances not known to the buyer

Against infringements: that sellers and lessors who are merchants warrant that the goods are delivered free of any third-party patent, trademark, or copyright claim

Against Interference: That no person holds a claim or interest in the goods that arose from an act or omission of a lessor that will interfere with a lessee’s quiet enjoyment of the leased interest

WARRANTIES OF QUALITY

‘Implied Warranty of Merchantability’

Implied by law in sale and lease transactions that requires that the goods:

•Be fit for the ordinary purposes for which used•Be adequately contained, packaged, and labeled•Be of an even kind, quality, and quantity within each unit•Conform to any promise or affirmation of facts made on the container or label

•Pass without objection in the trade•Meet a fair or middle range of quality if the goods are fungible

WARRANTIES OF QUALITY

‘Implied warrant of fitness for human consumption’

That food products are fit for human consumption based on two tests:

•Foreign substance test: food is unmerchantable if a foreign object in the food caused the plaintiff’s injury

•Consumer expectation test: food is unmerchantable if an object in the food that a consumer would not expect to be there caused the plaintiff’s injury

WARRANTIES OF QUALITY

Other Warranties include:

•Implied warranty of fitness for a particular purpose – buyer’s or lessee’s expressed needs

•Implied warranty arising from a course of dealing: Arising from prior dealings between the parties to a sale or lease contract

•Implied warranty arising from usage of trade: Arising from custom of the industry or market normally served

OVERLAPPING AND INCONSISTENT WARRANTIES

Priority of Inconsistent Warranties:

•Implied warranty of fitness for a particular purpose•Express warranty•Implied warranty arising from a course of dealing•Implied warranty of custom or usage in trade •Implied warranty of merchantability

WARRANTY DISCLAIMERS

Express warranties: •Can be limited in the warranty and disclaimer can be reasonably construed with each other

Implied warranties:•Disclaimer: can be disclaimed by expressions like “as is”, “with all faults”,or such language, or implied warranties are disclaimed as follows:–Implied warranty of merchantability: oral or written disclaimer that mentions the word merchantability

–Implied warranty of fitness for a particular purpose: written disclaimer of general language

•Examination of goods: for obvious defects, that the buyer or lessor fully examined or refused the request to examine the product

Conspicuousness of written disclaimers required

TORT LIABILITY BASED ON FAULT

Negligence: seller or lessor that breached its duty of due care by producing or leasing a defective product that causes injury to the plaintiff is liable

Misrepresentation: seller or lessor fraudulently misrepresents the quality of a product and the plaintiff relies on the misrepresentation and is injured thereby is liable

DOCTRINE OF STRICT LIABILITY

A manufacturer or seller who sells a defective product is liable to the ultimate user who is injured thereby.

All in the chain of distribution (manufacturer, distributor, wholesaler, and retailer) are liable irrespective of fault.

This is also called vertical liability.

THE CONCEPT OF DEFECT

•Defect in manufacture•Defect in design•Defect in packaging•Failure to warn•Failure to provide adequate instructions for assembly of a product

•Other defects

DEFENSES TO PRODUCT LIABILITY

A manufacturer or seller or lessor of a product is not liable for damages caused by a product it manufactures, sells, or leases if one of the following defenses applies:

Supervening/intervening events: material alteration or modification of product after production

Assumption of risk: plaintiff knew, appreciated, and voluntarily assumed the risk

Generally known dangers: Inherent dangers in products generally known to the general population

DEFENSES TO PRODUCT LIABILITY SUITS

Correction of defect: manufacturer or seller of the product, on learning of the defect, informs purchasers and users of the defect and corrects the defect

Government contract defense: when products are produced according to government specifications and known defects are brought to the attention of the government

Misuse of the product: •Abnormal/Unforeseeable misuse - seller not liable •Foreseeable misuse - seller liable for injuries form this

COURSE OVERVIEW

• Legal forms of business

• Regulation (laws)–Contracting–Employment–Property–International trade–Product liability–Insurance–Industry-specific laws

• Ethics and morality

INSURANCE

“Insurance is a financial arrangement that pools and redistributes the costs of unexpected losses”

“Insurance involves the transfer of loss exposures to an insurance pool, and redistribution of losses among members of the pool” 

“Insurance is a contractual (legal) arrangement whereby one party agrees to compensate another party for losses in consideration of premiums” 

“Insurance involves the pooling of fortuitous losses by transfer of such risks to insurers who agree to indemnify insureds for such losses, to provide other pecuniary benefits on their occurrence, or to render services connected with the risk."

“Pooling is the spreading of losses incurred by the few over the entire group, so that in the process, average loss is substituted for actual loss”

INSURABLE INTEREST

Insurance deals with fortuitous loss or a loss that is unforeseen and unexpected but which occurs as a result of random chance or accident.

To be enforceable, all insurance contracts must be supported by an insurable interest to prevent insureds from collecting or profiting even though a loss had not occurred.

Insurable interest principle states that the insured must lose financially if a loss occurs, or must incur some other kind of harm if the loss takes place.

INSURABLE INTEREST

Insurable interest principle states that the insured must lose financially if a loss occurs, or must incur some other kind of harm if the loss takes place.

To be enforceable, all insurance contracts must be supported by an insurable interest to prevent insureds from collecting or profiting even though a loss had not occurred.

Insurable interest requirements ensure:•Prevention of gambling•Reduction of moral hazard•Measuring the loss

INSURABLE INTEREST

In property insurance, the insurable interest must exist at the time of the loss since it is an indemnity contract.

In life insurance, the insurable interest requirement must be met only at the inception of the policy, not at the time of death, since it is a valued policy and not an indemnity contract.

THE LAW OF LARGE NUMBERS

Insurance business is based on the law of large numbers.

It is a mathematical principle, which states that a risk that is not predictable for one person can be forecast accurately for a sufficiently large group of people with similar characteristics.

The law means that the greater the number of exposures, the more closely will the actual results approach the probable results that are expected from an infinite number of exposures.

KINDS OF INSURANCE

•Private insurance•Life and health insurance•Property and liability (casualty) insurance•Government insurance•Social insurance•Other government insurance

PRIVATE INSURANCE

Private insurance can include:

•Life insurance •Health insurance•Whole life•Universal life•Term life•Annuities•Disabilities

CASUALTY INSURANCE

•Automobile •Houses/buildings •Crime (vandalism, burglary and theft)•Liability •Workmen’s compensation•Other personal property •Accident and health •General liability •Glass •Crop – hail •Multiple – line

GOVERNEMENT INSURANCE

Deal with areas private insurers fail to cover such as:

•Social insurance financed with employer/employee contributions –Old-age–Survivor–Disability–Health (social security)

•Unemployment Insurance •Workers' Compensation •Compulsory Temporary Disability Insurance •Railroad Retirement Act •Railroad Unemployment Insurance Act

OTHER GOVERNMENT INSURANCE

•Governmental Employees Retirement System •Civil Service Retirement System •Veterans Life Insurance Programme •Pension Termination Insurance •Insurance on checking/current and savings accounts at commercial banks

•Insurance on deposits in credit unions •Government Flood, Crop, and Crime Insurance •Others

SOCIAL AND ECONOMIC BENEFITS OF INSURANCE

The major social and economic benefits of insurance include:

•Indemnification for loss•Less worry, fear of loss, uncertainty•Source of investment funds•Forced saving•Loss prevention, diversification, mitigation, or management service

•Enhancement of credit•Tax deductibility of premiums

SOCIAL COSTS OF INSURANCE

Costs of insurance (major social costs) to society include:

•Major cost of doing business (expense loading)•Fraudulent claims•Inflated claims•Time and effort spent in negotiation•Insured has less incentive to control loss

RISK MANAGEMENT OBJECTIVES

Pre-loss risk management objectives include:

•Preparing for losses in the most economical way•Reducing anxiety of loss and loss exposure•Meeting any externally imposed obligations

Post-loss risk management objectives include:

•Ensuring survival of the entity•Continued operations after loss•Stability of earnings after loss•Continued growth•Social responsibility

RISK RETENTION

Retention may be an appropriate technique if:

•No other method is available (non-transferable exposures)

•The worst possible loss is not catastrophic

•Frequency of occurrence is highly predictable and can be budgeted out as an expense

FUNDING RETAINED LOSS

Methods for paying for retained loss exposure include:

•Expensing out of current net earnings

•Funded or unfunded reserves

•Borrowing from lines of credit

•Establishing captive insurer for the parent

ADVANTAGES OF RISK RETENTION

Risk retention may confer advantages such as:

•Reduced premium or operating costs

•Easier access to insurer

•International advantage of reinsuring

•Creating profit centre captive insurer

•Encouraging loss prevention

•Increased net cash flow

MANAGING INSURANCE

Insurance must be managed through:•Proper shopping around for insurer•Selection of appropriate coverage (essential, desirable, availability)

•Prudent negotiation of terms (deductibles, waiting, exclusions)

•Widely disseminating information about the insurance•Periodic critical review of all insurance programmes

APPROPRIATE INSURER

Selection of the appropriate insurer is important and is driven by insurer's:

•Financial strength

•Risk management services provided

•Cost of protection

•Reputation in the industry

•Product and extent of cover available

APPROPRIATE INSURER

Insurer's financial strength is determined by:

•Adequacy of policy-owner's surplus•Underwriting and investment results•Adequacy of reserves for outstanding liabilities•Quality of management •Types of insurance written•Reinsurance

RISK MANAGEMENT SERVICES BY INSURERS

Risk management services provided by insurer's include:

•Assistance in identifying loss exposure

•Loss control

•Claim adjustment

•New service updates

COURSE OVERVIEW

• Legal forms of business

• Regulation (laws)–Contracting–Employment–Property–International trade–Product liability–Insurance–Industry-specific laws

• Ethics and morality

INDUSTRY-SPECIFIC LAWS

Certain industries are so unique that various nations legislate specifically for them. These legislations are either to protect or to regulate their activities.Industry specific legislation in Ghana includes:

•Banking•Insurance•Agriculture•Timber•Mining•Education•Water

•Environment•Foreign currency •Arms•Utilities •Food•Transportation Aviation•ICT, PSI, etc.

INDUSTRY SPECIFIC LAWS

It is important that every business operator is conversant with the general and specific laws relating to its operations.

Compliance with the provisions of the applicable laws will ensure timely and complete compliance.

Industries advocate for laws of relevance to them.

COURSE OVERVIEW

• Legal forms of business

• Regulation (laws)–Contracting–Employment–Property–International trade–Product liability–Insurance–Industry-specific laws

• Ethics and morality

LEGALITY AND ETHICS

One question continually confronts business executives as they privately ponder alternatives:

“What happens when our decisions and actions become public?”

This question can be particularly difficult to answer, since the legal and ethical status of a decision may change over time.

Decision makers need to a assess the following question: “How can I classify decisions and actions with ethical implications?”

CLASSIFYING DECISIONS

Manifestation

Codification

Corporate Decision

Illegal Legal

Ethical

Unethical

Quadrant I:

Ethical & Legal

Quadrant II:

Ethical & Illegal

Quadrant IV:

Unethical & IllegalQuadrant III:

Unethical & Legal

ETHICS

Static Definitions:

“A set of principles prescribing a behavior code that explains what is good and right or bad and wrong; it may even outline moral duty and obligations generally”  

“Moral principles that control, direct, or influence a person’s behaviour”

“A system of moral principles or rules of behaviour”

ETHICS

A Dynamic Definition:

“In essence, ethics is concerned with clarifying what constitutes human welfare and the kind of conduct necessary to promote it.”

According to this definition of ethics, ethical issues emerge when our perception of what constitutes human welfare receives or requires clarification.

More specifically, ethical issues arise when laws or legal precedents are either unclear or at variance with shifting cultural values or are circumvented.

MORALITY

•Concerned with principles of right and wrong behaviour

•Based on your own sense of what is right and fair, not on legal right or duties

•Following the standards of behaviour considered acceptable and right by most people in the society

•Ability to understand the difference between right and wrong

•Standards or principles of good or wrong behaviour especially in sexual or business relationships

BUSINESS, ETHICS, AND MORALITY

Life would be unbearable if people were not truthful and if there were no trust

Business activity is human activity and must be evaluated from moral points of view

Actions of people in business are subject to moral rules and principles

Business is a social enterprise whose mandate and limits are set by society. The limits are often moral but are often frequently written into law. Most laws are morally defensible but the retreat to law as the sole norm to guide business is in part a reflection of the fact that most managers do not know how to handle many moral issues in business.

BUSINESS, ETHICS, AND MORALITY

Managers often equate morality with personal opinion which means they understandably find it difficult to defend their moral judgments in objective terms.

Business ethics is not a separate set of ethics that constrains business in a way that other human and social endeavours are not constrained.

BUSINESS, ETHICS, AND MORALITY

Can we justify the wealth and opulence of a few together with the abstract poverty of large number of others?

Private property is a cornerstone of capitalism and free-enterprise and socially or communally owned property is the cornerstone of socialist economic systems

SOUND MORAL JUDGMENT

The development of sound moral judgment in business situations depends on six kinds of capabilities, skills, or goals:

1. Stimulating the moral imagination beyond legal and economic factors to totally determine rational business decisions

2. Identification, ordering, and priority setting about moral factors in situations requires deliberate cultivation for repeated practice and reflection to identify ethical issues quickly for rational rather than emotional analysis

SOUND MORAL JUDGMENT (CONTINUED)

3. Integrating managerial competence and moral competence to recognize and appropriately analyse moral dilemmas - and then using this experience for negotiating resolutions of moral conflicts and transforming moral decisions into institutional practices

4. Eliciting a sense of moral responsibility from those in whom it exists: "why be moral anyway?"

SOUND MORAL JUDGMENT (CONTINUED)

5. Moral evaluation for consistent and coherent moral position applicable to business situations

6. Tolerating moral disagreements and ambiguity: belief in moral justification of actions reflecting conflicts about moral values and judgments

EVALUATING THE ETHICS OF BUSINESS DECISIONS

Useful questions to ask yourself:Have you identified the problem accurately?How would you define the problem if you stood on the other side of the fence?How did this situation occur in the first place?To whom and to what do you give your loyalty as a person and as a member of the corporation?What is your intention in making this decision?How does this intention compare with the probable results? Whom could your decisions or actions injure?Can you discuss the problem with the affected parties before you make your decisions?Are you confident that your position will be as valid over a long period of time as it seems now?

Questions to ask yourself continued:

Could you disclose without qualms your decisions or actions to your boss, your CEO/MD, the board of directors, your family, or society as a whole?

What is the symbolic potential of your action if understood? If misunderstood?

Under what conditions would you allow exemptions or exceptions to your stand?

EVALUATING THE ETHICS OF BUSINESS DECISIONS

ETHICS IN THE WORK PLACE

•Supplier selection •Handling of inventory•Handling and appropriation of funds

•Insurance claims•Accessing financial services•Application of power

•Taxes•Weights and measures      •Employee selection and advancement

•Performance appraisals•Adherence to codes of conduct

Unethical behavior often occurs in association with the following business areas/activities:

INSIDER TRADING

During the course of their normal work, certain people (Board members, Officers, employees at all levels, professionals etc.) come into contact with company confidential information before public release (trade secrets, financial deals, proposed deals, new product launching, R&D findings, e.t.c.) that can be illegally used to make abnormal personal gains.

The law prohibits against such acts and prescribes severe penalties, including jail terms for violations.

Bankers, accountants, consultants, advertising experts, scientists, etc. can be guilty of this crime.

What are the ethical, policy, and business implications?

MARKETING AND ADVERTISING

Sellers sometimes engage in unfair, deceptive, or abusive sales techniques that can result in fraud, an injured customers. These behaviours are prohibited by legislation to protect consumers.

Advertising is deceptive if it contains misinformation or omits important information that is likely to mislead a “reasonable consumer” or makes an unsubstantiated or outrageous claim (not statements of opinion or “sales talk”).

Examples are bait and switch, truth-in-lending, use of aggressive sales tactics to overcome consumer’s resistance to sale, unsolicited merchandise etc.

What are the ethical, policy, and business implications?

CONDITIONS GIVING RISE TO FRAUD

•Situational pressures

•Perceived opportunities:–Inadequate or weak internal controls–Poor accounting records, inadequate authorization, poor systems, and inappropriate execution

–Inadequate custody over assets

•Personal characteristics: –Poor moral character –Low credit rating–Rationalizing behavior

WHY PEOPLE COMMIT MALPRACTICE

•Greed (money is sticky)

•Poor management philosophy and/or moral and ethical values

•Influence of one’s immediate supervisor

•Pressure to meet objectives

•Covering up mistakes or shortfalls

•Because it doesn’t seem very important or grave

COMMON METHODS USED TO COMMIT FRAUD

•Intentional mistakes (arithmetical or clerical)•Purposeful misinterpretation of facts•Recording of non-existent transactions•Intentional misallocation of contract costs•Embezzlement and theft •The overcharging of clients and pocketing the difference•The placement of fictitious names on payroll or not removing former employees from payroll

•Advances made to non-existent employees•Kickbacks from suppliers for overpayments•Pocketing money for false invoices or delinquent accounts•Overcharging or non-support for travel expenses •Over-withholding and under-funding of pension •Stealing money from a customer account to pay another (lapping)

•Stealing duplicate payments from customers

THE ETHICAL BUSINESS PERSON

“An honest man is a whole man, not a fraction of a man. He is not one thing above the line and something else below the line; not one thing at home and something else away from home, but a whole man.”

A LEGAL AND ETHICAL BUSINESS IS MORE LIKELY TO BE A SUSTAINABLE BUSINESS

BUSINESS ETHICS AND LAW

2006