Week 5 Study Guide: Regulatory Risk and Governance

Study Guide
LAW/531 Version 7 / 1

Week 5 Study Guide: Regulatory Risk and Governance

Readings and Key Terms

The board of directors is comprised of an insider director who is an officer of the corporporation, as well as external directorswho arenot officers.
Management of a corporation is shared by shareholders, who are owners and vote for the directors, the board of directors who are responsible for making policy decisions, and the corporate officerswho run the day-to-day operation of the business.
Corporation directors and officers have a duty of obedience, a duty of care, and a duty of loyalty to the corporation and its shareholders.
Agency authority means that, asagents of a corporation, they are officers of the company with the implied and apparent authority to enter into binding contracts on behalf of the corporation.

Corporate governance was improved by the enactment of the Sarbanes-Oxley Act of 2002 which imposes responsibilities on the audit committee and requires CEO and CFO certification, reimbursement of bonuses and incentive pay in its financials, prohibition on personal loans, penalties for tampering with evidence, and the prohibition of acting as both officer and director of a public company.
The Securities and Exchange Commission (SEC) can bar any person who has committed securities fraud from acting as an officer or a director.
Piercing the corporate veil is a doctrine that allows for a shareholder to be held personally liable for the debts and liabilities of the corporation for acts such as undercapitalized business or comingling business and personal funds.
The business judgment rule states that directors are not liable for honest mistakes as long as they are based on judgment.
Corporations are owned by its shareholders who are guided by rules that require shareholder meetings. Voting requirements at these meetings are noncumulative and cumulative. Voting arrangements are legal and can be implemented through a voting trust or shareholder voting agreement. Although shareholders have the right to transfer their shares, restrictions of the right of first refusal and buy–sell agreements apply as well as preemptive rights.

Quorum refers to the number of directors that are required to hold a board meeting or to create a simple majority.
Supramajority refers to a corporate rule that says that a greater than majority of the number of shares are needed to represent a quorum.

Administrative law regulates business and is enforced by administrative agencies (also called regulatory agencies) and consists of substantive and procedural law.

Business is regulated by general and specific regulations. General regulations apply to multiple businesses while specific regulations apply to a specific industry.
The Privacy Act states that agencies can only keep information about someone that is necessary to achieve a legitimate purpose.

Administrative agencies have the power to make substantive rules, interpret rules, generate statements of policy, and grant licenses. They also have judicial and executive powers.

Federal and state consumer protection and product safety laws were created to advocate for safety and protect against unfair business practices.
Federal Trade Commission enforces the 1914 Federal Trade Commission Act among other Acts.
The Consumer Product Safety Act created the Consumer Product Safety Commission to protect the public from consumer product injuries
The Biosafety Protocol is a United Nations-sponsored agreement that requires specific labeling.

The Environmental Protection Agency (EPA) was created to enforce environmental protection laws.
The Clean Air Act, as amended, provides for regulation of the air quality in the United States.
Water pollution is regulated by the Federal Water Pollution Control Act (FWPCA) and the EPA and establishes water quality standards and water pollution.
Nonattainment areas are regions that do not meet air quality standards.
The Endangered Species Act empowers the secretary of the interior to declare a form of wildlife as threatened or endangered.
The Nuclear Regulatory Commission is an agency that licenses power plants.
The Comprehensive Environmental Response, Compensation, and Liability Act authorizes the government to deal with hazardous wastes.

The Sherman Act regulates anticompetitive practices and Section 1 specifically deals with restraint of trade and the rule of reason and per se rule.

Rule of reason balances pro and anticompetitive effects to challenged restraints.
Monopolies can affect the prices of goods and services, and therefore Section 2 of the Sherman Act was enacted to curtail anticompetitive practices such as this.
Section 3 of the Clayton Act outlaws tying arrangements, which is when a manufacturer refuses to sell a product unless the buyer also purchases another product.
Per se rule applies to restraints that are anticompetitive.