Fall 2009

M,W 12:30-2, GSB 3.138 


Professor                                         David Spence

Office                                              CBA 5.254

Phone                                             471-0778





Course Purpose/Description: 


This course: (1) traces the relationship between business and governments, and between businesses and the policy process from the policy formation stage (legislative and interest group politics) through the policy implementation stage (bureaucratic policymaking, and rule enforcement by agencies and courts); and (2) examines the legal and constitutional constraints that affect businesses across different political/legal regimes (e.g., the political/legal risk environment).  The course takes a cross-disciplinary and (geographically) comparative approach to the study of these issues.  It is cross-disciplinary in that it examines business-government relations from the economic, political, legal, and behavioral perspectives.   It is comparative in that it looks beyond the U.S. political/regulatory/legal system to the larger universe of business-government relations within industrialized democracies.  The course will also examine ethical issues associated with business’ role in the policy process, such as (i) the role of political contributions and bribes in the policy formation process, and (ii) analysis of business’ compliance (or noncompliance) decisions, and the forces that drive those decisions (e.g., law as deterrent, law as guide -- or impediment -- to social responsibility, other sources of social responsibility, etc.)


Business leaders must pay ever-increasing attention to non-market risks and opportunities, particularly those associated with the changing legal, political, ethical and cultural environment of business in the global marketplace.  This course addresses all four of the “broad pillars of leadership” identified by the Texas MBA program as essential to the development of influential business leaders:  knowledge and understanding, communication and collaboration, responsibility and integrity, and a worldview of business and society.   


Readings:  Baron, Business and Its Environment (6th Ed.), and web-based readings.  Optional additional readings (see below) are just that, optional.  They are provided for your interest.


Grading:  There are no exams in this class. 


  • Class participation (10%):   Students can maximize this component of their grades by (1) preparing for class, by doing the readings and thinking about the issues raised by the readings before coming to class, (2) participating in general class discussions and otherwise being engaged in class, and (3) preparing for and participating in in-class exercises.  I will post discussion questions on the syllabus prior to each class to give students a preview of the issues we will be discussing.  Because there are no exams in this class, I will also call on students during class discussions as a way of encouraging students to do the readings in advance.  More about participation grades.


  • In-class exercises (10%):  We will run four in-class role-playing exercises during the semester. Students can maximize this part of their grade by reading the case materials in advance, arriving prepared to participate, and showing energy, thought, and creativity during the exercise.


  • Short memos (20% each):  Each student will prepare two short (5 page, single spaced, exclusive of figures and charts) briefing memos on the business-government relations problems faced by the company of their choice (the same company for both memos).   In the first memo, students will analyze a current public policy issue before the government (the legislature or bureaucracy) in which their company is interested, and will offer advice to the company about how best to exert influence over that policy decision.   In the second memo, students will choose an established policy or legal rule and offer the company advice about how best to address the problem of complying with that policy or rule, and avoiding/addressing government enforcement actions, lawsuits, or investigations directed against it.  Students are free to select companies who do business anywhere in the world, provided however that you can be matched with 1-2 other students who are working with a firm in the same industry (for purposes of the in-class presentation, explained below).  For more on selecting a company, click here.  Students are also free to focus on policy problems and issues involving any governmental body at any level of government (from state or local to international), so long as the analysis otherwise remains within the scope of the assignment.  Students should consult with me about proposed topics if they are unsure whether their topic fits the assignment.  Due dates for these two memos are specified on the class calendar below.  More on memo writing.


For information on policy developments affecting your industry and company, you can start by checking the trade association web site for you industry, or (for regulatory policies) the regulatory agency web site (e.g., for the pharmaceutical industry).  For U.S. legislative developments, you might start with the Congressional Quarterly Weekly Report, available in the PCL, or the Thomas online legislative tracking system.  Similar resources are available for European Union policies via the “Europa Server. 


The class roster (with emails) can be downloaded by right clicking on this link (TBA).


  • Presentation (20%):  Each student will prepare one in-class briefing (as part of a team of 2-3 students).  The in-class presentation will have a time limit of 20 minutes, and will address the issues raised in either the first or second briefing memo.  I recommend using powerpoint or other visual aids in the presentations, which are designed to acquaint the class with specific business-government relations problems faced by real firms.  These in-class briefings will occur on the dates specified in the class calendar below.


  • Final case (20%):    During the two class periods, we will discuss two integrative cases from the book.  Students will prepare a 2-3 page write-up on one of those two integrative cases, and the memo is due prior to the in-class discussion of the case (see below).



·        Use of laptops, cell phones or other electronic communication devices is not permitted in class.  If there is an important learning-based reason why you need to use a laptop, please see me individually to discuss it.

·        With the exception of the in-class presentation, all the graded assignments for this course are individual assignments.  All students are expected to abide by the business school’s honor code and academic dishonesty policy, to do all of their own individual work individually (without help from others), and not to plagiarize written work.  Cheating or plagiarism will be grounds for dismissal from the class. 

·        This class will adhere to the McCombs Professionalism Policy[1]











Introduction to Course







Introduction to the Nonmarket Environment of Business



  • What do you think Baron means by “the nonmarket environment” of business?  Which institutions are part of that environment?
  • How would you describe the relationship between business firms and governments?  How do they influence one another?  Does your answer depend upon the particular government in question (U.S.?  Other?), the level of government (national?  Local?), or the organ of government in question?
  • How would you describe the relationship between business firms and the law?  How do they influence one another?
  • What other relationships affect these business-government and business-law relationships?  How so?
  • In your opinion, does government promote or inhibit economic activity and the creation of wealth?


Baron, Chps. 1 & 2.






Legal Limits on Government Action

1.      Property rights

2.      Federalism



  • How might a government’s authority to regulate be limited by its constitution?  What are some common limits?
  • How do Constitutional protections of property rights encourage investment?   How does their absence discourage investment?
  • Can nations legally expropriate private property?  Can the U.S. government do so?
  • How can firms investing overseas mitigate this kind of legal/political risk?
  • How does EU law protect firms from protectionist legislation by member states?  Why do they do this?



Property Rights:

·       Lucas v. South Carolina Coastal Council (USSC, 1992)(browse)


Political Risk:


Federalism (read one):

·       European Court of Justice, Commission v. Kingdom of Spain

·       City of Philadelphia v. New Jersey (read majority and browse dissent)



9/7 No class – Labor Day holiday






Why Governments Regulate



  • What provokes government to regulate business?  What sorts of situations tend to invite regulation?
  • Is all regulation based upon some sort of market failure?  Why or why not?
  • Be sure you understand the prisoner’s dilemma game.  If you were to play the game 10 times in a row (choosing to cooperate or defect each time), how would you try to maximize your total score?



Why Regulate:







Issues and Interest Groups


  • What motivates NGOs?  How do they choose their strategies for influencing legislatures?  What advantages or disadvantages do they have in this process?
  • If there is not interest group to represent a point of view, will that point of view be heard?  Are some kinds of interests overrepresented or underrepresented in the policy process?




Baron, Chp. 4 and pp. 153-59, and pp. 173-74.






Influencing Legislatures


  • What are the key characteristics of the various strategy types Baron outlines for influencing legislatures?
  • What drives legislators' decisions?  What are their goals?
  • How do legislators make informed decisions about proposed bills?

Baron, pp. 196-204, and 220-36.

Lijphart Election Archive:  look up the electoral systems of at least 4 countries with which your unfamiliar.

Summary of the Foreign Corrupt Practices Act Anti-bribery provisions



Baron, pp. 175-79 (on the organization of Congress)


Money in U.S. Politics:

o       Opensecrets,org

o       Political Money Line


o       Campaign Contributions and Voting Records





The National Legislature Exercise – materials on blackboard



NOTE: Read exercise carefully before coming to class.







Issue Campaigns, Guest speaker - TBA


Baron, Chp. 3




Regulatory Agencies


  • What is the difference between agency rulemaking and agency adjudication?  When do agencies use one policymaking technique rather than the other?
  • How can business firms influence the decisions agencies make using these techniques? 
  • What other avenues of influence over the bureaucracy might business firms use?  Should interest group participation in these decision processes be strictly monitored and controlled?  Why or why not?

Baron, pp. 302-10

Federal Communications Commission’s Summary of the Rulemaking Process

SEC v. Chenery, 318 U.S. 80 (1943) (majority opinion)



GAO, Chronology of the Congressional Investigation of the Cheney Energy Task Force (browse)




Statutory interpretation exercise:  The meaning of the Federal Power Act –link










The Role of Courts



  • What are the major categories of legal systems in the world?  How do they differ from one another?
  • What is the “common law”?  Where does it come from? 
  • Do all legal systems have common law?  What legal rules and subject areas are governed by common law?  How do civil code systems address these subject areas?
  • In Anglo-American legal systems, common law governs many of the legal rules that we said were integral to the existence and magnitude of political risk:  property, contracts, etc.  How do the specific rules of contract and property law promote investment, value creation, and growth?
  • Can firms be liable for violations of the law aside from (or in addition to) their individual (human) representatives’ individual liability?  If so, how so?  Firms cannot act except through people.
  • What is vicarious liability?  When does it apply? 
  • Should firms be liable for the actions of their representatives? 
  • Can firms be convicted of crimes? Should Arthur Andersen have been prosecuted for the crimes of a few partners?
  • Can managers be individually criminally liable for the actions of their underlings?  Should they be?





Baron, pp. 374-87


Review Lectric Law Library’s definitions of codes, the “common law,” “stare decisis,” and “precedent.”


Criminal Enforcement and Officer Liability:   U.S. v. Park, 421 U.S. 658 (1975)




 U.S. v. International Minerals Corp., 402 U.S. 558 (1971).




 Guest speaker -- TBA










Presentations:  Influencing Policy Formation


All Memos Due:  10/12  before class








Presentations:  Influencing Policy Formation


All Memos Due:  10/12  before class







Interpreting, Administering & Enforcing Policy


Economic Regulation I:  antitrust and competition law



  • What is the general purpose of antitrust or competition law?  What is the justification for it?
  • What sorts of behavior by non-monopolies is outlawed, or defined as “unfair competition” under American and European competition law?  What is unfair about it?
  • What motivates firms to merge?  Or one firm to take over another?  Whose approval is required for mergers in the U.S. and Europe?  What determines whether the merger will be permitted to go forward?  What might have led the European Commission to disapprove of the HP-Compaq merger?



·         Do economists and lawyers mean the same thing when they say “monopoly”?  What is the key to the legal definition of a monopoly?

·         Is Microsoft a monopoly?  In all its markets?  Only in some?

·         What sorts of legal rules restrict the behavior of firms with monopoly power?  Did Microsoft violate those rules?  Who was hurt by Microsoft’s actions?

·         What is the remedy for antitrust violations of the type committed by Microsoft?  Will the remedies imposed deter Microsoft from repeating this behavior in the future?  Are there other possible, more effective remedies?




NOTE: This topic will consume two class days


Day 1:  Generally


Day 2:  Microsoft 












Economic Regulation II:  public utilities and privatizing state-owned “public” services



  • Why do regulators regulate so-called “network industries”?  Won’t the market provide network services efficiently?
  • How have industrialized democracies regulated network industries like telecommunications and electricity in the past?  Why have we regulated in this way?
  • How has regulatory policy in these fields changed recently?  Why has it changed?  Is the case for “deregulating” telcomm and electricity the same?  Are both “markets” equally likely to work well?
  • How is the process of “liberalizing” energy markets in Europe going?  Are the EU Commission’s goals being reached?  What are the impediments to fully liberalized energy markets there?
  • What opportunities and risks does “deregulation” (or, more appropriately “restructuring”) of energy markets present for firms?




  • Baron, pp. 320-25
  • Handout





Social regulation I:  products liability and consumer protection 



Products Liability Exercise - link



  • What is the purpose of consumer protection law?  Is this another case in which markets don’t work well enough, and so governmental intervention is necessary?
  • What legal devices do we use to protect consumer health and safety?  Where do these rules come from?
  • Which work best, in your view?
  • How should firms protect themselves against these risks?




o       Baron, pp. 387-404

o       Legal Information Institute Note on Products Liability

o       Browse Uniform Commercial Code warranty provisions, Sections 2-313 through 2-315.


o       European Commission 2001 Green Paper on the EU Products Liability Directive, Parts 1 and 2.

o       Stephen B. Presser, How should the Law of Products Liability be Harmonized?  What Americans Can Learn from Europeans (Manhattan Institute Center for Legal Policy).




Social regulation II:  environmental, health and safety





  • What regulatory instruments might government use to control or regulate pollution and polluting behavior?  Which instruments does it use now? 
  • Who enforces environmental laws?  What are the consequences of violating environmental laws?  Should criminal enforcement of environmental laws be common, or should it be reserved for certain types of violators?


DAY 2:  Tradeable permits exercise -- link TBA



DAY 1:  traditional approaches


·        Baron, Chp. 11 

·        Friends of the Earth v. Laidlaw Environmental Services, 528 U.S. 167 (2000)(majority opinion, Part I only)


DAY 2:  read exercise carefully before coming to class





Alternative forms of regulation:

·      The European Union’s Eco-Management and Audit Scheme (EMAS) (browse web site)

·      EU White paper on “polluter pays” liability (summary)






The Political Economy of China


Baron, Chp. 16






 The Political Economy of the European Union


 Baron, Chp. 15







Emerging Markets



Baron, Chp. 17






International Trade


Baron, Chp. 18



11/23 and 11/30


Presentations:  Complying/Coping With Policy Change


All Memos Due:  11/23  before class







GlaxoSmithKline and AIDS

(memo due before class) 

Walmart (B)

(memo due before class) 



Baron pp. 647-50, and 778-83








[1] McCombs Classroom Professionalism Policy

The highest professional standards are expected of all members of the McCombs community. The collective class reputation and the value of the Texas MBA experience hinges on this.

Faculty are expected to be professional and prepared to deliver value for each and every class session. Students are expected to be professional in all respects.

The Texas MBA classroom experience is enhanced when:

·          Students arrive on time. On time arrival ensures that classes are able to start and finish at the scheduled time. On time arrival shows respect for both fellow students and faculty and it enhances learning by reducing avoidable distractions.

·          Students display their name cards. This permits fellow students and faculty to learn names, enhancing opportunities for community building and evaluation of in-class contributions.

·          Students minimize unscheduled personal breaks. The learning environment improves when disruptions are limited.

·          Students are fully prepared for each class. Much of the learning in the Texas MBA program takes place during classroom discussions. When students are not prepared they cannot contribute to the overall learning process. This affects not only the individual, but their peers who count on them, as well.

·          Students attend the class section to which they are registered. Learning is enhanced when class sizes are optimized. Limits are set to ensure a quality experience. When section hopping takes place some classes become too large and it becomes difficult to contribute. When they are too small, the breadth of experience and opinion suffers.

·          Students respect the views and opinions of their colleagues. Disagreement and debate are encouraged. Intolerance for the views of others is unacceptable.

·          Laptops are closed and put away. When students are surfing the web, responding to e-mail, instant messaging each other, and otherwise not devoting their full attention to the topic at hand they are doing themselves and their peers a major disservice. Those around them face additional distraction. Fellow students cannot benefit from the insights of the students who are not engaged. Faculty office hours are spent going over class material with students who chose not to pay attention, rather than truly adding value by helping students who want a better understanding of the material or want to explore the issues in more depth. Students with real needs may not be able to obtain adequate help if faculty time is spent repeating what was said in class. There are often cases where learning is enhanced by the use of laptops in class. Faculty will let you know when it is appropriate to use them. In such cases, professional behavior is exhibited when misuse does not take place.

·          Phones and wireless devices are turned off. We’ve all heard the annoying ringing in the middle of a meeting. Not only is it not professional, it cuts off the flow of discussion when the search for the offender begins. When a true need to communicate with someone outside of class exists (e.g., for some medical need) please inform the professor prior to class.

Remember, you are competing for the best faculty McCombs has to offer. Your professionalism and activity in class contributes to your success in attracting the best faculty to this program.