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Legal environment trends for the '90s.

The current legal environment in the United States spins on a variety of complex issues that have an impact on business: international trade, capital gains taxes, unemployment, aging baby boomers, technology, employment laws, and social concerns such as health care, child care, and job training. This legal tapestry means businesses must be even more vigilant to include consideration of the legal environment in their strategic planning.

The legal environment is well recognized as one of the most significant influences with which strategic plans must contend. Recent examples include a 1992 Rand study which showed that state law increases in employees' rights during the 1980s held down hiring, particularly in large companies and in finance and services industries,(1) and governmental cost burdens per employee increased 34 percent between 1989 and 1992 in the typical small business.(2) Representative Dick Armey (the ranking Republican on Congress' Joint Economic Committee) cited research to show that federal regulations played the major role in increasing business costs by about $130 billion between 1990 and 1992 - seriously reducing job creation by small business. Even those who do not agree with his analysis can recognize that such regulation must be considered in strategic planning. In fact, a survey by the National Federation of Independent Business shows that - for the first time in 18 years - regulation became a top concern of small business in 1992.(3)

Even though the legal environment must be considered, exact details of future laws cannot be predicted, especially when a Democratic Congress no longer has to contend with a Republican president. However, current trends can provide insight into the future legal environment of American business. Monitoring and contending with this future will not be easy, although companies may be able to influence it by lobbying for realistic laws and regulations.

International Competition

One of the growing (and already major) influences on the future legal environment will be the impact of the world economy. America no longer has unchallenged dominance in world trade, which concerns increasing numbers of its leaders and populace. Changes in its laws, therefore, will be made to improve its international competitiveness, providing more international opportunities. Trade restrictions in federal laws and regulations must be rationalized, and some loosening is warranted. In addition, new laws are needed to improve coordination between the 20 or so federal agencies concerned with exports. Business relations with these agencies must be simplified. There are also calls for federal programs to improve technological sophistication in small manufacturers, to offset such programs that are already used in Japan.

There will also be changes to facilitate the trends to closer and more effective cooperation among business firms. Already, suppliers and distributors are seeking long-term relationships. In addition, alliances are increasingly common, sometimes between competing companies. New laws will likely clarify and facilitate such increased cooperation, including clear specification of what is allowable for Japanese Keiretsu companies in the United States. Some giant American companies already use Keiretsu practices and more should follow, especially in international competition.(4)

A loosening of federal restrictions will add to opportunities as legislation that is tailored to individual companies is introduced. A reduction in capital gains taxes is likely, but new laws may try to reduce the flow of investment capital to other countries. There will certainly be an expansion of the concern with the job implications of "American content," and laws will define certain parameters.

Standard Laws

Under the new Clinton administration, trade agreements will consider job impacts, so the federal government can be expected to press other nations to equalize opportunities for American businesses. For example, in remarks during his confirmation hearing before the Senate Finance Committee, U.S. Trade Representative Mickey Kantor criticized the November 1992 agricultural trade agreement with the European Community saying European farmers will still have many more subsidies than U.S. farmers. "We will have some problem with a level playing field," he said.(5) Laws also will move toward equalizing requirements in countries on matters such as pollution, product safety, and patent protection. Already, an editorial in The Wall Street Journal asserted that Mexico's President Carlos Salinas has been "...using much of the disposable income the country has attained through its growth-oriented economic policies to clean up the environment."(6) A primary goal of this "clean up" is to facilitate implementation of a North American Free Trade Agreement. This editorial also reported that Mexico has agreed to lift restrictions on American bank operations in Mexico by the year 2000. This shows how consolidation of trade areas tends to induce standardization of laws for countries within each area. Such standardization, in turn, should facilitate standardization of laws with other trade areas, such as the Common Market.

In any quest to standardize international laws, however, one controversial area will be business responsibilities to employees who live in different countries. What about members of a "protected group" in the United States who work for American companies in other countries? Can companies award different benefits to any of the same type of employees if the employees work in different countries? Both the Civil Acts Rights Act of 1991 and the Americans with Disabilities Act have provisions that apply to Americans who work for American companies in other countries.

Governmental Support

Opportunities also will grow in Less Developed Countries (LDCs). Most of the LDCS are moving toward market economies, loosening many of their laws that restrict businesses. In addition, American legislation should give special support to businesses that help LDCs address their poverty problems. World stability cannot be maintained if more than two-thirds of its populace continues to live in poverty. Government-to-government aid has not offset the difficulties, so special support is warranted for businesses that help the economics of LDCs.

Foreign policy of the new Democratic administration can be expected to show an increased concern with human values in the LDCs. The primary focus in the foreseeable future, however, will be on exports and conditions that create jobs in the United States. For example, American foreign aid to LDCs may be tied to purchases of American products, as Japanese aid often is tied to purchases of Japanese products.

Employment Concerns

High unemployment played a major role in the recent presidential and Congressional election debates. This means that even if unemployment is soon reduced, legislators will continue to be concerned about employment. Even many currently-employed workers are worried about their jobs. The emphasis on employment in the 1992 elections triggered a rash of new laws that will take years to implement and evaluate.

Another factor that makes job creation a major concern is the "babyboomers" aging into their 30s through 50s. They form a significant group of voters that is directly affected by job conditions. As "boomers" reach their 50s, older workers' concerns will receive even more attention. Many employees now recognize that transformation of a typical business seems to imply the use of a smaller work force supplemented by temporary employees for rush periods. They will see unemployment as a continuing threat, especially as transformation continues in American businesses.

In addition, more fundamental economic problems may exist. America's 1930s Depression did not end until World War II. Afterward, other nations needed time to become competitive, and U.S. defense spending remained high, providing jobs in both industry and the military. Will stagnation return as an increase in worldwide competitors and decreased defense spending cause the end of such continuing stimulation? Calls for an American industrial policy continue to arise, even from influential segments of American business.(7) Legislative action can be expected to address industrial policy - likely focused on technology and infrastructure. The Employment Act of 1946 will likely be "given new life" and used to as a foundation for new governmental actions in economic and employment affairs.

Social Welfare and Training

Even more than for foreign nations, legislation will provide special support to businesses that aid development within the United States. Such aid will address the plight of all parts of the cities - not just the "inner city." Special assistance will also emerge to encourage businesses to locate in rural areas with high poverty rates.

Legislation will stimulate job creation in such areas, and it will support business training of employees who are illiterate or lack certain job skills. Well-paying jobs can come only if American business learns to configure jobs to require higher worker skills, rather than simplify jobs and thus facilitate their shifting to low-skilled foreign performance.(8)

American companies must also make commitments to the necessary education and training for performance in high skill jobs. Many large corporations are already involved in such training, as well as attempting to form partnerships with public schools. In addition, public schools are receiving increased attention from the largest small-business lobbying group, the National Federation of Independent Business. Therefore, both large and small businesses will seek new legislation to improve primary and secondary schools. One likely area for new laws is tying school assignments closer to job requirements for students who will seek jobs immediately after high school graduation. Other possibilities for such students are on-the-job training and tying job opportunities to high school grade averages, as is done in Europe.

Protected Groups

Legislated support for business employees will continue to be focused on "protected groups." Single mothers will be given extra attention with child care and job training programs. All mothers will have access to prenatal care, job leaves after delivery, and early childhood education for their children. Already there is movement toward creating a national health care plan for all citizens. President Clinton reinforced his desire for a national plan by taking the unprecedented action of naming his wife as chair of the presidential Task Force on Health Reform. "We've talked about it long enough ... The time has come to act," said Mr. Clinton only one week into his new presidency." Many businesses support health care reform because health costs are significant for firms of all sizes, e.g., the 1992 General Motors Public Interest Report asserted that health care adds $929 to the cost of each of its vehicles.

The concerns of protected groups will receive expanded legal attention in all aspects of human resources administration. Even if Supreme Court decisions reduce legal requirements that are already in place, further legislation will once again expand requirements - probably with some business guidance. For example, Business Week asserted that affirmative action is an important symbol of racial commitment that has some degree of effectiveness; and it recommends that America "stick with" the policy until a better idea is developed.(10)

Passage of the Americans with Disabilities Act of 1990 indicates that Congress can enact legislation without fully assessing the costs that will be imposed on business. The failures of government, in fact, will increase the possibilities that more social welfare problems will be shifted onto business for solutions. These prospects suggest that the lobbying efforts of American businesses must include cost considerations in future laws. In addition, financial support and tax advantages should be included when they are appropriate. Such considerations are especially appropriate for job creation by business because jobs replace transfer payments from government to the unemployed with tax payments to government from employees.

Employee Relations

In any event, workers have been scared by the current downturn, and legislation to protect jobs and job security will result. The "fire-at-will" doctrine will become even more limited, especially when protected groups of workers are involved. in fact, companies will have more responsibility to provide special programs for all workers. Before a permanent employee is terminated, the company may have to finance an extended period of training. Temporary employees may become eligible for company benefits programs. Small businesses may have to pay into common funds that will benefit their employees.

Although some employees may turn to union activity to address their concerns, many will focus on governmental actions. This is especially true of white collar workers with non-union traditions. Actually, many of the concerns that were previously handled by unions are now continuing concerns of governmental agencies. Companies should make sure that they have established policies to handle employee concerns - especially grievances - in view of the legal rights of employees. For example, one cannot assume that an employee's unusual behavior is caused by illegal drugs, so a manager might refer an employee to a menu of programs that the employee may choose to embrace, including family counseling. Of course, the exact options will be affected by not only federal laws but by state and local laws as well.

Standard National Laws

State laws that regulate business activities often vary considerably from state to state, e.g., the fire-at-will doctrine and drug testing of employees. However, many of the forces cited above are leading to standardized laws within the United States, reducing variations among the states. In some cases, business is already seeking federal legislation to standardize requirements for the entire nation because variations among states make operations more complex. Also, state laws are often more restrictive than federal laws. For example, federal regulations governing the labeling and advertising of ecologically responsible "green" products are being sought to offset state law variations and stringent requirements.

Pressures for standardization are also arising for the nation's financial system. The securities markets already operate in a 24-hour world, and recent problems in the financial system suggest laws that standardize financial system operations across the entire nation are in order. Consolidation of financial institutions has already resulted in fewer and larger banks operating across state boundaries. Savings and loans are also becoming fewer and growing larger.

The full benefits of the United States' market can be realized only if the same laws apply everywhere. Faced with trade areas that are standardizing their laws, America may have to standardize in order to build efficiency and maintain competitiveness. In fact, to the extent that America enters into trade agreements, standardization pressures intensify.

Greater standardization should lead to national licensure of business lawyers, rather than individual state licenses. This should reduce the burden of legal costs on businesses and, of course, businesses are already exploring ways to reduce litigation costs. The trend to closer cooperation among businesses may alleviate some costs, and may also reveal techniques of agreement or consensus that do not result in litigation. Such techniques may even become sanctioned by legislation.

Yet Ahead

If high rates of unemployment continue, direct government financing of job "work corps" may result. Protectionist laws that interfere with international trade will be considered. Even the growth of environmental laws will likely be slowed, if necessary, to prevent unemployment. In any event, a great deal of America's legal environment in the foreseeable future will be conditioned by concerns about unemployment and by increased standardization of legal requirements - both national and international.

Even with standardization, however, laws may become more numerous. The populace of the world is becoming more educated. More education should make people more alert to their world. They have more concerns, and they are more likely to act on their concerns, e.g., to lobby legislators. Businesses must continue to monitor and to lobby, ensuring that future laws will be based on realities, rather than on the latest emotions to sweep the populace or its leaders. Both strategic and operating management decisions will increasingly involve legal considerations, especially regarding "protected groups." All managers will need appropriate training in the legal aspects of their jobs. Experts in law, economics, political science, and sociology may be called upon to integrate their insights with company managers. Both national and international legal requirements must be translated into specific meanings for strategic planning and for operations.

(1) Koretz, Gene, "Economic Trends," Business Week, September 21, 1992, 22. (2) Armey, Dick, "Small Business and the Recession," THE WALL STREET JOURNAL, November 6, 1992, A12. (3) Ferguson, Tim W., "Why 'Growth Companies' Aren't Picking Up the Slack," THE WALL STREET JOURNAL, September 22, 1992, A19. (4) Kelly, Kevin, and Otis Port, "Learning From Japan," Business Week, January 27, 1992, 52-60. (5) Davis, Bob, "Kantor Takes Tough Stance on Trade with Europe, Japan at Senate Hearing," THE WALL STREET JOURNAL, January 20, 1993, A2. (6) "A Home Run for Trade," THE WALL STREET JOURNAL, July 15, 1992, A12. (7) Farrell, Christopher, and Michael J. Mandel, "Industrial Policy," Business Week, April 6, 1992, 70-75. (8) O'Reilly, Brian, "The Job Drought," Fortune, August 24, 1992, 62-74. (9) Chen, Edwin, "Hillary Clinton to Lead Health Panel," Los Angeles Times, January 26, 1993, Al. (10) Gleckman, Howard, Tim Smart, Pam Dwyer, Troy Segal, and Joseph Weber, "Race in the Workplace," Business Week, July 8, 1991, 50-62.
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Author:Tinsley, Dillard B.; Tinsley, Steven M.
Publication:Business Forum
Date:Jan 1, 1993
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