Description of the Organization's Basic Legal Environment
As part of periodic strategic assessments, organizations routinely evaluate environmental factors that present opportunities and challenges. The legal environment includes current or potential laws in various categories that impact business decisions and activities. Preparing for negative effects of a new law is one example of planning for a changing legal environment.
One of the key legal arenas for an organization is employment law. Human resources takes on much of the responsibility in staying on top of the ever-changing employment law environment. The way in which you compensate, hire, manage and interact with employees encompasses various legal risks. Discrimination by company leaders, for instance, could lead to lawsuits and even criminal claims against those involved. Ensuring you follow all legal requirements in the way you hire and manage is critical to long-term success.
Another key stakeholder group within an organization's legal environment is its customer base. In particular, you must maintain honesty and transparency in attracting and retaining customers. In advertising, the Federal Communications Commission monitors claims of untruths, slander and lack of disclosure in company messages. Lying, cheating and stealing customers, though still common in some organizations, definitely carry significant legal risks and can impact your long-term viability.
A number of other stakeholder relationships are included in the legal environment. Interactions with suppliers and buyers carry legal risks. Companies that conduct business in multiple geographic locations, for instance, must understand laws in different states as well as any federal interstate commerce laws. Lying, cheating and stealing suppliers or buyers in the distribution process can also get you into legal hot water. Your business must meet its tax obligations as well. Communities also expect you to operate in line with any local regulations governing your operations.
The ethical expectations of a business are often discussed in conjunction with the legal environment. The line between laws and ethics is often very fine. Some activities carry ethical risks, but don't necessarily violate laws. A common example is environmental expectations informally held by communities and customers. While your company may not always face legal repercussions if it doesn't actively recycle and preserve natural resources, it risks negative backlash from activist groups and community leaders.