What is the Legal Landscape?
The legal environment, or the scope of laws that govern the actions of business and other organizations, is a key factor influencing their commercial decision-making. Often companies think of the legal environment in terms of the laws of the countries in which they are headquartered or those in which they operate. However, the legal environment also encompasses the laws of the relevant international organizations, such as: trade or economic blocs; human rights agencies; and various administrative or regulatory bodies that govern the activities of companies with transnational stakeholders or interests.
The legal environment therefore includes many spheres ranging from the very local to the global . For example, it includes individual country laws, regional trade agreements and international conventions or treaties. Contracting with governments may involve compliance with administrative or regulatory laws, while multilateral development banks, export credit agencies and other financial institutions fund development and offer loans subject to compliance with certain policies or policies. Likewise, trade and investment treaties, human rights conventions and foreign direct investment (FDI) legislation have extraterritorial applicability. Organizations must consider all of these factors and then interpret the meaning and implications of each of these spheres of laws to determine how the legal environment may affect them.
Key Components of the Legal Landscape
The legal environment is composed of the key elements of laws, regulations, policies, and standards that impact a wide range of industries. As such, it is broadly used in reference to the most important and significant things about the business of law. Laws are generally broken down into primary and secondary sources. The primary sources that make up the legal environment include constitutions or other laws established by legislative bodies, regulations set forth by executive governments (i.e. rules by regulatory agencies at the local, state or federal levels), and judicial decisions. Secondary sources include autobiographies, treatises, encyclopedias, periodicals, casebooks, and digests. Secondary sources are guides to the law rather than law themselves. Regulations are authorized by statutes or laws that have been enacted. They contain rules for carrying out the directives of specific statutes and come from executive branch departments and administrative agencies of the government. Policies are authoritative statements that provide guidance for present or future action. Standards are levels of requirements and acceptable practices. Standards may be set by a particular organization or industry as a recommended approach or methodology for dealing with a situation.
How the Legal Landscape Affects Businesses
The legal environment has an immediate and profound impact on business. It determines how a business is organized, what its rights and responsibilities are, its day to day operations, and all other areas of business. Every area of business is touched in some way by the law. For instance, a car manufacturer enjoys limited liability for its corporate acts, thanks to the corporate structure that has been recognized by courts and legislatures. The price of the car is set and can be freely set and changed by the manufacturer with no price controls. The manufacturer must comply with safety standards and new car emissions laws. The cars can be insured and the manufacturer can choose the form of insurance. A failure to meet the safety standards can lead to severe fines from the government and liability to injured parties for any injuries suffered due to the unsafe cars. In another example, a farmer sells the produce grown on her farm and profits come in from the produce and livestock. Any profits will be taxed. The legal environment dictates that the price of the products must be set by the farmer and can not be regulated or set by the government. At the same time, the farmer needs to ensure her products are safe for consumers and adhere to safe harvesting methods in order to avoid fines and potentially liability for spoiled or tainted food. If the farm is processed goods (canned or frozen foods), then the necessary permits and regulations must be adhered to comply with the requirements for manufacturing.
Staying Ahead of the Legal Landscape
The ever-changing legal environment can pose significant challenges for businesses of all sizes. To navigate these changes successfully, businesses must adopt an agile, proactive approach to legal compliance and risk management.
One of the first steps in adapting to changing laws is to clearly understand the legal framework relevant to your business. What obligations do you face under federal, state, and local laws? Engaging with legal professionals who are familiar with these areas of law is crucial. This not only ensures compliance but also helps identify potential legal risks before they become a costly reality.
When laws change, it’s essential to stay informed. Subscribing to industry newsletters, attending relevant conferences, and being part of professional groups can help businesses stay ahead of the curve. For example, sudden changes to employment laws, regulatory requirements, or tax regulations can significantly impact operations. Staying alert to these developments allows businesses to adapt procedures and policies in a timely manner.
A key strategy for navigating changes in the legal environment is to regularly review internal policies and standard operating procedures. For instance, if there are changes to the Fair Labor Standards Act, then a business should review its wage and hour policies and overtime practices. Regular policy reviews ensure that your documentation evolves along with the legal landscape.
It is also essential to train employees on legal compliance. Regardless of whether a business is reviewing their legal obligations in-house or through external counsel, it is equally important for employees to have a general understanding of the changes in the law as well. Without training, even well-planned policy changes may not be fully realized.
On a broader level, while it is impossible to control the specific developments in the legal landscape, a business can position itself to better weather the storm by implementing a strong risk management strategy. The proper use of internal controls assists in doing so. An effective internal control policy reduces the likelihood of a legal violation occurring in the first place and identifies when something may have gone wrong. Examples of internal controls include hiring experienced professionals; documenting how policies and procedures are carried out; and regularly examining financial data.
All in all, as employers, it is imperative to review policies regularly, especially those that address frequently changed laws like wage and hour, and to communicate those changes to employees at all levels. While such steps require a commitment on the part of the employer to stay on top of the ever-changing legal environment, they are essential to reduce exposure to liability.
Global Insights into Legal Landscapes
Legal environments vary across regions and countries, affecting businesses as they adapt to different laws and regulations. As previously discussed in the sections on national and state law, the scope of legal environments are not confined to local jurisdictions, as they extend from the federal to the state, and down to local levels. Similarly, international business operations imply the need to observe and comply with laws in other countries, presenting yet another layer of complexity for such companies. Therefore, legal environments gained in being identified as an important field of study by James Dunning, who suggested in the 1980s that "there is no general theory or practice of international business, only theories and practices of national business systems". Such systems are based on laws in operation in each country and which indicate how to conduct business in each jurisdiction, guiding organizations in their efforts to ensure compliance with the law, avoid potential liability and enter into new markets.
Law and legal institutions are part of what had been described by Gunter Teubner (1997) as "the private law systems", constituting "a polycentric structure consisting of various legal institutions, specific legal orders, and different interests in relation to one another, and it cannot be controlled or governed by the state – as legal unity is neither possible nor desirable". Thus, it can be observed that legal systems around the world fall under two classifications, described as the common law system and the civil law system. Countries that share a common law system include, for instance, the USA, Canada, Australia, Hong Kong, India, Ireland, New Zealand and Pakistan. In contrast, countries such as France, Germany, South Korea, Japan and Spain follow a civil law system, similarly to Brazil, as described by Souza and Junior , who have noted that the Brazilian civil law system is based on French legal principles and historical influences.
One of the consequences of this worldwide legal pluralism is that those working and doing business in multiple jurisdictions regularly face situations where options exist for what law to use in a given scenario or which court can resolve a particular issue. For example, a common requirement in cross-border transactions is to specify the law applicable to a contract. The absence of such a clause may make solving a dispute more difficult.
Cross-border transactions also tend to require an expedited approach to policy making, which can lead to regulatory gaps and challenges of enforcement. The lack of such financial instruments in many countries is likely to perpetuate the supply of finance through informal, potentially dangerous, and partly illegal sources, as highlighted by Copestake et al. (2012). Given those developments, global businesses have begun to use contractual provisions to govern compliance with stricter anti-corruption practices. For instance, taking into account that corporate social responsibility is a growing concern for many companies which are engaged in international business in the wake of concerns over human rights, bribery, child labor and global warming; many businesses are implementing business codes which are then imprisoned into other contracts in an attempt to signal commitment to international treaties such as the International Covenant on Civil and Political Rights, International Covenant on Economic, Social and Cultural Rights, the International Labour Organisation’s codes, and the United Nations Convention against Corruption.
Last but not least, the practicalities of company law must be considered, as legal systems around the world tend to diverge in aspects concerning the regulation of businesses, such as the liability of company directors, corporate governance, shareholder rights, and tax benefits. Minimizing legal and financial risks while providing greater flexibility to execute cross-board transactions is a common goal for businesses, which thus increasingly tell the tale of global financial flows from one jurisdiction to the next.
The Future of the Legal Landscape
As the legal landscape continues to evolve, so too does the environment in which businesses operate. One of the key trends shaping the future of the legal environment is the rise of new technologies that are disrupting traditional legal services. Blockchain, for example, has the potential to transform the way legal agreements are executed and enforced. Smart contracts, which are self-executing contracts with the terms of the agreement directly written into code, could eliminate the need for intermediaries like lawyers and banks. This could lead to a more decentralized and efficient legal system, but also raises questions about the role of lawyers and the potential for fraud and hacking.
In addition to technological changes, the legal environment is also being shaped by new regulatory frameworks. For example, the General Data Protection Regulation (GDPR) is a new EU regulation that sets out strict requirements for the collection, storage and use of personal data. This regulation will impact businesses of all sizes and industries, as they will need to be more transparent about how they handle data and put in place measures to protect it. In the U.S., similar regulations are being proposed at the state level, with states like California and New York considering their own privacy laws.
Another trend to watch in the legal environment is the rise of alternative dispute resolution (ADR). As litigation becomes more complex and costly, businesses are turning to cheaper and quicker alternatives to resolve disputes. Arbitration, for example, is becoming increasingly popular as a way to resolve business disputes without going to court. This trend is also being driven by the rise of online dispute resolution (ODR), which allows businesses to resolve disputes without the need for physical meetings or travel.
Finally, businesses should be aware of the increasing importance of diversity and inclusion in the legal environment. Companies are increasingly being held accountable for their track record on diversity and inclusion, and failure to make progress in these areas can result in reputational damage and even legal action. More businesses are adopting diversity and inclusion initiatives, with some even tying executive compensation to diversity targets being met. This trend is likely to continue in the coming years, as more businesses recognize the importance of diversity and inclusion for their bottom line.
Conclusion: Embracing the Legal Landscape
Left unaddressed, ambiguities between the legal environment and the company’s business model often create confusion and miscommunication within the company. Companies can waste time and money attempting to operate where they believe the law permits them to operate, but where in fact they lack necessary licenses or bonding- licensing being such as gambling licenses, state certificates or credentials, a broker-dealer license, etc.
It is important to be proactive rather than reactive. Being proactive means seeking competent legal assistance on issues that deal with the legal environment, and not waiting for allegations of violations, or worse, receiving a notice from a governmental authority that you have violated the law.
There are many states and localities around the country which are increasingly regulating business activities. Because the laws and regulations may change every year, it is important to stay up to date on legal rules that apply to your industry .
Your ability to conduct business is often tied to your licensing. The rights conferred by a license, such as a broker-dealer license, is the subject of the license. The distribution of products, sales, completing a transaction and so forth, are privileges within your ability to conduct business, so it is important to stay on top of anything that could affect those privileges.
The best advice regarding the legal environment is to be vigilant. That vigilance can come from using lawyers, consultants, accountants, and other professionals. If you are in a regulated industry watch the regulatory bodies because your business is affected by the changes that they make. If you are in a regulated business, your competitors are likely being informed about these matters, so if you are not keeping up, they are more likely to get an advantage over you.