Rediscovering the Power of Law in Business Education
When you think of “law and business,” what words immediately come to mind? Did you envision innovation, sustainability, the future of work, the Gig Economy, social responsibility, and value creation? If not, then consider whether you are missing opportunities to engage students and impact business management. Those were the words associated with law and business when we recently spoke to a group of business school deans with our co-presenter, Dean Robert Sumichrast of Virginia Tech’s Pamplin College of Business, about “UBER, TESLA and KICKSTARTER: What’s Law Got to Do With It?” The short answer is that we think that law has everything to do with it. As businesses are flung full force into value-driven discussions about the new economy and its effect on society, we are passionate about the bridge that law courses provide to examine the role of business.
Business schools are increasingly pressured to deliver a unique value to students as a return for a significant investment in their education, to help spur economic growth in order to reciprocate for community support, and to become more responsible for addressing and solving social problems created by fast-changing business models and technology. Leveraging the legal environment of business curriculum can enhance student marketability, deliver real-world value, and help produce ethical leaders who fully engage with society’s most pressing and intractable problems.
Demand for Legal Knowledge
Accreditation requirements as a driver for legal knowledge might come to mind first, as AACSB 2013 Standards identify common content to include the legal, regulatory, technological, and social context of business. The standards also identify ethics, sustainability, and social responsibility, which are found in many legal studies courses. But we find that managers themselves provide the strongest rationale for legal knowledge.
From top managers to international practitioners, legal astuteness is in demand as a valuable commodity. For example, legal issues occupy up to 25 percent of a CEO’s available time. Sixty-nine percent of CFOs have indicated that “global regulatory requirements” will be required for the professionals of the future. And survey results presented at the 2014 conference, Internationalization of U.S. Education in the 21st Century, indicated that 89 percent of respondents believed that both professionals and line managers need knowledge of legal and governmental requirements. To put this into perspective, this number is almost identical to the percentage who believe that knowledge of specific markets, such as local businesses practices, is required.
Demand also exists to fill specific jobs in compliance; these positions have increased 65 percent since 2003, prompting the Wall Street Journal to call the compliance market a “hiring spree” and a “battle royal for talent.” A blossoming risk management industry has driven the need for positions in contract and regulatory risk management. Graduates with robust legal training are therefore in critical demand.
Management education can rise to the challenge. A required course in the legal environment of business in both undergraduate and graduate programs would deliver essential knowledge about the legal system and could help protect graduates from potentially devastating penalties from noncompliance. Advanced courses in legal strategy and key subjects such as employment law, intellectual property, and international business law would unlock the value potential that the law holds to capture market value, build alliances, and innovate in new markets. A number of business schools, such as the Indiana University, Hofstra University, and Temple University, offer successful majors in legal studies. Numerous others offer minors and certificates. Such programs deliver valuable legal astuteness that generates graduates in demand.
Real-World Value: Law as a Source of Competitive Advantage
The most effective business programs will perceive law for the value it holds—a strong and enduring source of competitive advantage. For example, when the U.S. Congress passed Sarbanes-Oxley (SOX), which established new compliance regulations for public companies, most firms only saw a new and cumbersome reporting obligation. A select few firms understood the law differently, using it as a leveraging tool to consolidate financial processes, eliminate redundant IT systems, broaden responsibility for financial controls, and integrate distant business units. Firms achieved significant cost savings, increased data integrity, and gained a more effective understanding of their own operations.
When IBM’s business declined in the 1990s due to increasing competition, they leveraged their intellectual property rights to build alliances, augment licensing, and create new technology standards, raising their IP value from 20 million to 1.1 billion USD in seven years. When a growing Home Depot hardware store faced a class action lawsuit based on allegedly widespread sex discrimination, they used the lesson of the lawsuit settlement as a springboard to develop an automated personnel hiring information system. The legally motivated system uncovered significant underutilization of employee talent and increased employee diversity, retention, and morale.
Ethical and Societal Leadership
Law and regulation reflect societal values, and the new economy is one place where legal issues present powerful questions about ethics and society. When U.S. auto manufacturer Tesla released its patents into the public domain, the initiative was hailed as a triumph of the open source movement. It also created new implications for advancing the electric car market and promoting sustainability that slows the impact of global warming. Further, while most see mobile ride-request company Uber as a leap in flexibility, the innovative business model risks exploiting individual workers who as independent contractors are at the mercy of the company. Lawsuits against on-demand firms like Uber will determine the future of work in society—and what it means to be a 21st-century employee. Global crowd-funding platform Kickstarter exemplifies the power of the newly established benefit corporation, a for-profit entity that is explicitly obligated to consider the societal impact of its decisions.
Legal questions are intertwined with ethical and societal questions. Instruction in employment law leads to discussions of society-shaping Uber, and intellectual property invokes Tesla’s bold gamble. Benefit corporations such as Kickstarter drive new questions about the legal, ethical, and societal implications of choosing a type of business entity. Other important technological and societal questions, including data privacy, genomics, and personalized medicine, find their intellectual home in the business law curriculum. The possibilities are nearly limitless.
When an American manufacturing industrialist funded the first collegiate school of business in 1881, he specified that the curriculum should contain five subjects, one of which was business law, and a lawyer served as the school’s first professor. The school became known as the Wharton School of the University of Pennsylvania. Its legal studies and business ethics department remains one of the most influential in the discipline.
We titled this discussion “Rediscovering the Power of the Law in Business Education” because law has always been important to the management of business. Business law is no less important today. For a competitive advantage in innovation, engagement with values, and firm impact on society, few opportunities remain as robust and enduring as the relevance of legal studies to business. We suspect Joseph Wharton would agree.