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CHAPTER 1: LAW, VALUE CREATION, AND RISK MANAGEMENT

INTRODUCTION

Governments immerse modern organizations “in a sea of laws”. Public law provides the rules of the game within which firms compete to create and capture value.

Different countries studies reveal that the efficiency of a countries capital markets is directly related to the countries legal environment.

There is a significant relationship between a country’s economic prosperity, as measured by the per capita gross domestic product, and each of the following.

* Judicial independence

* Adequacy of legal recourse

* Police protection of business

* Demanding product standards

* Stringent environmental regulations

* Quality laws relating to IT

* Extent of intellectual prosperity protection

* Effectiveness of antitrust laws

THE SYSTEMS APPROACH TO BUSINESS AND SOCIETY

The laws of society are more powerful than any law that congress can put on the books. Woe to any businessman who doesn’t read the laws of society and understand them.

Firms operate within a broader social context, which directly affects the competitive environment and the value of the firm resources. At the center is Top Management, which evaluates and pursues opportunities for value creation and capture while managing the attendant risks.

The parameters set by the public law, the firms’ position within the competitive environment and the nature and uniqueness of the firm resources, the TMT defines the value proposition and selects and performs the activities in the value chain.

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Meeting Social Expectations

Business decisions consist of continuous, interrelated economic and moral components.

Firms have relationships with many constituent groups, which both are affected by the actions of the firm.

Effect of Law on the Competitive Environment and the firms Resources

Law helps shape the competitive environment and affects each of the five forces, identified by Michael Porter,...