An Examination of the Accuracy of Small Manufacturer Chief Executive Officers in Assessing the Legality of Selected Actions

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ABSTRACT

This inquiry investigated the degree of familiarity of C.E.O.s of small manufacturing firms with federal regulations. Important findings were that the managers, especially those employed by firms producing industrial goods, were deficient in their familiarity with the terms of government regulations and could benefit from the acquisition of further insights. Implications and suggestions for the C.E.O.s. are provided.

INTRODUCTION

Top managers of small manufacturing firms should be cognizant of the major federal laws which impact them. Research suggests that they perceive their organizations as less law abiding than do lower-level managers (Petrick, Scherer, Wendt, & Cox, 1994). However, it is possible that some C.E.O.s mistakenly perceive the depth of their knowledge of this subject and incorrectly assume that they can assess which actions are congruent with the law and which are not. If this condition exists, these managers are placing themselves in a position of exposure to potential prosecution with all of the associated ramifications (Debble, 2001). Given these circumstances, top managers of small manufacturing companies may benefit through becoming aware of the level of their legal knowledge of federal laws.

Small manufacturers face a formidable and continually shifting body of federal law which influences their actions. The laws exert an effect on a wide range of company activities (Hamel, 2003; Posner, 1997).

There are constraints on hiring, promoting employees, supervisory practices, safety, raising capital, accounting methods, financial reporting, advertising, pricing, dealing with suppliers, dealing with competitors, and numerous other activities (Black, 2003; Stanley, 2003; Peritz, 2002; Ballam, 2000; Moorhouse, Morris, & Whiples, 1999).

Modifications in the laws and the manner in which they are interpreted over time can insert ambiguity in the perceptions of small manufacturing company C.E.O.S. These changes can be very difficult to predict (Stock, 2003). Those who do research in this area often discover that their predictions must be continually updated (Audretsch, Baumol, & Burke, 2001). Experience indicates that shifts in the regulations may necessitate continual surveillance of the federal level legal processes. Some fields that have witnessed recent modifications in the regulations include restrictions on price offers and promotions (Sinha, Chandra, & Srinvasan, 1999), bribes in international transactions (McCubbins, 2001), wage and hour regulations (Thompson, 2003), overtime regulations (Nicolai, 2003), deception of consumers (Waterson, 2003), and communications among competitors (Gilliland & Manning, 2002).

Executives who are employed by small manufacturers must contend with a formidable burden imposed by legal matters. Regional and local managers who have positions with larger enterprises are not directly responsible for many of the actions that the federal government monitors. Accountability for these is centered at the corporate or division level. However, managers in smaller companies tend to be charged with a wider range of responsibilities since there are fewer numbers of specialized personnel on the payroll. Further, large manufacturing company executives often have access to specialized attorneys who are employed or retained by the employer. This favorable circumstance is less common in smaller enterprises. The various regulations impact many different business activities, are occasionally vague, and may have formidable ramifications for the company. (Edlin, 2002). Thus, managers should stay acquainted with these restraints and the manner in which federal officials administer them. Manufacturers should understand the law in order to preclude consequences such as fines, damages, injunctions, undesirable out-of-court settlements, and legal fees.

Top managers of small manufacturing firms cannot be charged with the responsibility of being familiar with all of the federal laws, of course (Zane, 2002). …