Management of Engineering Organizations and Legal Issues - Case Study Example

Management of Engineering Organisations and Legal Issues Introduction Legal systems have evolved in some form or the other, in all countries of the world. They have attained exemplary depth and breadth in democratically ruled countries while under other forms of governance, they cover a wide range - from good to practically non-existent systems. One can safely conclude that most of the countries are indeed governed by the rule of law, howsoever rudimentary or arbitrary it may be. In general, laws of a nation (Civil Laws) are formulated by the respective national legislative bodies, the parliaments of a group of countries (as in the case of the European Union), on the basis of conventions like the English Common Law, and on theocratic basis (as in the case of Islamic nations). This essay examines the legal issues vis-à-vis management of engineering organisations in an advanced democratic country like the UK. It is appropriate, at this stage, to put forth the argument concerning the topic. Legal issues may be irksome for effective management of engineering organisations but there is no gain saying the fact that the legal rules provide a definitive and helpful background for professional management. The existence of a body of established law helps in smooth running of an organisation and conducting of its business in a predictable manner. Irksome laws and legal rules are certainly there, if viewed from the narrow perspective of a few organisations or a few managers but in the final analysis, one realises that laws evolve with the collective wisdom of the society and hence are to be accepted in the larger context. For example, the safety, health and environmental laws or corporate governance laws may appear to be intrusive, irksome and management 2 expensive to implement. But it is proved time and again that in the ultimate analysis, compliance is more economical than paying the price of damages or clean up costs. The prime examples of the Bhopal Gas Tragedy (Pratima, 1998) of the Union Carbide or the Exxon Valdez oil spill in Bligh Reef near Alaska (Thinkquest) testify to this harsh reality. Engineering organisation Engineering organisations are formed to provide goods and services in exchange for a consideration, usually payment of money. This simple definition points out the stakeholders involved in the process of setting up and running of engineering organisations. They can be identified at the broad level as the employees, customers, vendors, investors / financial institutions, and the statutory authorities. All engineering organisations are legal entities, separate from the promoters or owners. To this extent, they are subject to the laws of the land in all the dealings with the stakeholders identified in the previous paragraph. A contract provides an expectation of performance of a promise and this expectation governs the relationships among the stakeholders. In the process, it also impacts the way an engineering organisation is managed, given the fact that it has to function within the four corners of the law. Management The four pillars of management are planning, organising, coordinating and controlling. The production and marketing of goods and services of an engineering organisation is to be effectively managed, if the organisation has to survive and grow. To enable complete and comprehensive performance in each sphere of activity, work is split up into functional areas such as planning, engineering, purchasing, manufacturing, marketing, services, personnel, finance & management 3 accounts, legal & administration etc. This list is by no means exhaustive and depending upon the specific needs of a business, there could be further split up on the basis of work, region, etc. Further, depending upon the philosophy and needs of a business, the interactions between the different functional departments and their personnel are organised on a formal or informal basis. Formal organisations are somewhat rigid with exchange of communications taking place along the lines of reporting while the informal organisations permit easier flow of ideas across functional boundaries. Each of these styles has its merits and management relevance. Agency responsible to observe laws Having seen a broad picture of engineering organisations and their management set up, it is now pertinent to briefly examine the agencies responsible to observe the laws of the land. Suffice it to say that every employee of an organisation is expected to be aware of the legal requirements of his work situation. The higher the position of an employee in the organisational hierarchy, the more is his responsibility. The board of directors and the owners own the ultimate responsibility for any breach of law, even as the individual responsibility of the employees at various levels is held in tact, provided they are made aware of the same by the specific acts of management like on-the-job training and exposure to legal issues. A formal organisation finds it easier to observe the laws than an informal organisation. Among the myriad of laws governing engineering organisations, the Law of Contracts, has an important position in relation to the topic of this paper. The other relevant laws are the laws of civil liability, employment law, safety, health and environment laws, and corporate governance laws. Law of Contracts and the laws relating to safety, health and environment being relevant, some of the important provisions of these laws are dealt with below. management 4 Law of Contracts Contracting is a routine function in any engineering organisation. Of prime importance are the contracts with customers for supply of goods and / or services, and with vendors for purchase of goods and / or services. Effective management ensures that the persons dealing in contracts are aware of the nuances of the concerned law in order that the organisation spends maximum effort efficiently in its main business activity, and does not get bogged down in legal battles over defective contracts. The important features of the law of contracts are offer, acceptance, intention to create legal relations, consideration, legal capacity to enter into contracts, and termination, among others. The law and the notified legal rules define each of these features. The specific rule points out that ‘a contract is an agreement for fulfillment of a promise, entered into by competent persons by free will, for a consideration and for a lawful object.’ The process involved in entering into contracts, consists of making an offer by the offeror and its acceptance by the offeree. To ensure conversion of offers into legally enforceable contracts, the law lays down rules covering conditions for validity of an offer and its acceptance. For example, all contracts to supply goods are ‘agreements’ but all agreements to supply goods need not be legally binding ‘contracts’. If a legally ineligible person like a minor or a mentally challenged person is a party to an agreement, it becomes void and cannot be enforced. The presence of the contract law on the statute book along with its rules is of immense help in conducting the business of the organisation in a professional manner i.e., responding to ‘repeated situations’ in a predictable and justifiable manner. Irrespective of the number of times or the types of goods / services contracted for purchase from outside sources, a Purchase management 5 Manager will ensure that his purchase activity – from the time of sending out enquiries, negotiating, contracting and receiving the goods / services – is in full compliance with the contract law. He will ensure ‘legal competence’ of the person with whom he is dealing, ensure that the offer and terms are negotiated and accepted in writing within the stipulated time, place the comprehensive terms of performance from both sides in the form of a purchase order or an agreement including terms for delivery, price, payment terms, performance guarantees, contract conclusion, breach, foreclosure, termination and dispute resolution. The management takes care to avoid contracts that may be faulty in the eyes of the law or to avoid situations that may lead to disputes and extended / expensive legal recourse. The contract law also provides for situations of mistakes and misrepresentations. As per rules, while a minor mistake may not vitiate a contract, a major mistake committed by one party to the contract can lead to his claiming that the contract as void in view of the mistake. A misrepresentation is a deliberate act on the part of one party to induce the other party to enter into a contract on unfavourable terms. Engineering companies in civil contracting work often face these situations – mistakes and misrepresentations. For example, if for a certain contract earth work is to be carried out and the character of the soil in which the work is to be done turns out to be different from what was envisaged in the contract, then the contract is subject to legal interpretation for dispute resolution. If the soil character was genuinely mis-assessed due to unforeseen circumstances, then it was a case of mistake and fit for renegotiation on equitable terms. On the other hand, if the adverse condition of the soil (like rocky structure) was known but deliberately suppressed to induce parties to quote lesser prices, then it was a case of misrepresentation and the contract could be voided, if the aggrieved party chooses to do so, apart management 6 from claiming damages. Thus, the rules of mistake and misrepresentation help the managements to decide such issues on merit and quickly seek cost-effective solutions. Safety, health and environmental laws These laws are assuming increasing importance all over the world and engineering organisations cannot escape them even though they may add to the costs and apparently not contribute anything to the bottom line. In view of the global awareness of the issues of work place safety, health and environmental impact of business operations, they have to be necessarily factored into in any business plan. If a manufacturing unit is letting out waste gases or wastewater as effluents, the laws insist on implementation of pollution control measures and set specific limits (called threshold limits) of pollutants that may be permitted to enter air, water or soil. These limits are specified very elaborately for every type of industry and every type of pollutant. In addition, even the design of products of a manufacturing unit are subject to environmental laws so that when these products are put into operation, they do not cause pollution in excess of the specified limits. Automobiles emission controls are prime examples of this type. Such legal enforcement propels the engineering organisations to spend money on R&D efforts to meet the compliance requirements and impacts the management of such firms in a very significant way. Similarly, laws like the Factories Act, Workmen’s Compensation Act or the Hazardous Substances (Handling and Storage) Act deal with work place organization, safety and health issues and compliance / reporting requirements. Interestingly enough, a slew of organisations are now specialising in providing software programmes and training in managing safety, health and environmental issues in any engineering organisation and to manage the associated risks. These programmes enable intensive training, records maintenance on specified management 7 activities, online recording of events and occurrences that need to be reported to statutory authorities as well as statutory filings on compliance. Thus, while the laws are becoming stringent, ways and means to train the staff and comply with the laws are also gaining sophistication. Implementation of such systems is an effective management response to legal rules as it turns a legal hurdle into an opportunity for showcasing corporate responsibility and governance. Conclusion Engineering organisations form a very significant part of national economies. In the course of conducting their business, they enter into contracts on a regular basis for sourcing goods and services or for selling goods and services. These are transactions involving individuals at various levels of an organisation with external agencies. In order that these transactions are legal and binding, relevant laws are to be observed. Similarly, engineering organisations carry out their activities for production of goods in factories and while doing so, they have to comply with laws laid down for workplace safety, health and environmental pollution control. Spreading awareness of these laws and ensuring compliance at all levels is a management responsibility. Many of the laws, though they may appear to be irksome or intrusive or expensive to implement, in fact help in running the business in a more professional manner and to avoid costly litigation or claims. Reference List History, Exxon Valdez, Thinkquest, 2006. Retrieved January 9, 2007 from http://library.thinkquest.org/26026/History/exxon_valdez.html Pratima, U., 1998, Bhopal Gas Tragedy: An analysis. Retrieved December 28, 2006 from http://72.14.235.104/search?q=cache:1cLHQrrlK9QJ:www.hu.mtu.edu/hu_dept/tc%40mtu/papers/bhopal.htm+bhopal+gas+tragedy&hl=en&gl=in&ct=clnk&cd=2 Smith & Keenan, D., 2006, Law for Business, (13th ed.), Trans-Atlantic Publications. Read More