Executive Summary
Liability capping is the major concern to any organization that deals specifically with providing services to people. The staff introducing intangible products could undergo unfair treatment, ambiguity, and conflict situation on the part of the customers whose discontent can lead to a lawsuit.
Moreover, it can also threaten the safety and protection of the employees, as well as hamper the culture of retention. In this respect, the report will focus on the case study revealing the story of Michael Horton, a vice-president for the natural resources for C.S.C., an Australian Computer Sciences Corporation.
By delivering IT services to various legal entities, the company faces a challenge of developing professional standards legislation that can limit the set of liabilities and duties in relation to customers. Despite the fact that the company gains recognition and trust from their customer, the company managers should work out the legislature standards that can provide their employees with sufficient support and security.
As alternatives to the case problem, three solutions could be provided. First, the company could enhance its mission and strategy and emphasize the importance of human factors while dealing with people-to-people business. Second, the company can introduce a specific set of moral and ethical principles that would allow employees to be more aware of the restrictions imposed by law in terms of relationship with clients.
Finally, the company can also integrate training programs that can measure the employees’ awareness of contract laws and international relations. The latter seems to be the most efficient and viable solution to the emerged problem because human factor stands at the core of understanding which restrictions should be imposed on liabilities and duties of employees.
A detailed analysis of the company’s processes and approaches to liability capping, as well as the alternative solutions will be introduced in the report.
Alternative Solutions to the Issue
Enhancing company’s mission and strategy can serve as a starting point for developing new information bases for employees and clients to be more aware of the legal issues and liabilities. In particular, because the company operates at a global level, the managerial staff should pay closer attention to the cultural diversity issues and the international standards that are accepted worldwide.
In the context of liability capping, the organization should take into consideration purely commercial aspects, which specifically refer to the subject of the negotiation between the parties. The security issues should also be stated in the company’s mission to ensure that all values, norms, and standards have been presented to the IT departments.
The main problem is that the organization’s previous philosophy did not incorporate higher level of legal regulations. The focus, therefore, was on specific industries, corporations, and client groups. Changing the foundational ideology can allow the managers to reconsider their policies towards the liability capping.
For instance, it is possible to integrate legislation that can raise payment for the possible economic losses with both the potential customers and regular clients. According to Rascoe, the companies operating offshore encounter barriers to insurance of a liability cap1.
The second alternative implies developing a set of ethical and moral principles that strengthen the organization’s strategic basis and ensure employees’ with higher level of protection2.
Due to the fact that liability capping refers to the injurer’s responsibility to reimburse the losses, it also implies that “…the injurer is legally held fully liable for the damages in case of an accident, but he is only partially liable economically”3. Under these circumstances, Mr. Horton is aware of the fact that conflict situation can be resolved through implementation of personal perspective and efficient communication devices, including listening and understanding.
During negotiations, listening is the decisive factor contributing to the success of the agreement, as well as to the reduction of the potential risks. Cultural diversity can become a company’s liability, as far as the personnel transmittance is concerned4. Appropriately, developed codes of conduct will reduce the risk of irrelevant behavior leading to legal infringement.
Mrs. Horton realizes that the development of a strong ethical commitment is not possible unless a liability adviser is invited to the company. In the majority of cases, liability capping seeks to restrict the degree of adviser’s liability in case the client succeeds in defining what has been negligent 5.
The problem is that most of the liability caps are associated with monetary values. Therefore, the company should develop a scheme in accordance with which the clients should provide a sufficient explanation why they should cap their liabilities. Therefore, the clients should inform the organization about their discontent.
The third perspective involves development of new metrics and training programs that would evaluate employees’ competencies in terms of knowledge of contract law with reference to liability capping. Within the perspectives of contracts between the parties dealing with IT field, the draft of an exclusion clause, or liability-capping essentials, refers to the main three conditions.
To begin with, the organization should ensure that the clause is included into the agreement. Second, the liability caps should be enforceable and, finally, the clause should restrict losses and responsibilities that employees and clients usually take6. The operative wording of liability caps should comprise tested and tried sheet that should meet the above-mentioned requirements.
With regard to the presented arguments, the company should integrate new approaches to constantly upgrade the requirements to carrying out business internationally. Specific attention should be given to the analysis of recruitment culture in various headquarters. The performance analysis committee should focus on social and cultural backgrounds of the employees and client to evaluate their readiness to follow the exclusion clause.
In other words, the clients should ensure that the core indemnities are excluded from clause because the obligation will be undermined if not vitiated7. In this respect, the IT manager should not only rely on trustful relations and employees’ good negotiating and communicating skills, but also on the development of a strong legal ground to conclude agreements in future.
Rationale for the Chosen Solution
Introducing stronger organizational strategies, mission, and statement is vital for ensuring rich corporate culture and providing employees with a set of obligations and responsibilities. Full commitment to organizational culture could be achieved as soon as the company’s managers decide what legislature should be integrated into a global business environment.
Therefore, emphasis on legislature and international standards will provide a strong foundation for developing new metrics and training programs for employees. Their knowledge of contract law and liability capping process should advance their understanding of how IT business can be improved.
The first solution to strengthen organizational mission and objectives excludes the possibility of analyzing the marketing potential of the global environment. Moreover, such a strategy fails to refer the human factor, which is the key to success. Therefore, this decision does not provide foundational ground for promoting legislature into a culturally diverse environment8.
Rather, the alternative will be pertinent at later stages of change management. Changing the awareness and consciousness of the personnel should be the priority.
As per the second alternative, the set of ethical and moral principles can contribute greatly to the enrichment of organizational culture, but they serve as a secondary instrument to handle the issue of liability capping. Moreover, knowledge of ethics does not release them from legal obligations9.
Therefore, greater competencies in legal issues and regulations can enhance protection of confidential information and predict all possible risks during delivery of services to consumers.
Due to the fact that the above-presented solutions are not essential for delivering improvement and change to the current global strategies introduced in the company, the third solution will encompass all the issues and factors that could undermine previous approaches. The liability capping deals primarily with possible risks, including technical problems, communication challenges, etc.
The primary task of the employees is to define the terms, or liability caps, that will allow them to protect their rights and responsibilities. Although the company has a number of reliable customers, the risk of failure always exists.
In the majority of cases, licensors negotiate commonly accepted liability caps and exclusion clauses. However, licensees insist on “the licensor’s liability under any indemnification obligations…from any cap”10.
However, the company should realize that the breach of the intellectual property rights should be considered by licensors before it is accepted if the remedies are presented as exclusive and sole. Alternatively, the licensor can have an unlimited liability. Similar to these principles, the company should also be aware of the unlimited options of the clients who can avoid the agreement provisions.
Connecting the Case to Michael Porter Framework
When it comes to the issue of liability capping, it is necessary to apply a specific framework to access the former properly. In the given case, Porter five forces analysis seems to be the most appropriate framework to choose. In the light of Porter’s theory, one will be able to assess the company liability in a more accurate way.
Bargaining power of customer
With the help of liability capping, the company will be able to provide the clients with a flexible pricing policy
Threat of new entrants
As Ahlstrom and Bruton explain, “Potential new rivals believe that they may be able to make similar or better returns.”11 However, with more competitors in the market, the influence and authority of Horton’s services are going to rise. Hence, following the liability capping strategy, Horton will be able to control new entrants and remain in the leading position.
Threat of substitutive products
With new entrants, substitutive services are likely to appear. However, the given problem can be solved by increasing the quality of the original product.
Competitive rivalry within an industry
Since the rivalry within the company is practically unavoidable, it is necessary to come up with the means to control it, which the liability system will be able to offer. s
Bargaining power of suppliers
In the light of the liability capping issue, it is especially important to consider the bargaining power. Developing an efficient liability system, Horton will be able to control the process making sure that the suppliers do not pressure him into lowering prices. Likewise, the suppliers will be able to see that the company offers fair pricing policy.
Hence, it can be concluded that the approach that Michael Horton uses in his company is very efficient. Putting the emphasis on the relationships between the company management and the clientele, Horton makes a very wise decision.
Implications
With regard to the above-presented solutions, the company can significantly enhance its organizational strategies, as well as adopt a new legal foundation for conducting business. In particular, Mr. Horton should take into consideration these issues to create a new ethical and legal framework.
More importantly, he should address the international standards for developing the set of rules and principles according to which IT contracts should be conducted.
In addition, because the Computer Corporation deals with software licensing, liability capping is an integral component of daily practices. Finally, the main objective of Mr. Horton is to determine what indemnification obligations will be removed from the liability cap.
Bibliography
Ahlstrom, David & Bruton, Garry D. International Management: Strategy and Culture in the Emerging World. Stamford, CT: Cengage :Learning, 2009.
Battersby, Charles. Licensing Update. US: Aspen Publishers Online. 2010.
Classen, Ward. A Practical Guide to Software Licensing for Licensees and Lisensors: Analyses and Model Forms. US: American Bar Association. 2007.
Faure, Michael G. Tort Law and Economics. Edward Elgar Publishing, 2009.
Ferrell, O. C., Fraedrich, John, and Linda Ferrell. Business Ethics: Ethical Decision Making & Cases. New York: Cengage Learning.
Howson, Peter. Due Diligence: The Critical Stage in Mergers and Acquisitions. US: Gower Publishing, 2003.
Loos, Alexander. Directors Liability: A Worldwide Review. US: Kluwer Law International, 2010.
Ramseur, Jonathan. Liability and Compensation Issues Raised by the 2010 Gulf Oil Spill. US: DIANE Publishing, 2011.
Rascoe, Ayesha. U. S. Pushes to Life Oil Spill Liability Cap. Reuters. 2010. Web.
Footnotes
1. Ayesha Rascoe U. S. Pushes to Life Oil Spill Liability Cap.
2. Michael G. Faure. Tort Law and Economics. (Edward Elgar Publishing, 2009). 418.
3. Michael G. Faure. Tort Law and Economics. (Edward Elgar Publishing, 2009). 418.
4. O. C. Ferrell, John Fraedrich, and Linda Ferrell. Business Ethics: Ethical Decision Making & Cases. (New York: Cengage Learning, 2008). 265.
5. Howson, Peter. Due Diligence: The Critical Stage in Mergers and Acquisitions. (US: Gower Publishing, 2003) 40.
6. Charles Battersby. Licensing Update. (US: Aspen Publishers Online. 2010) 304.
7 Ibid., 304.
8. Jonathan Ramseur. Liability and Compensation Issues Raised by the 2010 Gulf Oil Spill. (US: DIANE Publishing, 2011) 10.
9. Alexander Loos. Directors Liability: A Worldwide Review. (US: Kluwer Law International, 2010) 70.
10. Ward Classen, Ward. A Practical Guide to Software Licensing for Licensees and Lisensors: Analyses and Model Forms. (US: American Bar Association. 2007) 72.
11. David Ahlstrom & Garry D. Bruton, International Management: Strategy and Culture in the Emerging World (Stamford, CT: Cengage :Learning, 2009), 133.