The relevance of business law education for future

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McCourt, Low & Tappin ? Volume 7, Issue 2 (2013)

e-Journal of Business Education & Scholarship of Teaching Vol. 7, No. 2, 2013, pp: 1-16.


The relevance of business law education for future accountants: A New Zealand Perspective

Alison McCourt University of Waikato, Hamilton, New Zealand

Mary Low University of Waikato, Hamilton, New Zealand

Ella Tappin University of Waikato, Hamilton, New Zealand


The importance of business law education is emphasised by the fact that there is a compulsory commercial law topic in the academic requirements for a chartered accountants' programme of study. However, researchers over time have pointed out that there was a gap between the legal awareness and understanding expected of graduate accountants and the legal education offered at a tertiary level. This study attempts to determine whether the current business law curriculum offered at two New Zealand universities is adequate in terms of preparing accounting students for the wide variety of legal issues that they may be exposed to throughout their careers. A mixed methods approach was used. Specifically, quantitative data was obtained through an online questionnaire which was distributed to accounting students at two New Zealand universities. The purpose of these surveys was to gain information on students' perceptions of the adequacy of the business law curriculum at their universities. Overall, the findings indicate that gaps currently exist between what is currently taught and what students believe ought to be taught. Specifically, the results reflect accounting students' belief that each of the 11 business law topics identified in the survey should be explored in greater detail. In particular, taxation law, employment law and trust law have the largest disparities between the level of detail taught and the level of detail expected by students. The key change recommended by students is that of a shift from the traditional law approach (which focuses on the technical details of contracts and other traditional legal topics) to the legal environment approach (which places more emphasis on understanding how the legal system operates and the role of the law in business). This is a recommendation which many academics have advocated since the late 1960s but which business schools have only instituted piecemeal and what appears to be on an ad hoc and inadequate manner.

Keywords: Business law education, accounting students

JEL Classification: K10 ; M40 PsycINFO Classification: 3410 FoR Code: 1302; 1501

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In today's litigious environment, it is crucial that businesspersons have at least a basic legal education in order to help them to properly recognise and manage legal risks (Emiliani, 2006; Moore & Gillen, 1985; Morris, 2007; Prentice, 2001; Siedel, Hildebrandt & Miller, 1984; Tanner, Keaty & Major, 2004; Wolfe, 1974). For the accounting professional, however, this basic understanding may be insufficient given the legislation by which the profession is constrained and the potential liability he or she may face if these rules are not strictly adhered to (Prentice, 2001). Furthermore, in New Zealand, the New Zealand Institute of Chartered Accountants (CA) academic requirements include a compulsory Commercial Law topic. Consequently, there is pressure on business schools to provide business law courses to accounting students which go beyond basic legal principles and which should adequately prepare students for careers in the accounting field. Such pressure led to a number of important research studies were conducted in the 1960s, 1970s, 1980s and 1990s (Daughtry, 1977; Donnell, 1968; Elliott & Wolfe, 1981; Klayman & Nesser, 1984; Joyce, 1968; Kocakulah, Austill & Schibik, 1995; Ingulli, 1991; Moore & Gillen, 1985; Nicolson & Roebuck, 1965; Weissman, 1960; Wolfe, 1974), many of which sought to determine whether business law education in the United States of America (USA) was adequate given the expectations of students, businessmen, chairpersons, accountants, lawyers and other employers. In general, these studies concluded that there was a gap between the legal awareness and understanding expected of graduate accountants and the legal education offered at a tertiary level.

To address this gap and other flaws, a number of researchers made recommendations for changes in the business law curriculum (Donnell, 1968; Klayman & Nesser, 1984; Moore & Gillen, 1985; Siedel et al., 1984; Weissman, 1960). Suggestions were made that business schools continue to review their curriculums periodically to ensure that accounting students were properly educated in respect to the law even as technology advanced and the law changed. These suggestions were, however, largely ignored and consequently many of the same issues with business law education are likely to persist today as the curriculum has undergone only minimal adjustments despite significant changes to the business environment (Emiliani, 2006; Gale, 2007; Kocakulah, Austill & Long, 2008; Morris, 2007). Additionally, few research studies have been conducted around this issue within the last 20 years despite accounting scandals during this period which have called attention to the legal and ethical responsibilities of accountants (for example, the infamous Enron scandal of 2001 and the WorldCom scandal of 2002).

This study seeks to determine whether the business law courses currently offered to accountancy students are adequate for preparing these students for a career in the accounting profession. This study differs from the majority of those conducted prior to the 1980s, however, as it focuses only on undergraduate students and will focus on the New Zealand tertiary business law curriculum. Undergraduate students were chosen for this study as part of a larger research project as their perspectives appear to have not been explored in too much detail in prior studies. Students are a key stakeholder group (see Moore & Gillen, 1985) and their viewpoints are relevant and need to be explored. However this also poses a limitation on the findings of this study as one might argue that students' knowledge of what is needed in the workplace may not have been sufficiently developed. Specifically what is currently taught was compared to what should be taught, based on the perspectives of accounting students who had completed at least one business law course. The paper commences by discussing the nature of business law, the relevance of business law education to accounting students, the adequacy of business law education before discussing the results of this study.

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Nature of Business Law

The term `business law' can be traced back to 1881, when "Joseph Wharton gave funds to establish the first collegiate school of business... [and] specified that the curriculum should include five subjects, one of which was business law" (Siedel et al., 1984, p. 263). However, despite its long history within the business school curriculum and although business law education has been discussed at length in a number of academic journals over the last five decades, few researchers have attempted to define what is meant by `business law'. This, in part, may be due to a lack of consensus by business school faculty members about what business law education should consist of (Ingulli, 1991; Truslow, 1977). A notable exception is Neil Gillam, who described business law in an editorial in the first issue of the American Business Law Association (ABLA) bulletin as "the non-vocational study of justice in personal, organisational and social relations, with emphasis on economic objectives and effective administration" (cited in Zelermyer, 1972, p. 181). It was also found that undergraduate courses in business law often cater to students of varying needs and from a range of disciplines (Beamish & Calof, 1989; Daughtry, 1977; Donnell, 1968; Klayman & Nesser, 1984; Lampe, 2006). This is because classes are not normally segregated based upon the future career paths, preferences or abilities of students (Daughtry, 1977). Consequently, any one business law class may contain a variety of majors, from those studying accounting and economics to those majoring in marketing and information systems.

In terms of what a business law course covers, there has been extensive debate over the content of business law courses and whether a traditional or environmental approach would best fulfil the needs of business students. The first approach, traditional, involves the teaching of legal topics such as contracts, agency and corporate law using a `black letter' or rules-based approach (Frascona, 1977; Joyce, 1968; Kocakulah et al., 2008; Moore & Gillen, 1985; Siedel et al., 1984; Tanner et al., 2004). Early research studies emphasised the value of this approach, with such findings indicating that businesspersons should have a thorough grounding in substantive areas of law (Siedel et al, 1984) and an awareness of the rules of law (Donnell, 1968). However, as far back as late 1950s, a number of academics have opposed this traditional approach and have instead highlighted the usefulness of a more environmental approach to business law education. In 1959, for instance, the renowned Gordon-Howell and Pierson reports concluded that business schools need only emphasise law "as an environmental factor for business operations" (cited in Donnell, 1968, p. 452).

Furthermore, Pierson in 1959 claimed that business law courses should "deal with technical details of contract, agency, employment, etc., only to the extent necessary to show some of the ways the living law enters into specific business situations" (cited in Moore & Gillen, 1985, p. 352). The American Assembly of Collegiate Schools of Business (this body now known as Association to Advance Collegiate Schools of Business (AACSB)) even appeared to advocate this approach in 1969 by replacing the traditional business law course requirement with a course that "exposed students to a background of the economic and legal environment of business enterprise along with the effect of ethical considerations and social and political influences on business" (cited in Tanner et al., 2004, p. 206). Over time, it would appear whether due to imposed requirements set by external bodies or the perceived value of legal environment courses, a number of business schools have transitioned from a traditional `black letter' approach to a legal environment approach (Burger, 1967; Elliott & Wolfe, 1981; Joyce, 1968; Klayman & Nesser, 1984; Miller & Crain, 2011; Moore & Gillen, 1985; Siedel et al., 1984; Tanner et al., 2004). Specifically, business law courses are increasingly focusing "on the general operation of the legal system"

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(Siedel et al., 1984, p. 262) and on the "overall organisation of the legal environment in which business is conducted" (Tanner et al., 2004, p. 206). There are, however, some critics who claim that a legal environment approach is insufficient. Frascona (1977) concludes that traditional subjects which "give emphasis to the rules of business law" (p. 9) are more important than environmental subjects, given that society has imposed constructive notice of the law onto businesspeople.

Relevance of Business Law to Accounting Students

Business law education has been recognised as being of significant importance for undergraduate students majoring in accounting (Daughtry, 1977; Elliott & Wolfe, 1981; Emiliani, 2006; Ingulli, 1991; Klayman & Nesser, 1984; Kocakulah et al., 2008; Kocakulah et al., 1995; Moore & Gillen, 1985; Prentice, 2001; Siedel et al., 1984; Wolfe, 1974). For example, Moore and Gillen (1985) explain that "[a]ssuming that the object of [business schools] is to turn out graduates who are not only capable and successful but also socially aware and responsible, then a course or courses in law would seem to be an inescapable component of the undergraduate curriculum" (p. 356). Moreover, Prentice (2001) contends that "no accountant is thoroughly educated [without] substantial exposure to a wide range of substantive legal subjects, as well as to legal and ethical reasoning" (p. 599).

Business law education has been identified as crucial to future accountants for several reasons. First, as businesspersons, accountants should be familiar with the basic elements of law due to the critical role that such education plays in business (Elliott & Wolfe, 1981; Klayman & Nesser, 1984; Wolfe, 1974) by "creating social order, enforcing promises, punishing fraud, rewarding creativity, and deterring monopoly" (Prentice, 2001, p. 600). Business law education is therefore useful in teaching students how to prevent, recognise, manage and resolve the legal risks inherent in corporate decision-making (Daughtry, 1977; Emiliani, 2006; Ingulli, 1991; Lampe, 2006; Miller & Crain, 2011; Prentice, 2001; Siedel et al., 1984; Tanner et al., 2004). Second, the accounting profession is "shaped and constrained by legal rules" (Prentice, 2001, p. 604) and accountants face significant legal liability for breaching these rules. For example, accountants may face hefty civil fines and encounter criminal penalties for violations such as breach of contract, breach of fiduciary responsibilities, fraud and negligence (Prentice, 2001). Accounting students therefore need to be legally aware of their legal responsibilities and the potential legal ramifications should they err. Third, business law education is vital as it indirectly provides guidance to students as to what is ethical (Prentice, 2001).

Knowing what is ethical is particularly important for accounting students as accountants are expected ? by their clients and by society in general ? to demonstrate high ethical standards and practice ethical decision-making. Moreover, involvement in unethical activities, such as corporate fraud, reflects badly not only on the individual involved but on their firm and on the profession as a whole (Kocakulah et al., 2008; Tanner et al., 2004). Fourth, law is an important component of professional accountancy examinations throughout the world, including the Certified Public Accountants (CPA) examination in the United States of America (Elliott & Wolfe, 1981; Kocakulah et al., 2008; Kocakulah et al., 1995; Miller & Crain, 2011; Prentice, 2001). Obtaining a basic understanding of business law and the legal system may therefore help prepare students to sit and pass these examinations. Furthermore, in some states CPA candidates are still required to complete at least one business law course prior to taking the examination (Kocakulah et al., 2008; Kocakulah et al., 1995; Miller & Crain, 2011). This is also the case in New Zealand, where accounting students are required to complete at least two business law courses in order to be eligible to sit the New Zealand Institute Chartered Accountants (NZICA) professional examinations

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(NZICA, 2012a). Finally, business law courses can play an instrumental role in the development of basic literacy and critical thinking skills, both of which are critical in any professional workplace (Mytton & Gale, 2012; Tanner et al., 2004).

Adequacy of Business Law Education

Many business schools have recognised the importance of business law education for students, particularly those majoring in accounting. Consequently, a significant number of business schools have made it mandatory for students to undertake at least one business law course during their studies (Gale, 2007; Miller & Crain, 2011). At New Zealand universities, for example, students are typically required to complete at least one law course in order to graduate with a major in accounting (see, for example, Lincoln University, 2012; Massey University, 2012; University of Auckland, 2012; University of Waikato, 2012; Victoria University of Wellington, 2012). However, despite its long history within the business school curriculum, many academics have criticised business law education as being somewhat inadequate (Beamish & Calof, 1989; Bennis & O'Toole, 2005; Elliott & Wolfe, 1981; Emiliani, 2006; Gale, 2007; Ingulli, 1991; Joyce, 1968; Kocakulah et al., 1995; Moore & Gillen, 1985; Morris, 2007; Nicolson & Roebuck, 1965; Ogawa & Kim, 2005; Weissman, 1960; Zelermyer, 1972).

One of the common criticisms raised pertains to the faculty members responsible for teaching business law courses (see, for example, Emiliani, 2006; Gale, 2007; Ingulli, 1991; Joyce, 1968; Kocakulah et al., 1995; Lampe, 2006; Morris, 2007; Nicolson & Roebuck, 1965; Zelermyer, 1972). Many academics point out that the majority of business law faculty members are lawyers (Gale, 2007; Joyce, 1968; Lampe, 2006; Nicolson & Roebuck, 1965; Zelermyer, 1972), who have a "tendency... to teach law at the undergraduate level as a simplified version of what they were taught in professional school" (Joyce, 1968, p. 578). This poses a problem as business students do not necessarily require the breadth or depth of understanding that law students do, given that they are preparing to become businesspeople rather than lawyers (Burger, 1967; Lampe, 2006, Morris, 2010). Gale (2007) also stresses this point, emphasising the tendency of `non-expert' business law lecturers to teach non-specialist students an inappropriate curriculum which "looks like the first few lectures in the LLB English Legal Systems class bolted on to an overview of the LLB Contract modules, attached to a bit of the Tort course and maybe some Company Law and Employment Law" (p. 11) and all these topics in as few as 12 weeks. Ingulli (1991) suggests that lawyers are likely to teach in a similar manner to how they were taught "within the narrow confines of law school" (p. 619). In contrast, she posits that business students should be taught using "not only economics and the business disciplines, but also sociology, psychology, anthropology, philosophy, literature, history, feminist theory and ethnic studies" (Ingulli, 1991, p. 619).

The methods employed in teaching business law have also been widely criticised (Bennis & O'Toole, 2005; Morris, 2007; Schlesinger & Spiro, 1982; Wolfe, 1974). For example, Morris (2007) comments on a lack of ground preparation work. Specifically, he notes that, unlike students educated within the law school, business law students are not typically required to undertake mandatory classes which offer an introduction to legal writing, reasoning and logic, legal research methodology and so on (Morris, 2007). Instead, "many non-law students are left to puzzle these matters out as best they can" (Morris, 2007, p. 287) despite the fact that many non-law courses are as demanding as those taught in the law school. Daughtry (1977), states that "an understanding of certain terminology associated with adversary proceedings" (p. 79) should be given to undergraduate business students at the beginning of their first course in law. Bennis and O'Toole (2005) and Wolfe (1974) argue that the

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conventional method of business law instruction places too much emphasis on the development of intellectual and technical skills. Wolfe (1974) contends that instructors often attempt to "develop an appreciation of the law by requiring students to memorise numerous rules of law" (p. 11) when instruction and evaluation would be better accomplished through application of the principles learned. Similarly, Miller and Crain (2011) argue that "[i]t provides little lasting benefit if the student memorises definitions and rules without being able to apply legal concepts to business situations" (p. 203).

Another common area of criticism relates to the legal content of business law courses. Specifically, there is concern that the business law curriculum is not sufficient to prepare students for a future within the business environment (Bennis & O'Toole, 2005; Donnell, 1968; Klayman & Nesser, 1984; Kocakulah et al., 1995; Moore & Gillen, 1985; Morris, 2007). Consequently, a number of academics have conducted research on the legal topics required by future business professionals and those currently studied by business students (see, for example, Daughtry, 1977; Donnell, 1968; Elliott & Wolfe, 1981; Klayman & Nesser, 1984; Kocakulah et al., 1995; Moore & Gillen, 1985; Tanner et al., 2004). Such studies have had similar findings. For example, Donnell (1968) concluded that "the matters covered in a typical law course required of undergraduates in business are not those likely to be found most helpful by... students in their business careers" (p. 455-456). Meanwhile, Klayman and Nesser (1984) determined that "there exists a significant gap between legal studies education in the business school and the needs of the business person" (p. 65). In terms of the legal topics considered most important, the basic principles of contract law, regulatory law, company and partnership law and `how and when to consult with an attorney' were repeatedly ranked highly (Daughtry, 1977; Donnell, 1968; Elliott & Wolfe, 1981; Klayman & Nesser, 1984; Moore & Gillen, 1985; Tanner et al., 2004).

In those studies that focused specifically on the needs of accounting students, topics that were likely to be tested in the CPA exam were also frequently perceived as being important (Daughtry, 1977; Kocakulah et al., 1995). Topics such as `the origins and history of law' and `contractual incapacity of minors' were generally ranked as being of low importance (Donnell, 1968). According to Klayman and Nesser (1984), many of these lowest ranking topics are in areas "which rarely arise in a business context..., do not confront the ordinary business..., or are generally perceived as complex legal specialities" (p. 51). In contrast, the legal topics most commonly included within business law curriculums are typically `traditional' law topics. Thus, topics such as `how and when to consult with an attorney' and business ethics are usually treated less extensively than demand might suggest is necessary, and, by consequence, some of the more traditional topics continue to be treated extensively "despite their slippage in value to the business person" (Klayman & Nesser, 1984, p. 62).

Improving Business Law Education

In recognition of the shortfalls of the current business law curriculum, a number of academics have recommended that changes be made (Beamish & Calof, 1989; Daughtry, 1977; Donnell, 1968; Elliott & Wolfe, 1981; Emiliani, 2006; Gale, 2007; Ingulli, 1991; Joyce, 1968; Klayman & Nesser, 1984; Morris, 2007; Mytton & Gale, 2012; Ogawa & Kim, 2005; Prentice, 2001; Siedel et al., 1984; Wolfe, 1974; Zelermyer, 1972). Recommendations have been made in regards to methods of instruction in business law courses. For instance, Daughtry (1977), Gale (2007) and Morris (2007) highlight the importance of establishing a solid foundation so that students commence their legal education on sure footing. In particular, this might mean providing an explanation of why the study of law is necessary for future businesspersons as well as an introduction to legal proceedings and legal terminology.

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