A new trend in the business environment shows that the company 's business ethics situation is increasingly valued by the business partners. A more obviously sign is that more and more audit firms refused to cooperate with the clients who are lack of business ethics. One of the most important things for audit firms to receive a new client is the professional ethics and personal ethics of the top management. They are more likely to choose the client whom with good moral.
In the mid 1990s, several Internet companies raised up rapidly. They began to earn money sharply but the business ethics is completely aside. In that period, expanding the economic interests of shareholders seems more important than maintaining the quality of their products and services. Many Internet companies do business lack of business ethics at that time. In the 2000s, the US capital market were disturbed by financial wrongdoing at numerous major companies, such as Enron, Tyco International, Adelphia, Peregrine Systems, and WorldCom. These scandals cost investors billions of dollars when the share prices of affected companies collapsed, and shook public confidence in the US securities market(John C 2007). To restore public confidence in the reliability of financial reporting, the president Bush signed the Sarbanes-Oxley Act of 2002 on July 30,2002, stating it included “ the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt. The ear of low standards and false profits is over; no boardroom in American is above or beyond the law”(Bush 2002).
While some failures were the result of fraudulent accounting and other unethical behaviors performed by the management, weak corporate governance such as c...
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...d material weaknesses”(House 2002). By making top managements totally accountable for their companies’ financial performance, SOX place significant responsibilities to both company and company’s top managements and restore the confidence of the investors’ and public(LLP 2012).
With a higher degree of agency problems, mangers have a stronger incentive to pursue personal interest instead that of shareholders’. They also are more likely to pursue “empire building” to secure their power. After SOX, managers and boards work harder to maximize shareholder value through changes in corporate governance. Reducing the payment of CEO, enhancing the turnover of the CEO, and maintaining higher insider ownership can strengthen corporate governance by aligning the incentives of insiders with those of the shareholders. As mentioned above, the SOX reduced managerial agency problems.
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