Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly, shredding …show more content…
The act introduced changes to the regulation of corporate governance. The intent of the act is to protect investors from inaccurate financial reporting. It sets forth strict compliance regulations and harsh penalties for violations (Cross & Miller, 2012). The Sarbanes-Oxley Act is made up of eleven titles designed to restore public opinion and trust. The titles address issues independent of one and another, but it is the fluidity among them that allows them to operate as one. The act requires companies to establish internal controls to safeguard the integrity of its financial reporting. In turn, these controls are designed to provide shareholders a level of confidence in the company’s discloser reports. Also a, year-end financial audit is completed, along with an assessment of the overall effectiveness of the company’s internal auditing programs (Cross & Miller, …show more content…
Broadly defined business ethics is, knowing the difference between what is right and what is wrong. It is the written and unwritten, principles and values that govern how decisions are made within a company (Cross & Miller, 2012). The focus of business ethics is to identify the moral standard, and provides guidelines to follow when making tough ethical decisions. Unethical behavior is typically the result of corrupted interactions between individuals within the organization (Brown & Mitchell, 2010). Many times, unethical acts steam for behaviors that are socially or culturally acceptable within the organization. Ethical behavior can enhance a work environment and maximizes contentment, while unethical behavior may have the opposite affect. Not only can this behavior cause stress in the work place, there is the possibility of it ruining a business (Cross & Miller, 2012). Unlike corporate governance, ethical standards are not as easy to define. A code of ethics expresses fundamental principles and provides guidance to decision makers, but there are no set rules written into a code of ethics. A code of conduct is created using a company’s code of ethics. It is a statement of standard that discloses how a company chooses to conduct its business activities (Driscoll &Hoffman, 2011). Following the scandals of the early 2000’s, many companies adopted a code of conduct to ensure the compliance
A code of ethics is essential in today business world, and customers honestly base a company’s reputation on these bases. Simply defined a code of ethics is a set of core values designed to help professionals manage a business that is honest and possess integrity. For example, a code of ethics document should highlight the mission and the values of a business. As well as, illustrate how professionals should approach issues, the ethical principles based on the company’s core values, and caliber to which the professionals are held. It is highly critical that a company like the Cheesecake Factory withholds an ethical and socially responsive code of conduct.
Internal controls are in place to protect entities against theft from dishonest workers and outside predators. They are also an accurate series of checks and balances and are in place to find discrepancies.
In July of 2002, Congress swiftly passed the Public Company Accounting Reform and Investors Protection Act at the time when corporations like Arthur Anderson, Enron and WorldCom fell due to fraudulent accounting practices and bad internal control. This bill, sponsored by Mike Oxley (R-OH) and Paul Sarbanes (D-MD), became known as Sarbanes-Oxley Act (SOX).It sought to restore public confidence in publicly traded companies and their accounting practices, though the companies listed above were prosecuted on laws that were already in place before SOX. Many studies have examined the effects of SOX on corporations in the past eleven years. The benefits are hard to quantify and the cost are rather hard to estimate including the effect on market efficiency.
The work emphasizes that having business ethics and a code of conduct can be a preventive medicine. The intended audience is the general public, management team, large businesses that have yet to create and develop a code of conduct, and businesses who are searching for a solution towards resolving ethical dilemmas in their workplace. The relevance of this work to our topic is it’s unique outlook on how the code should not only be developed with HR and the legal departments with the only intention of keeping policies legal but to see it being navigated by top management. It will also help us establish the usefulness of the code of conduct in relationships with stakeholders. A special feature of this work is the large-scale of sections it has on the topic of code of ethics. It contains a content section at the very top of the article that helps navigating toward sections easier. It also includes quotes from CEO’s, ethics professor Stephen Brenner form the Journal of Business Ethics, Twin Cities-based consultant Doug Wallace, etc. The writer of this article is Carter McNamara who has a MBA and PhD who specializes in organizational development and
In today’s global society, a Code of Ethics policy is used to label established, acceptable behaviors among that industry’s business associates, potential investors, and the corporation’s executive officers and employees, and most important, the consumer (Ethics Resource Center, 2003). In an attempt to promote an increased efficiency and productivity potential level, among employees and prospective clients, a corporation’s standard Code of Ethics should guide its members toward a more in-depth examination of their personal moral activity, and how these actions affect the people or acquaintances they encounter. A company should utilize this strategy as a model for the professional behaviors and responsibilities of its constituents, and proves the occupational advancement of that business. Ethics are important in every level of a corporation, but specifically in the day-to-day actions of its members, and the image the company broadcasts to its associates is fundamental in building a stable business foundation. These pledges are a vital communication tool used to covey the firm’s standards for business operations, and predominantly, its relationships with the surrounding communities (Ethics Resource Center, 2003).
In an organisation ethics are supposed to set standards as to what is the right thing to do in conduct and decision making however this is not always the case. Over the years different scandals have occurred which have shown that companies and in particular the people that run them are not at all ethical and only seek to maximize profits. Economical analysts throughout the years have suggested that the way to avoid such incidents is by either having a code of ethics along with ethics training or through strong ethical leadership.
The Sarbanes Oxley Act (SOX) restricts management from influencing auditors through manipulation or coercion. Therefore, Sullivan’s hostility over Cooper’s internal audit as well as trying to make Cooper hold off from completing the audit are violations. The SOX also contains two components that impact the fraud investigation: the fraud discovery and whistleblower protections. It enforces an extended statute of limitations that enables fraud to be discovered within two years of occurring or five years after committed. Extending the time frame enables Cooper to still come forward if she is stalled. Cooper is WorldCom’s whistleblower, but Section 806 “prohibits publicly-traded companies from retaliating against employees who report various acts of wrongdoing to their employers” (Foti 2013). Without this protection, there will be fewer investigations as employees may be too scared to come forward. (Colbert 2004) (Carozza 2008) (Foti
Sarbanes-Oxley consisted of 11 different titles or sections. Title I is Public Company Accounting Oversight Board. It created a five member panel known as the Public Company Accounting Oversight Board, overseen and appointed by the Securities and Exchange Commission (Sarbanes-Oxley). The Board is to consist of two CPAs and three people that are not CPAs, but the chairman must be a CPA. The Board is to provide oversight of auditing of public companies while establishing auditing, quality control, independence, ethical standards (Arens 32-33). Public accounting firms that work on audits must register with the Board and pay a fee. Title I also included new auditing rules. Auditors must now retain paper work for seven years, have a second partner review and approval of audit reports, evaluate whether internal controls accurately show transactions as well as sales of assets, and describe any weaknesses or noncompliant internal controls. Public accounting firms that issue auditing reports for more than 100 companies are to be inspected every year. Accounting firms that issue audit reports for less than 100 companies must be inspected very three years. The Board can discipline or sanction accounting firms for what it deems to be negligent conduct (Conference of State Bankers Online).
To provide an example of a breach of ethical conduct in the workplace, we may remember the case of a financial manager in a corporation that decided not to pay overtime to some employees. After a deep outside investigation, the company was summoned with thousands of dollars to remedy the payment that was supposed to be paid to all employees who worked more than forty hours per week. Again, it is needed more than just a booklet stating that the company adheres to the code of business ethics. It is needed serious managers that can run the company with the most seriousness as possible. Consequently, any written codes of business ethics, regardless of how well it has been crafted, need people that adhere to its internal content with a serious desire to do the right thing.
Capitalism is almost too good to be true, but there comes a time when government intervention becomes a necessity, especially after a series of scandals in corporate businesses that destroyed the trust of investors and consumers. The government finally had to come up with a solution due to the fact that the free market is no longer efficient on its own. Established in 2002, the Sarbanes-Oxley Act, also known as Public Accounting Reform and Investor Protection Act, is a federal law that aims to improve corporate governance by increasing compliance regulations and financial transparency in hopes of preventing big scale corruptions such as the Enron Scandal from happening again. The Enron Scandal, along with other corruption and fraud in the businesses
Having a code of ethics leads to improved employee behavior, which is a huge part of culture for a standard company. Because employees are the people who create value for the company, in which way, they need to have honest and candid altitudes to the company. Having a code of ethic is a useful tool to manage an organization’s values, responsibilities, and ethical duties. To make the codes work, companies must put the code of conduct into the business so that employees know how it applies to them. The code is also a way for employees to get advice about ethical problems or concerns. “According to the 2009 National Business Ethics Survey, eighty-nine percent of those polled felt management adequately discussed the importance of ethical conduct. Similarly, 2008-2009 Integrity Survey, published by KPMG Forensic, it was found that ethics programs, including codes of conduct, had a strong impact on how employees felt. Ninety percent of those surveyed who worked in companies with a code of conduct felt they were motivated to do the right thing. This compares with just 43 percent of people who work in companies without strong codes of conduct.” (NCARB) The code of conduct plays an important role in the business no matter
“The term ‘ethics’ can commonly refer to the rules and principles that define right and wrong conduct of individuals” (Robbins, Bergman, Stagg and Coulter, 2003, p.150). Ethical Behavior is accepted as “right” or “good” in the context of a governing moral code. Virtually all societies have developed rules and regulations about how business should be transacted and how business organizations should be managed. In concept, business ethics is the applied ethics discipline that addresses the moral features of commercial activity. In other words, it is a moral code that people conducting any sort of business should feel honorably obligated to follow. People are definitely morally responsible to follow a code of ethics and should never cheat each other. Parts of this code of ethics should be honesty, integrity, fidelity, charity, responsibility, and self-discipline. Those ethics should apply
In the past decade, concern with the ethical accountability of companies has continued to grow. Consumers increasingly look to support and buy from companies that make ethical decisions. The government has also created new legislation that requires a certain level of ethics and creates encouragement for companies to go as far as to create ethics programs. The idea of “business ethics” is not new, but there is more pressure now than ever before on companies to prove they are making an honest effort to be ethical. This additional pressure on companies can be largely attributed to a change in the neoclassical view of a company as only needing to take care of stockholder interests by creating profits (Wines & Hamilton III, 2009). Today, people view the organization as a complex unit made of up many different groups that must be considered. This new definition of an “ethical corporation” requires not only compliance with the law, but also consideration of the ethical implications of all actions (Epstein & Hanson, 2006; Thornton, 2009). “Ethics are a system of moral principles and behavioral norms intended to express and support an underlying set of values” (Post, Lee, & Sachs, 2002). Following the meanings given by several professional sources, business ethics is defined as the study of moral standards in the context of all business situations (Columbia University, 2008; Knapp, 2001; Crane & Matten, 2007). Because of this change in consumer and regulator concerns, a corporation cannot survive unless it takes care of and strives to respect the interests of all of its stakeholders by applying ethical standards to actions (Post, Lee, & Sachs, 2002).
Business ethics can be interpreted in various ways. Therefore, it comes as no surprise that there are many different definitions of business ethics. The most generally acknowledged definition states that business ethics “is a set of corporate values and codes of principles, which may be written or unwritten, by which a company evaluates its actions and business-related decisions.” It should be mentioned here that business ethics is not only relevant to the conduct of the company as a whole, but also to the conduct of individuals within that company. Besides, it applies to all aspects of business conduct.
Business ethics are a set of moral rules that govern how a business operates, how people should be treated within an organization, and how business decisions are made. They are a crucial part of employment and in managing a sustainable business, mainly because of the serious consequences that can result from decisions made with a lack of regard to ethics. Even if you don’t believe that good ethics don’t contribute to profit levels, you should realize those poor ethics have a negative effect on your bottom line in the long-run. Every business in every industry has certain guidelines to which its employees must stick to, and regularly outline such aspects in employee handbooks.