Sarbanes-Oxley Act
The 2002's Sarbanes-Oxley Act (SOX)
resulted in a significant shift in public companies regulatory environment. The
US Congress enacted the law as a response to the rising number of business
fraud scandals like those in Tyco International and Enron. SOX law demands more
comprehensive periodic financial reporting. In addition, it enforces strict
penalties for the individuals that engage in fraudulent deals. However, some
critics of the law are convinced that SOX laws are too costly and unnecessary
for many business entities. Michael
Peregrine
The author states that SOX has
achieved an unprecedented level of success. He centers his explanations on the
act's effects on the structure of corporate governance. Peregrine
says that Sarbanes-Oxley is responsible for the
seizure of corporate direction from the corner office and its return to the
boardroom. Besides, the law encourages best practice identification for
guidance on boardroom conduct. Before the law was enacted, the executive
officers of a firm acquired their power without the consent of the board. This
changed immediately on the introduction of SOX because it mandated the need for
engagement in ethical decision making within the internal business environment.
Such a shift has had a rippling effect on the corporate culture of public
corporations in the United
States
Furthermore, the author pinpoints
that SOX offers a platform for the conception of ‘checks and balances’ system
for the governance of corporations. It necessitates the executive arm to seek
the board’s approval for weighty actions and vice versa. The chances of the
executive and BOD colluding to commit fraud is highly unlikely. For over a
decade, SOX has been effective and has resulted in minimized levels of
corporate scandals. While the system falls short of perfection, a landmark
progress in the best interest of stakeholders has been attained.
Ethical decision-making plays a
critical role in ensuring the survival publically traded business corporations.
To make informed investment decisions, business shareholders rely on the financial
reporting precision. An engagement in corporate fraud makes it hard for the
investors to determine the company status. SOX improved the business conditions
by separating the distinct duties to ensure accountability and responsibility.
Such a separation means that multiple executives have to conspire to commit
fraud. It is mandatory and procedural for all business executives to sign an
agreement for adherence to SOX rules and regulations before assuming duty. The
agreement is symbolic of the firms’ commitment to ethical practices and
intolerance to fraud. Besides, the violators consequently face severe
penalties.
Criminal penalties serve as a lesson
for the executives to refrain from unethical business practices. Implementation
of SOX law makes it hard for violators to be immune to justice. In fact, those
found guilty face a lengthy jail time and hefty fines. The act has extensive
penalties for the criminals that retaliate against whistle-blowers, influence
investigators, or those that attempt the manipulation of corporate financial
statements.
In summary, it is clear that Sarbanes-Oxley
Act has impacted positively on the culture of business ethics. Today, it is
harder for rogue business executives in the United States United States
References
Peragrine,
M. (2012). The Law That Changed America
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