The Changes in Corporate Governance and Ethics Driven by Sarbanes-Oxley Act

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Regrettably, the Sarbanes-Oxley Act has shown that self-interest has been the source of many misfortunes in the society such as frauds and greediness in corporations. The article supports the Sarbanes-Oxley Act because it features numerous benefits of its reforms to corporations and how it is phasing out problems such as fraud. The article states that the renowned fathers of business such as Aristotle and Adam Smith state that business is supposed to be good for society. It is clear in the article that, the main causes of productivity are division of labor and capital accrual (Sean, 2009). Individuals find it more to their gain in exercising their strength and building their skills in a given occupation and in return acquire the surplus of what they produce for the products of other men's skills than to try to deliver majority of their needs by the labor of their hands.

Basically, the article shows that when an individual follows his/her desire, then he/she is usually extending the progress of people around him/her and the nation as a whole in accumulation of wealth and prosperity. In the society today, problems and opportunities connected with commerce are actually the ideas of fairness and allotment of wealth. These are ideas that business, society, and government contend with in the current world. Generally, the interconnected traits of business and society such as self-interest and profit maximization are the major criticisms of business power. There are other theories such as dominance models that suggest business as the major player and also the most prominent and powerful organization in the society. In the pluralistic model, there is more balance between the government and social organizations. These models are significant because they set the stage for the reality of the pre and post-Sarbanes-Oxley era. The 1990s and the 2000s are characterized by significant technological innovation and high economic growth. However, despite these changes in the context of business and the government, the rate of immoral behavior in the society seems to be increasing especially in boardrooms of large corporations (Sean, 2009). There are numerous corporations such as Enron Corporation that have collapsed due to scandals associated with unethical activities. The mentioned organization has become the archetype case study when teaching ethics. There are numerous individuals that have lost their jobs especially due to bankruptcy of organizations.



In the article, a successful economy depends on another quality of business, profit maximization, which is often criticized. Profit maximization is actually perceived as the main goal of an organization and it is not immoral simply due to the fact that profitability is a measurement of sustainability and growth potential. The article actually describes the market as a competitive context that has an economic environment with many buyers and sellers in it. The competitive market has high expectations and assumptions that comprise a playing field for organizations contending for customers. These customers presume that they are privy to all important information necessary for decision making. It is considered easy to evaluate and analyze an organization that is not successful because of the outlying economic signs such as lack of innovation, decreased product demand, global competition, and natural disasters. Actually, it is morally frustrating for organizations such as Enron Corporation to collapse due to its behavior. It is quite unfortunate that on the road to success, several corporate individuals allow greed, deception, and extreme and secretive profitability obscure their ethical regulation structure. Certain individuals also described the idea of market failure according to the American Enterprise Institute. In America, for a long period the spiritual environment of free ventures and personal achievement have been perceived questionable since businesses have been handled with a level of doubt that has not been experienced for almost one hundred years. According to certain individuals traditional moral principles are important. However, for majority of people in many areas of life, traditional moral principles are no longer the dominant concern. It seems that people evaluate their views of moral responsibility and obligation against views of their own rightful self-interest (Sean, 2009).

The article also states that market failure is illustrated as the quest for private interest that does involve an effective use of the society's resources. This is because of embezzlement of funds for illegal corporate and executive achievement. In the market, there are public goods and private goods and they are perceived differently. The article also illustrates that certain leaders such as Hendry in the public policy usually relate market failure to the idea of externalities pervading a provider-customer relationship. These externalities such as information deficits commonly enable competitive failures. The mentioned information deficit mostly can be seen in cases of corporate frauds where is stealing, lying, and cheating are present (Sherarl, 2008).

The article states that information is also an aspect that interferes with the authenticity of corporate ethics. The utilization of information is considered non-rival. Consequently, in a public goods setting, people are fascinated by the production and utilization of information itself. Secondly, the amount of data regarding the characteristics of a particular good may differ among individuals (Sherarl, 2008). For an instance, a buyer and a seller in the market context during a transaction may possess different information regarding the quality of the good being traded. In a situation such as that of Enron Corporation or other corporate scandals, goods involved in trading do not simply involve things such as shoes, clothes, bread, or a second-hand vehicle. In fact, the manifold stakeholders, market centered goods, investment and capital accounts, money management accounts, and employment are involved. The society presumes that all these transactions involve just data and that the trade between a corporation and an investor is conducted in a manner that the money involved is authentically used for the development and innovation of the organization.

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Consequently, it is in this article that we learn of the great damages caused by corporate frauds, which have many negative consequences, since they not only cause market failures but also collapse of companies, retirement funds, occupations, and investors` confidence in the capital market. It destroys a context that was initially healthy for positive self-interest where sellers and buyers could accumulate wealth and capital. Basically, the context of market failure and information asymmetry is the basis understanding of the Sarbanes-Oxley's influence on numerous areas of the investment world. (Sherarl, 2008) In all these unpleasant stories, there are opponents that view the intervention of the government such as the Sarbanes-Oxley Act as unjust, highly expensive, and an assault on profitability. Actually, the research on the Sarbanes-Oxley Act is largely critical of its costs and very supple on its benefits. The costs are incurred and their relationship to profitability is actually vital to the financial health of an organization. Some regulatory mandates, such as laws executed to minimize pollution, are expenses which occur to organizations in the form of permits. The Sarbanes- Oxley Act has an intended mandate to transform the corporate ethical behavior. This would boost investors` confidence by creating a stronger transparency needs and strict punishments of executive fraudulent behavior. Regulations oblige all organizations to invent their systems and processes to minimize the costs and remain competitive. Under the Sarbanes- Oxley Act organizations will learn how to handle the new cost initiative (John, 2011).

The Sarbanes-Oxley Act is actually new in the world of business and like regulatory mandates many individuals criticize it. History states that the corporate fraud and its public policy components of market failure and information asymmetry require some social institution to cure the problem. Every moment that the market fails, the society relies on the government to develop laws and allocate resources on national and international scales. There is a minimum controversy that the Act is aimed at improving organizations' capability to respond to such crises as market failure. It is highly challenging to make Congress and head of the state to pass legislation. Many problems and opportunities are commonly found in politics, that are priorities, struggle for power, and positioning. Actually, there are only a few theories that define the political setting. Generally, the market failure is attributed to fraud and investors` dishonesty (John, 2011). In 1999, the repeal of the Act caused insurance organizations, commercial banks, and the investment banking companies to come back together as multinational corporations. There were certain individuals that were highly involved in lobbying for the repeal of the Act; these are Sanford Weill, former Citigroup Chairman, Chuck Prince and Alan Greenspan, Chairman of the Federal Reserve Bank of the United States. Greenspan, for example, thought that bringing these bodies together would be an advantage to the state because there would be cost savings and a better product will be provided to customers. Still, the competitive model had been very successful in such countries as Japan and European countries, where such a union is accepted. However, there are high rates of fraud in the banking and finance industry in these foreign markets. There are some present and future inferences of the Sarbanes-Oxley Act that can be understood through the examination of the characteristics of implementation. The legal setting of the Sarbanes-Oxley Act illustrates a short commentary on the law (John, 2011).


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The law was created by the bipartisan effort of the U.S. Senate and House of Representatives. Actually, the Senate Committee on Banking, Housing, and Urban Affairs, at the time led by Senator Paul S. Sarbanes, and the House Committee on Financial Services, led by Congressman Michael G. Oxley, are the two congressional committees designed to handle market failures. The joint congressional committees supervise companies that provide financial services, which include banking, insurance, and securities. Therefore, it is Sarbanes and Oxley on whom Congress and the public rely in order to address financial problems related to corporate appalling behavior in the 2000s. The Sarbanes- Oxley Act has three main dependable bodies, starting with the Securities and Exchange Commission (SEC). Its major purpose is to protect the process of buying and selling of securities. The laws governing the Securities and Exchange Commission are illustrated formerly, and after the Investment Advisers Act of 1940, the Sarbanes-Oxley Act of 2002 is the most recent law of the Securities Exchange Commission it is charged to supervise. In addition to the Security Exchange Commission, there is the U.S. Department of Justice whose main function is to arraign the federal offenses connected to the Act, which include: attempts to commit fraud, certification of fake financial statements, article destruction or meddling, and striking back against corporate whistleblowers (Department of Justice). In partnership with the Attorney General, the Federal Bureau of Investigation (FBI) is granted the authority to examine offenses related to the corporate fraud; it is the main detective agency to examine and seize corporate appalling behavior. Generally, the multilayered policy can be viewed as a chronological flow of interface between governmental and non-governmental structures which have to agree on the capacity and forms of governmental events suitable to deal with a certain difficulty (John, 2011). Consequently, imperfect policies are usually supervised by imperfect people to manage imperfect situations.

The introduction of the Sarbanes- Oxley Act meant that executives from every organization had to be subjected to compliance with regulations including those that were honest and serious about their organization's progress. One of the weaknesses of the Sarbanes-Oxley act is that negligent and dishonest executives are in the same category as honest executives. Moreover, the Sarbanes-Oxley act has certain issues that need to be addressed. The fact that it has some significant reforms that are unaddressed portrays its weakness. The Sarbanes-Oxley Act is perceived as a significant set of reforms that require to be complemented with extra changes in order to hold organizations more accountable. There are various social investors that are advocating for these additional reforms which include abolishment of staggered boards, improved board independence, expensing of stock options, and added social and environmental disclosure.

Basically, the Sarbanes-Oxley Acts aims at introducing and maintaining an authentic and transparent corporate culture. This ensures that ethics is highly upheld bythe stakeholders within an organization. In such an environment, there is a guarantee of candid and frequent communication and a fine procedure of handling difficulties by both the business and financial flow. The Sarbanes-Oxley Act aids in building and strengthening a transparent customer, employee, and investor relationship. Commonly, it boosts the confidence of investors in an organization. Majority of investors and customers of a particular organization highly rely on transparency and predictability when it comes to performance. The Sarbanes-Oxley Act helps organizations in eliminating bad "apples" in order to maintain the elements of confidence and courage. It is highly efficient in introducing ethics as culture within organizations especially in high risk countries such as China, India since they have different cultures and ethics (John, 2011).

Generally, it is clear that the paper is focused on changes in the corporate governance and ethics caused by the Sarbanes- Oxley Act. It also focuses on a detailed debate about market failure and information asymmetry which require the government's response. The article illustrates the Sarbanes-Oxley Act and its direction and execution. Based on my assessment, the article suggests that the multi-level execution flow requires a lot of information to examine the results. These are the results that will gauge efficient output of the government as well as its supposed capability to influence corporate behavior. In these past years, the final impact on the execution level is most distinguished by individual interviews of CFOs and CPAs.

Basically, the objective was to determine whether the Sarbanes- Oxley Act will function or not. It seems that the law has obliged organizations to innovate their structures to become more ethically disposed, but also to lessen the costs of conformity. The Sarbanes- Oxley Act is a high-quality Act which is concerned with bad corporate behavior. It is highly probable that the future of the Sarbanes-Oxley Act will be discussed for many years to come. However, the recovery from the Enron-era will require these years to diminish the memories of the period of fraud. Moreover, it is likely that the Sarbanes- Oxley Act will remain relevant to investors in regard to American and international commerce (Sherarl, 2008).

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