Sarbanes Oxley: An Antidote To Executive Greed? | May2011
“Today I sign the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt. This new law sends very clear messages that all concerned must heed. This law says to every dishonest corporate leader: you will be exposed and punished; the era of low standards and false profits is over; no boardroom in America is above or beyond the law”- George W. Bush | |
Since the initial separation of corporate ownership from corporate management, the abuse of power by management has been a concern. Early in the last century a small number of Industrialists owned and controlled the ...view middle of the document...
On the other hand, sedate boards, those that inadvertently enable executive excess, represent the vast majority of boards (Van Ness and Seifert, 2007).
The United States congress deliberated the issues of carelessness, excesses, and greed within the business community and as an antidote to the problem, introduced the Sarbanes-Oxley Act. The Sarbanes-Oxley Act takes a stringent approach on the criminalization of white-collar crime and the prevention of financial distress and scandals within public companies and public accounting firms. The Act has been criticized as excessively intrusive, too expensive to implement, and ineffective. Nevertheless, others believe it may be the last best hope for stemming the tide of careless corporate decision-making, management excesses, and executive greed.
UNETHICAL BEHAVIOR WITHIN CORPORATIONS
Corporate executives associated with scandals often act with arrogance and frequently portray a sense of invincibility. This sense of invincibility has resulted in some of the most astonishing “cover up” fraud in the history of corporate America over the past several decades involving such high-profile companies as Enron, Tyco, WorldCom, and Arthur Andersen (Giroux, 2008). Decisions and courses of action taken by executives acting in unethical ways resulted in the collapse of companies, the loss of jobs, pensions, and life savings of both employees and investors. Common themes of the companies involved included the executives’ expectations of being capable enough to escape repercussions and their desire to manipulate earnings (Giroux, 2008).
In 2001, the Enron scandal took the world by storm. Enron was one of the world’s largest companies at the time. The company had over 22,000 employees and revenues of over $100 billion in 2000. The company collapsed in 2001 after an accounting scandal was uncovered involving auditor Arthur Andersen and senior executives. The scandal involved a corrupt company in various different aspects. The misleading, publicly released financial statements masked liabilities and debts through offshore accounts and misstated assets and profits. The company deceived the public, investors and employees to appear more fiscally sound then the reality. Rockness describes the path that Enron and its employees followed as one that began with slight accounting adjustments that eventually developed into accounting fraud. He cited personal, gain, ego and survival as possible motivation for employees involved (Rockness and Rockness, 2005).
Along with accounting fraud, the investigation further revealed unethical behavior within the executives of the firm. “These big companies will topple over from their own weight”, stated Jeffrey Skilling, former Chief Executive Officer of Enron. Fearless of competitors, this quotation accurately portrays the atmosphere of arrogance at the top of the organization. Enron executives had large expense accounts and were compensated far beyond...