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 documents related to audits conducted at Enron (Patsuris, 2002).
As a result, of this rash of executive abuse, Congress passed the Sarbanes-Oxley Act in 2002. 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, 2012).
Since the passing of the Sarbanes-Oxley Act, a great deal of attention has been placed on business ethics and corporate social responsibility. The act identifies and assigns accountability to those who knowingly falsify documents and it clearly states the consequences for acting outside the defined standard, relating to corporate governance. Using case studies we will review how the passing of the Sarbanes-Oxley Act is helping to standardized a code of conduct and how it has increased the awareness of corporate responsibility. First, we will review the definitions of corporate governance, business ethics and corporate responsibility. Next, we will examine the effectiveness of the Sarbanes-Oxley Act, through a case study and identify possible challenges the Sarbanes-Oxley Act may face, as public demand for social responsibility increases. Finally, we will review proactive recommendations for provisions to key titles of the Sarbanes-Oxley Act. These provisions will accommodate the growing public demand for ethical and social responsibility.
As details of the Enron scandal surfaced public outrage grew, calling for action, accountability and consequences. Corporate...