The Sarbanes-Oxley Act ( SarbOx ) includes a long list of regulations that outlaw actions and procedures that most people would see as ethical problems rather than legal issues. For instance, SarbOx prevents individual loans from the corporation to board members or officers. It is difficult to see how anyone with a well-developed moral compass would even think about making or receiving such loans, let alone actually do it. Yet, here we have a federal statute that outlaws a clearly unethical practice. Another SarbOx provision requires that the corporate audit team include an impartial, outside director.
Again, such an obvious ethical safeguard should be self-evident. Yet, Congress felt the need to include that provision in the act. As if this were not surprising enough, Congress also felt the need to include a provision that expressly prohibits both altering evidence and revising, destroying, or suppressing any records needed in a government investigation of the corporation. Essentially, this is a statutory provision that tells corporate directors not to lie. It is sad to see that the Congress of the United States, of all bodies, must tell corporate managers that it is immoral to lie. Possibly even more disheartening is that the penalties for lying include incarceration.
Perhaps most telling of all is that Congress believed it necessary to encourage corporate executives to develop ethical rules and regulations, as if corporate executives had never heard of the word ethics pre- SarbOx . Incredibly, Congress also found it necessary to remind executives that employees who provide information to federal authorities about any corporate violations are protected by the act. Finally, Congress did not trust corporate managers to follow the law on their own, and so SarbOx also set up a Public Company Accounting Oversight Board to regulate corporate auditing procedures.
Self-Evident Questions
1. In what way, if any, is the Sarbanes-Oxley Act a reflection of general trends in this country concerning ethics and morality? Explain.
2. Should Congress also pass laws to regulate other institutions such as schools, churches, synagogues, and mosques, in the same way that Sarbanes-Oxley regulates corporations? Why or why not?
3. Take another look at the Opening Case at the beginning of this chapter. In that case, we discussed how shareholders are victimized by financial trends sometimes prompted by rumors, innuendo, and lies. Many of these rumors are generated by the media. Should Congress protect shareholders from the media and from the reaction of the financial community to the media? Why or why not?
4. The text suggests that Sarbanes-Oxley is an example of government control over the corporate culture. In what way does SarbOx also promote independent director control and special interest group control? Explain.
5. Is there any justifiable reason for congressional intervention into the world of ethics and morality, especially considering the Congress's poor track record in ethics? Explain.