Without question “business ethics” is one of the hot topics of the day. Over the past months we have seen business after business charged with improper practices that violate commonly accepted ethical norms. This has led to a loss of confidence in corporate management, and has had severe economic consequences. Business ethics serves the important social function of integrating business and society, by promoting the legitimacy of business operations, through critical reflection. The social function of business ethics is implicit in leading business ethics foundation theories. For this question, you will research and respond to questions related to corporate ethics scandals, unethical behavior, and the impact of Sarbanes–Oxley Legislation (SOX). Look for a recent body of research in the area of corporate ethics scandals, unethical behavior, and the impact of SOX legislation. You should be looking for research that differs or improves upon the existing concepts pertaining to corporate ethics scandals, unethical behavior, and the impact of SOX legislation, which you have learned. The research should be from a peer-reviewed scientific journal, trade publication, or professional journal. You can use the Internet to search for a relevant body of research.
Based on your knowledge of corporate ethics scandals, unethical behavior, and the impact of SOX legislation and your chosen research, discuss the following:
• The role of management in setting the organizational tone relative to ethical behavior.
• What should subordinates do when managers act unethically or encourage them to engage in unethical practices?
• Discuss an example of a corporate ethics scandal other than Enron.
• Based on the above example, discuss why you believe the unethical behavior occurred.
• Based on the above, discuss what the organization could have done to prevent such occurrences either at the time they happened or in the future.
• Discuss whether the provisions of the SOX act will have a positive effect on corporate ethics practices.
Business Ethics Paper
Due to the technological advancement and the innovations and inventions in the information technology sector, business organizations, business stakeholders and the public in general around the globe have become aware of business ethics. Just like individuals, business organizations face ethical and moral dilemmas in their daily operations. However, despite the business being an independent entity, it cannot function on its own, and this means that the employees and staffs of an organization face ethical and moral dilemmas in their working life. Since business ethics has become the daily topic in our news, managers, investors and all levels of staffs, in general, need to observe their ethics improve and maintain the corporate image of their company. Moreover, a business with good ethical background has high opportunities and chances to flourish because it enjoys a good relationship with all business stakeholders ranging from the government authorities to the client base. Despite the reactions of the United States government to create, develop and implement the Public Company Accounting Reform and Investor Protect Act, there are still cases of corporate and accounting scandals (Crane, 2007). In the wake of rampant and famous corporate ethical and accounting scandals, the government of the United States felt the need to control the actions and the activities of investors to ensure they uphold the transparency and accountability of all their deeds to prevent the economy from suffering from more scandals. Below are some of the facts and information about business ethics.
The top management of any company carries the image of the whole organization compared to the junior manager or subordinates. Thus, in most cases, the public and the junior employee will always judge their working place to be ethical basing on the activities their top level managers or the investor. The chances are that the lower level employees will follow in the footsteps of their seniors. This trend means that if the top management of any business organization does not observe and uphold the organization business ethics, the lower level employees will not uphold them too. As a result, an investor should always be careful with whom he chooses to be the manager of his investments (Trevino, 2010).
In addition, a good manager who wants to uphold the ethics of a business should sit down with employees on a regular basis to share their strengths, their weaknesses and the challenges they face in the organization. The manager should not only be concerned with the productivity of an individual employee but also his wellbeing and comfortability while in the organization. On the same note, the manager needs to understand his staff’s purpose and mission in life and especially in the organization. Similarly, a regular reminder of the purpose, mission, vision and objectives of the organization to the employees helps them to align their personal objectives to that of the organization. Also, setting a strong organization culture and adopting a flat organization structure can do great and better to the organization than harm. The managers need to explain clearly to the employees of the culture and structure of the organization and show the benefits of upholding business ethics. However, the most important thing when setting the note is by leading by example.
Many are the times that the lower level employees fail to whistle blow after realizing that their managers are not ethical. For various reasons such as winning a contract, the fear of retaliation and lack courage, unethical activities by some of the senior management personnel in our companies have gone unreported. However, this should not be the case since unethical activities carried out or conducted in an organization by some few employees has an effect on the whole organization.
Considering that business organizations have different organization structures, the responses from employees will be different regarding unethical behavior of their managers. In some organizations, there are ethical hotlines where employees are supposed to call a certain number to report cases of unethical behavior (Christensen, 2007). In other organization, you may find there are ethical officers who are entirely concerned with the ethical behavior of the employees in that organization despite on the level and power of a single employee. In such a case, a junior staff may report his manager f he feels he is on the wrong side of the ethical codes. However, some of the organizations have neither of the options as mentioned earlier. In such cases, the employees need to take powers in their hands and exercise upward ethical leadership. Upward ethical leadership entirely depends on the dependency of an employee of the organization and personal power. In this option and technique the employees confront the unethical manager about his behavior and in extreme cases; they may file a legal complaint of the behavior of one of their senior manager to the authorities. The body of authority be it the policy takes over and conduct investigations o9n the claims.
WorldCom is one of the worst accounting scandals ever to hit the economic world in the recent past. WorldCom was one of the giant telecommunications companies based in the United States. It was once popular as the second largest long distance phone company in the globe before the accounting scandals that hit the company in the late 1990s and the early 2000s (Clikeman, 2010). The company filed for bankruptcy in 2002 after a series of improper announced profits and investment. The main player in the scandal is believed to be the chief executive officer at that moment, Bernie Ebbers.
Bernie is believed to have underreported line costs through capitalizing rather than expensing and inflating revenues with fake accounting entries. The internal audit had identified and discovered that $3.3 billion in profits were false recorded and entered in the company’s books of accounts between the years 1999-2002. As if this was not enough, there was a discovery of $3.8 billion in expenses the company had misappropriated. As a punishment for his involvement in the scandal, the founder and former CEO of the company was jailed for 25 years, and the former chief executive officer received Scott Sullivan received a five years sentence.
Despite the fact that Ebbers and Sullivan were arrested as the culprits and facilitators of the scandal, the accountants of the company at the time Arthur Anderson played a part in the scandal. Interestingly the same people who were in charge of WorldCom were also in charge of other companies that experienced accounting scandals such as Enron and Tyco. Anderson widely blames Mr. Sullivan for withholding information and data. Lack of regular examination and check-up of the accounting books of the company was the main reason for failure (Bhasin, 2013). If auditors or other independent bodies had examined the books of accounts, they would have discovered the data and information Mr. Sullivan was holding from them.
Despite the efforts by the government or other outside players to help curb and prevent the scandals that might occur in the company, the main players need to come within the organization. Although the company was unable to prevent the scandal, it would have done far much better to prevent its occurrence. Regular checkup of the books of accounting helps to keep all accountant and the concerned parties on their toes to be transparent and accountable of all the figures and number they put in their books of accounts. Moreover, job rotation is one of the effective techniques for an organization to keep its employees on their toes (Badawi, 2008). Taking employees from another department to the accounting or finance department would have revealed the inconsistency or misappropriation of figures before they could have risen to those levels. Interchanging workers help to reveal irregularities in the activities of staffs that have stayed in one position for a longer period of time.
Apparently, the provisions of the Public Company Accounting Reform and Investor Protect Act will have significant positive effects on the corporate ethic practices. At times business organizations fail to observe the created and developed business ethics for lack of a body to implement and oversight the implementation and execution of the agreed upon ethics. However, these cases will cease with the implementation of Sarbanes–Oxley Legislation (SOX) provision that proposes the formation of public company oversight body (Nisbett, 2007). Moreover, the act provides for rotation of audit partners from organization to another at least every five years to reduce chances of monotony and occurrence of another scandal. Moreover, the act provides for organizations and public companies to adopt audit committee standards to improve organization’s accounting standards.
In conclusion, we can say that business ethics is the backbone and one of the pillars of success of any business. Maintaining a good reputation from all the corners of the world should be a priority to all organization for them to attract and maintain a large customer base
Badawi, I. M. (2008). Motives and consequences of fraudulent financial reporting. . In 17th annual convention of the global awareness society international.
Bhasin, M. (2013). Corporate accounting scandal at Satyam: a case study of India’s Enron. European Journal of Business and Social Sciences, 1(12), , 25-47.
Christensen, L. J. (2007). Ethics, CSR, and sustainability education in the Financial Times top 50 global business schools: Baseline data and future research directions. Journal of Business Ethics, 73(4),, 347-368.
Clikeman, P. M. (2010). Called to account: Fourteen financial frauds that shaped the American accounting profession. The Accounting Review, 85(5), , 1811-1814.
Crane, A. &. (2007). Business ethics: Managing corporate citizenship and sustainability in the age of globalization. . Oxford University Press, USA.
Nisbett, A. V. (2007). Accounting Scandals: Does Rules vs. Principles matter. . CPA Journal,, 91-104.
Trevino, L. K. (2010). Managing business ethics. . John Wiley & Sons.