The Sarbanes-Oxley Act, also known as Sarbox or SOX, is a mandatory US federal law that was passed in July 2002 to curtail rampant cases of corporate and accounting fraud. Before its introduction, high-level scandals and irregular dealings involving huge public organizations such as Enron, Peregrine Systems, Tyco, and WorldCom, among others, had threatened to derail the economy. The legislation introduced sweeping changes in the regulation and management of both financial practice and corporate governance. Although the Act was intended to make the CEOs and CFOs of American firms more honest and truthful in their dealings, it has come under intense criticism for failing to address the real issues, instead preferring to deal with side issues. Analysts believe that many of the mandatory laws contained in the Act are bad laws.
One of the key objectives of the Act is to curtail fraud and corruption while increasing accountability on how money is used by senior business managers and leaders. Many rules and regulations aimed at making company executives comply with this objective were enacted through the Act. But CEOs continue to misbehave if current cases involving Merrill Lynch and AIG are anything to go by. The act has failed to deal with a seemingly ingrained culture of corporate misbehavior. Not so long ago, Merrill CFOs were accused of aiding and abetting fraud in Enron’s case. In 2008, financial managers and other senior managers at Lehman Brothers misrepresented figures by claiming that the organization was healthy financially only for them to announce bankruptcy some few days later. These shenanigans were being committed when the SOX Act was already operational. As such, this scenario can only be remedied by strategies that emphasize ethical compliance and self-examination on the part of the business leaders. Many of the business managers that engage in fraud know it is wrong to do so and that rules and regulations exist to curtail the vice. But they still go-ahead to commit unethical behavior. As such adequate ethical intent and business conscience must be stressed along with the regulations to make business executives follow the rules to the spirit.
The SOX Act came up with provisions for whistle-blowing to unearth unprofessional practices, including how the whistle blowers would be protected from persecution by their bosses in the event of exposure. First, this scenario raises serious ethical issues about the terms of employment since most employees are made to sign nondisclosure agreements upon recruitment. Do employees have moral obligations to serve their bosses according to the terms of service stated in the appointment letter or do they become secret agents of federal attorneys trying to enforce the Act? These are ethical questions that the inventors of the Act failed to take into consideration. Also, the mechanisms that exist to ensure that potential whistleblowers are not victimized cannot hold much weight. Employees, therefore, continue to innocently aid corrupt activities by keeping quiet due to inadequate frameworks needed for protection. As such, the disclosure agreements together with legal frameworks that protect the whistleblowers must be fundamentally reformulated to give the employees an upper hand in the whole process.
The government cannot escape unscathed. Through the implementation of the Act, it has been accused of intruding into the affairs of America’s corporate organizations, effectively placing most US companies at a competitive disadvantage to their international counterparts. Again, this issue has brought moral dilemmas on the part of the federal government due to the multifaceted nature of the situation. On one hand, the government is expected to shield common citizens and investors from exploitation by unscrupulous business entities. On the other, the government is charged with the responsibility of stimulating business opportunities in the US. While the Sox regulations have done well to shield the investors from possible loss of their investments, it has also succeeded in driving major corporations out of the US. The regulations are also offering enticements to small enterprises operating in the US to quit the stock exchange. This is both counterproductive and a recipe for more upheavals in the business world. The government needs to immediately repeal some sections of this Act that continues to fuel this state of affairs and replace them with laws and regulations that will offer a moral equilibrium for both the investors and corporations. Still, the compliance fees need to be greatly reduced.