The Sarbanes-Oxley Act of 2002 fundamentally changed thelandscape of auditing and reporting for publicly traded companies. The law has had far reaching consequences for the financialreporting systems for corporations. For example, there are new regulations forretaining audit papers. A new oversight board for accounting firms auditingpublicly traded companies has been created. Those who blow the whistle onunethical or illegal practices are given an added measure of protection. Those who interfere with investigationswill receive additional penalties.And, in the interest of promoting transparency, there are new regulationsregarding auditor independence, the reporting of conflicts of interest in financialanalysis, and how publicly traded companies report their financial situations.
Compliance with such comprehensiveregulation does not come cheap, however. According to a recent Wall StreetJournal editorial, the estimated averagecost of complying with Sarbanes-Oxley is approximately $2,000,000 per year percompany. The cost is high, but ifcorporate executives will not police themselves, goes conventional wisdom,legislators will have to step in and increase regulation. Without such intervention, investorconfidence will lag and the market will not operate effectively.
But is such legislation a healthydevelopment? Or will the result bemore insidious? It isn't yet known, for instance, if the people who led Enronwere criminals under the laws that existed at the time. Their impending trials will determinethat. But they certainly wereunethical.
The Sarbanes-Oxley laws, however,create a situation in which corporate executives and board of directors changetheir orientation to ethics.Instead of being responsible for doing what is right, theirresponsibility becomes determining the line of legality and then moving asclose to it as possible without going over, while maximizing shareholders'return on investment.
I recently asked a few CEOs ofpublicly traded companies what they thought of the new legislation now thatthey have had an opportunity to live under them for a season or two. Two concerns emerged. First of all, they discussed theenormous cost. None of them would be surprised by the average cost figurementioned by the Wall Street Journal . Secondly, they talked about corporateethics becoming a matter of “box-checking” in which they don't have to wrestlewith the ethical issues any longer. Under Sarbanes-Oxley, ethics has become onlya matter of law - and no longer a matter of conscience or prudence.
This places legislators andcorporate leaders in a dangerous ethical game of cat and mouse. Can those making the laws fullyanticipate what the unethical few under them will do? Probably not. At best, legislation is only a portion of theanswer.
Indeed, the proliferation oflegislation is not going to solve the problem. As jurist Grant Gilmore oncewrote, “The better the society the less law there will be. In Heaven, there will be no law, andthe lion will lie down with the lamb.In Hell, there will be nothing but law, and due process will bemeticulously observed.”
The rest of the answer is a matterof the development of our culture and society. Perhaps a good place to being theconversation is in the halls of the academies teaching our business leaders.The days of “value-less” ethics education are over. The all-too-common method of presenting case studies withoutexamining the rightness or wrongness of possible solutions is no longeradequate.
Those teachings business ethics(and even business in general) must return to requiring their students toreflect on some of the core issue of human existence. Students would do well to consider their answers toquestions like these:
Legality is important as itprovides a context within which business must operate. It ensures that there are certainreasonable expectations that will be enforced by the rule of law. But questions of legality cannot be theend of the matter.
Those teaching business ethicswill have to make choices about what is virtuous and what is not. They will have to be able to defendtheir choices to their students. They will have to provide guidance to studentswho are wrestling with some of these core issues of humanity.
But they will not have to enterthis debate without resources. There is an enormous body of literatureavailable that has been built up for thousands of years. This truly global material providesguidance as to what is ethical and what is not and leads to the kind ofreflection that is necessary. It is found in the major teachings of world'sreligions. It is found in ancientand modern philosophers.
Rather than finding adamantlyopposed answers to the kinds of questions listed above, my sense is that therewill be a consistency that will surprise many. Think, for instance, of how ethical reflection on humandignity might begin to provide answers to these questions. Or how reference totraditional moral virtues such as justice and prudence might help to addressthem.
A relatively new book edited byRobert Kraynak and Glenn Tinder, InDefense of Human Dignity , is a goodplace to begin. The author of theone of the chapters, John Witte, describes the project this way: “This volume of essays by scholars fromvarious confessions and professions is precisely the kind of exercise that iscurrently needed. Happily, it isof a piece with a number of other important new studies that have appeared ... byJewish, Muslim, Confucian, Buddhist, and Hindu scholars working on issues ofhuman dignity and human rights with their own texts.” We could add to this a number of other materials, including The Universal Declaration ofHuman Rights of 1948.
Legislation will never have theeffective power of ethically well-developed people. Sarbanes-Oxley might prevent some unethical acts bycriminalizing certain activities at the corporate level, but it will not beable to morally form and shape human actors. Now is the time to return to the core questions of what itmeans to be responsible human beings.
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