Impact of Sarbanes Oxley Act on Corporate Culture

The Sarbanes Oxley Act has had a profound impact on corporate culture. Senior management employees are forced to ensure the accuracy of their financial disclosures, failure to which they might be liable to criminal prosecution. As such, they take financial disclosure very seriously and use rigorous processes to ensure that they are confident of the information they release to the public. Other than that, companies like General Electric use well over $30 million per year in order to comply with the Sarbanes Oxley Act (NPR, 2005). This cost is incurred in the process of carrying out various activities such as mapping out the flow of funds and examining information technology systems to ensure that they are functioning correctly. While some multinational corporations such as General Electric, believe that reassuring investors is worth this trouble, a number of small and medium sized enterprises are of the opinion that this cost is just too painful.

The Sarbanes Oxley Act generally prompts senior managers to engage in ethical reporting. The managers in turn make deliberate efforts to ensure that junior managers and other employees within their organizations are also engaging in ethical practices (Ferrell, Fraedrich, & Ferrell, 2013). The act therefore promotes the adoption of an ethical corporate culture throughout the organizations. Ethical corporate culture is mutually beneficial to both organizations and investors. While employees and managers strive to maximize the overall profitability of their organizations in an ethical manner, investors obtain higher returns on their investment. Nevertheless, there will always be unscrupulous business practitioners who will seek to make profits using unorthodox means and as such further misconduct us bound to occur.

 

 

References

Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2013). Business Ethics: Ethical Decision Making & Cases (10 ed.). Mason, OH: Cengage Learning.

NPR. (2005, May 31). How Sarbanes-Oxley Has Affected Corporate Culture. Retrieved from npr.org: http://www.npr.org/templates/story/story.php?storyId=4673074

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