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Example research essay topic: Sarbanes Oxley Act Code Of Ethics - 2,338 words

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... have the incentive to free ride. So, from whence the motive for participation? Buchanan's answer was: Ethics. "[Becoming informed about, and participating in the discussion of, constitutional rules may require the presence of some ethical precept that transcends rational interest for the individual" (p. 155), an "ethic of constitutional citizenship" (Buchanan 156).

This raises the obvious question: In a world of methodological individualism, utility maximization, and rational choice, where does this commitment to a social ethic come from? Buchanan's answer was that there are "economic origins of the ethical constraints" (Buchanan 1991, 180). Self-interested individuals have an incentive to inculcate ethics in others because these ethics solve externality problems that are not amenable to any other solution. He cited, for example, the work ethic. People who are willing to work hard at the tasks of society generate a positive work-supply externality because their effort contributes to increasing returns in production. This is a "genuine public good" (Buchanan 1991, 175) because the benefit of this exertion, the greater productivity, is nonpartitionable-it benefits all consumers.

If a work ethic is instilled in individuals then all others enjoy the benefits of the externality without having to compensate the worker, for she "senses no constraining influence at all... [she] may not [even] be conscious of the ethical norms that guide the choices made" (Buchanan 1991, 174). This in turn moves the internalization of this externality from the realm of Pareto-irrelevant-a benefit not worth the cost-to the realm of Pareto-relevant-worth the expenditure of resources to instill the work ethic (p. 174). As a consequence, "there is justification for both individualized and collective efforts to promulgate, maintain, and transmit this ethic throughout the culture as well as intergenerational ly" (p. 177). Just as the work ethic allows us to internalize a positive externality, so too does the ethic of constitutional responsibility. It inculcates a commitment to the constitutional conversation and thus creates a potential for jointly produced and individually adhered to, well-defined and consensually agreed-upon rules of the game. Such constraints by consensus make feasible the realization of a "'social order without conflict while at the same time achieving tolerably acceptable levels of well-being" (Buchanan 1991, 231).

Is there sufficient incentive for an individual to expend resources on the behavior modification of others when the product of such an investment is ethics? No, said Buchanan, [I]n n-person settings, where each person confronts "all others" in some relevant sense... the results of such investment become genuinely public goods... and each individual will have familiar free-rider incentives to hold back on his or her own contribution (Buchanan 1991, 188 - 89). Therefore, some form of "[c]objective organization of the moral persuasion enterprise may be necessary" (p. 189).

Each generation must establish social norms that are inculcated into the next generation. The analysis is consistent with the sociologists' criticism of the economists' hypothesis of operationally meaningful utility maximization. The preference orderings of individuals are subject to change brought about by the sociocultural environment within which choices are made and action taken. "Social norms" do, indeed, determine individual choice behavior, at least within limits. But the model supplies operational content to the sociologists' criticism; the origin of and the direction of the effects of social norms are themselves grounded in a calculus of self-interest. (Buchanan 1991, 193).

Here Buchanan reached the roots of his argument. The foundation of the liberal institutional order is a civic ethic. Although "individuals are the ultimate sovereigns in matters of social organization" (Buchanan 1991, 227), they benefit from a mutual inculcation of a constitutional ethic: a commitment to a constitutional conversation that takes place behind a veil that obscures individual interest. In such a conversation, all value justice because no one can predict his or her position beyond the veil and because the just outcome will be the most stable. The focus of the discussion thus becomes the theory of rules because justice and the stability of the constitution depend on the quality of the rule structure it embodies.

The agreed-upon, constitutional government provides and maintains the appropriate structural constraints (the "laws and institutions, " rules of the game), [and within that context] individuals, as economic actors, can be left alone to pursue their own privately determined purposes, and in so doing enjoy the values of liberty, prosperity, and peace in reciprocal and mutual respect, one for another (Buchanan 1991, 244). It is a wonderful image and a source of hope-but not, Buchanan believed, a naive hope. He saw in history the evidence that humankind had already made some progress in solving the problem of creating "moral communities" (Buchanan 1991, 189). The emergence of the minimally cooperative norms that are necessary for the effective functioning of the extended economic nexus offers a good example of "order without design, .".. stressed by Hayek and attributed to the insights of the eighteenth century Scots moral philosophers (Buchanan 1991, 190). Buchanan viewed his work as extending Hayek's analysis: In channeling the discourse toward constructive choice among sets of rules, I am, as you will recognize, both modifying and going beyond emphasis on cultural evolution associated with the work of F.

A. Hayek. I accept, of course, the importance of cultural evolution in the establishment of the rules of social order... I want only to suggest that, at least along some relevant margins; we can deliberately modify institutions that constrain our interaction, one with another (p. 231 - 32). Buchanan treated the inherited "rules of social order, " this social foundation, as he did the inherited distribution of the society's material endowment. With respect to the latter he wrote: In my enterprise...

parties to a potential contract commence from some status quo definition of initial positions because, quite frankly, there is no other place from which to start. This is an] existential acceptance of the status quo... My emphasis is almost exclusively placed on the process through which potential changes may be made, rather than either the starting point or the end point of change (p. 205 - 6). As with economic and political endowments, so too with social values there is an "existential acceptance of the status quo" (p. 205).

The focus of Buchanan's enterprise was on the margin, on process: How does change occur? More important as was Williamson's concern: How can we act to accomplish constructive institutional change? How do we get it "right?" Buchanan took us beyond the orthodox confines of choice within constraints-the market dimension-to the broader story of choice within and among constraints-the political dimension. In doing so, his enterprise laid bare the ethical foundation of society's political and economic superstructure.

He made it clear that social values, in particular civic ethics, do indeed hold up the whole edifice. However, his analysis left unanswered North's question, "How does an economy develop the informal constraints that make individuals constrain their behavior so that they make political and judicial systems effective forces for third party enforcement?" (North 1991, 111) If, as Buchanan argued, each successive generation inherits a status quo of social norms and acts on it at the relevant margins, the question remains: Where does the core of this inherited social status quo come from and how is it sustained across multiple generations? Modern economic theory postulates a world populated by homo economics (Stigler and Becker 1977). There is no place for socially defined and inculcated shared social norms in such a world (Evensky 1992, 2001). CHAPTER 2 REGULATORY FUNCTION OF GOVERNMENT IN BUSINESS ENVIRONMENT While many businesses have been examining ethical procedures and policies for some time, corporate scandals such as Enron and WorldCom have caused organizations to re-evaluate their operating procedures.

Government acts, such as the Sarbanes-Oxley Act of 2002, have encouraged companies to develop highly accountable ethics and financial standards in order to avoid punishment. One way that companies are responding to the ethical crisis in the corporate world, as well as government regulations, is through the implementation of Chief Risk Officers to evaluate and correct risk factors that would place the company in an ethical quandary. Many businesses are striving to meet the goals and challenges surrounding proper corporate governance, and again instill confidence in their many stakeholders. CORPORATEGOVERNANCE Judith Burns, reporter for the Journal of Business Ethics, defines corporate governance as "a hefty-sounding phrase that really just means oversight of a company's management making sure the business is run well and investors are treated fairly" (Burns, 2003) Corporate governance is an extension of business ethics.

Once the "right thing to do" is determined, it is the duty of directors and trustees to monitor the activities of management, and the corporation as a whole, to ensure the business is operated in an ethical manner (Burke, 2002). Burns reflects on the importance of a board that is made up of members who own large quantities of stock and are independent of the corporation itself, in regard to separation from management (Burns, 2003). Several individuals, groups and agencies play a significant role in the governance of corporations, and these roles are filled both internally and externally. Judith Burns (2003) lists internal players as board members and senior management, while also defining several external individuals and groups, such as outside auditors, state and federal regulatory agencies, criminal prosecutors, legislators and the court system. Burns also notes that investors play a significant role in corporate governance (Burns, 2003). Investors, who own large amounts of stock, can push management to adopt improved corporate governance practices that will support strong and viable company.

THE SARBANES-OXLEY ACT OF 2002 Many individuals in the media industry have reported The Sarbanes-Oxley Act of 2002 as "the most sweeping corporate reform legislation since the 1930 's. " Signed into law on July 30, 2002, it will significantly change the way that many public corporations operate. The Sarbanes-Oxley Act of 2002, commonly referred to as Sarbox, affects many roles within a corporation including: directors, top management, auditors, accountants and financial analysts. The key goals of the Sarbanes-Oxley Act of 2002 are to: - Enhance financial disclosures - Enhance auditor independence - Improve corporate governance - Protect public company employees, whistleblowers and shareholders - Increase accountability of corporate executives - Deter and punish fraudulent behavior The Sarbanes-Oxley Act of 2002 goes into great detail concerning auditors and a commission to oversee them. A board has been established, the Public Company Accounting Oversight Board, to oversee the audit procedures of public companies. The act is designed to "protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports for companies the securities of which are sold to, and held by and for, public investors. " The act attempts to secure the board members unbiased view by stipulating that board members are not to be employed by any other person or company. It also states that board members cannot be participants in any other business activity.

Only those accounting firms that are overseen by this board are legally permitted to perform audit functions for public businesses (Holland, 2003). The Sarbanes-Oxley Act of 2002 strongly encourages well-developed corporate governance practices within corporations. The act calls for corporations to disclose their code of ethics policies and if corporations do not have a code of ethics they must submit a valid reason for this omission. The Sarbanes-Oxley Act of 2002 defines the code of ethics as necessary standards to promote the following: - Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships - Full, fair, accurate, timely, and understandable disclosure in the periodic reports required to be filed by the issuer - Compliance with applicable governmental rules and regulations To maintain satisfactory ethical practices in a business, it is important to have a well-planned code of ethics and full support from senior management to see that these policies are carried out.

While the Sarbanes-Oxley Act of 2002 is geared towards public companies, many private companies are recognizing the advantage of incorporating practices from the Sarbanes-Oxley Act into their organizations (Raiborn, 2004). This is especially true of private companies that are anticipating becoming public companies in the future. In the November 2003 issue of The CPA Journal, reporter David M. Katz notes, "Almost 40 percent of non-public-company CFOs say their companies would benefit from implementing elements of the year-old law, according to a recent survey of 356 CFOs by Robert Half International" (Katz, 2003).

The act also addresses the issue of employee informants. Prior to the Sarbanes-Oxley Act of 2002, fraud detection was difficult because of the repercussions employees could face when they reported instances of unethical behavior. The act allows for the protection of informants, referred to as "whistle-blowers, " to encourage the reporting of illegal or unethical behavior (France, 2002). The announcement by the Dow Jones Newswires indicates that the reporting of corporate fraud has risen 13 percent in the last five years (France, 2002). The Sarbanes-Oxley Act of 2002 has greatly influenced the financial and ethical practices within the corporate business world. Requirements on reporting and auditing procedures, as well as penalties for non-conformance, should reduce unethical behavior in the business environment.

With the protection available for individuals with knowledge of unethical practices, the reporting of fraudulent behavior is on the rise (Thompson et al, 2005). The Sarbanes-Oxley Act of 2002 is causing both public and private organizations to re-evaluate their business policies. THE IMPLEMENTATION OF CHIEF RISK OFFICERS In an effort to prepare for the requirements of the Sarbanes-Oxley Act of 2002 and reduce risks due to unethical choices, many companies are choosing to create positions referred to as Chief Risk Officers. The Chief Risk Officer works with all divisions of an organization to ensure proper corporate governance.

In his article Energy Risk Management: Rise of the Chief Risk Officer, author Michael T. Burr states, In practical terms, this means companies need a systematic way to ensure that all their significant exposures are included in their decision-making processes. This is frequently termed enterprise risk management (Burr, 2003). Burr lists several company


Free research essays on topics related to: utility maximization, code of ethics, unethical behavior, sarbanes oxley act, corporate governance

Research essay sample on Sarbanes Oxley Act Code Of Ethics

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