Business Ethics Chapter 4
2004 Organizational Sentencing Guidelines stiffened
In accord with the Sarbanes-Oxley Act, guidelines are revised so that organizations are held to a stiffer definition of an effective ethics program in order to receive lenient treatment for offenses. Directors and executives must assume responsibility for such programs, Identify areas of risk, train officials in ethics, create an ethics hot line, designate an individual to oversee ethics, and give that person sufficient authority and resources to do the job. Companies must also create a corporate culture that encourages ethics.
What is the purpose of the Sarbanes-Oxleyy Act?
In addition to making fraudulent financial reporting a criminal offense and strengthening penalties for corporate fraud, the law requires corporations to establish codes of ethics for financial reporting and to develop greater transparency in financial reporting to investors and other stakeholders.21
What are the 5 categories that most laws and regulations governing business activities fall into?
Most of the laws and regulations that govern business activities fall into one of five groups: (1) regulation of competition, (2) protection of consumers, (3) promotion of equity and safety, (4) protection of the natural environment, and (5) incentives to encourage organizational compliance programs to deter misconduct
1.Voluntary practices include documented best practices.
No. Core practices are documented best practices.
2.The primary method for resolving business ethics disputes Is through the criminal court system.
No. Lawsuits and civil litigation are the primary way in which business ethics disputes are resolved.
4.The Sarbanes-Oxley Act encourages CEOs and CFOs to report their financial statements accurately.
No. The Sarbanes-Oxley Act requires CEOs and CFOs to accurately report their financial statements to a federal oversight committee; they must sign the document and are held personally liable for any inaccuracies.
What is the purpose of the Sherman Antitrust Act of 1890?
Prohibits monopolies
What is the purpose of the Celler-Kefauver Act, 1950
Prohibits one corporation from controlling another where the effect Is to lessen competition.
What is the purpose of Clayton Act, 1914
Prohibits price discrimination, exclusive dealing, and other efforts to restrict competition.
What is the purpose of the Consumer Goods Pricing Act, 1975
Prohibits price maintenance agreements among manufacturers and resellers In Interstate commerce.
What is the purpose of the Lanham Act, 1946
Protects and regulates brand names, brand marks, trade names, and trademarks.
What is the purpose of the
Refines copyright laws to protect digital versions of copyrighted materials, Including music and movies
2002 Sarbanes-Oxley Act passed.
Sarbanes-Oxley Act passed. Companies now must create an Independent board audit committee, a code of conduct and ethics policies, whistle-blower hot lines, and annual reports on effectiveness of financial reporting systems. CEOs and CFOs must sign off on the accuracy of financial statements. The act directs that Organizational Sentencing Guidelines be reviewed and amended. Penalties: up to $5 million and twenty years In prison.
What is the purpose of the Antitrust Improvements Act, 1976
Strengthens earlier antitrust laws—Justice Department has more Investigative authority.
What is the purpose of the Trademark Counterfeiting Act, 1980
Strengthens earlier antitrust laws—Justice Department has more Investigative authority.
At the heart of the Sarbanes-Oxley Act is the Public Company Accounting Oversight Board. What is their purpose?
The Public Company Accounting Oversight Board, monitors accounting firms that audit public corporations and establishes standards and rules for auditors in accounting firms. The law gave the board investigatory and disciplinary power over auditors and securities analysts who issue reports about corporate performance and health
What does the Sarbanes-Oxely Act require of top managers?
The Sarbanes-Oxley Act requires corporations to take greater responsibility for their decisions and to provide leadership based on ethical principles. For instance, the law requires top managers to certify that their firms' financial reports are complete and accurate, making CEOs and CFOs personally accountable for the credibility and accuracy of their companies' financial statements.
What are the three dimensions of Institutionalization?
Voluntary Boundary, Core Practice, And Mandated Boundary
What does the Voluntary Boundary contain as it pertains to Institutionalization of Business Ethics in Corporations?
Voluntary practices include the beliefs, values, and voluntary contractual obligations. All businesses engage in some level of commitment to voluntary activities to benefit both internal and external stakeholders.
5. Strategic philanthropy represents a new direction in corporate giving that maximizes the benefit to societal or community needs and relates to business objectives.
Yes. Strategic philanthropy helps both society and the organization.
3. The FSGO provides an incentive for organizations to conscientiously develop and implement ethics programs.
Yes. Well-designed ethics and compliance programs can minimize legal liability when organizational misconduct is detected.
What is the purpose of the Robinson-Patman Act of 1936?
Bans price discrimination between retailers and wholesalers.
What is Civil Law?
Civil law defines the rights and duties of individuals and organizations (including businesses).
What is the purpose of Federal Trade Commission Act, 1914
Created the Federal Trade Commission (FTC) to help enforce antitrust laws.
Where do Criminal and Civil Laws derive from?
Criminal and civil laws are derived from four sources: the U.S. Constitution (constitutional law), precedents established by judges (common law), federal and state laws or statutes (statutory law), and federal and state administrative agencies (administrative law
What is Criminal Law?
Criminal law not only prohibits specific actions—such as fraud, theft, or securities trading violations—but also imposes fines or imprisonment as punishment for breaking the law. The
How do Federal Administrations Agencies and State Laws work to control and Influence Business?
Federal administrative agencies established by Congress control and influence business by enforcing laws and regulations to encourage competition and to protect consumers, workers, and the environment. State laws and regulatory agencies also exist to achieve these objectives
What is the purpose of the FTC Improvement Act, 1975
Gives the FTC more power to prohibit unfair Industry practices.
What is the purpose of the Federal Trademark Dilution Act, 1995
Gives trademark owners the right to protect trademarks and requires them to relinquish those that match or parallel existing trademarks.
What played the biggest role in Congress Passing the Sarbanes-Oxley Act of 2002?
In 2002, largely in response to widespread corporate accounting scandals, Congress passed the Sarbanes-Oxley Act to establish a system of federal oversight of corporate accounting practices.
What are Mandated Boundaries as they pertain to Institutionalization of Business Ethics in Corporations?
An externally Imposed boundary of conduct (laws, rules, regulations, and other requirements). Mandated boundaries are the externally imposed boundaries of conduct, such as laws, rules, regulations, and other requirements.
As an incentive, organizations that have demonstrated due diligence in developing effective compliance programs that discourage courage unethical and illegal conduct may be subject to reduced organizational penalties if an employee commits a crime. What are the Seven Steps that companies must implement to demonstrate due diligence?
1. A firm must develop and disseminate a code of conduct that communicates required standards and identifies key risk areas for the organization. 2. High-ranking personnel in the organization who are known to abide by the legal and ethical standards of the industry (such as an ethics officer, vice president of human resources, general counsel, and so forth) must have 3. No one with a known propensity to engage in misconduct should be put in a position of authority. 4. A communications system for disseminating standards and procedures (ethics training) must also be put into place. 5. Organizational communications should include a way for employees to report misconduct without fearing retaliation, such as an anonymous toll-free hot line or an ombudsman. Monitoring and auditing systems designed to detect misconduct are also required. 6. If misconduct is detected, then the firm must take appropriate and fair disciplinary action. Individuals both directly and indirectly responsible for the offense should be disciplined. In addition, the sanctions should be appropriate for the offense. 7. After misconduct has been discovered, the organization must take steps to prevent similar offenses in the future. This usually involves making modifications to the ethical compliance program, additional employee training, and issuing communications about specific types of conduct.
What are the 12 major provisions of the Sarbanes Oxley Act?
1.Requires the establishment of a Public Company Accounting Oversight Board In charge of regulations administered by the SEC. 2.Requires CEOs and CFOs to certify that their companies' financial statements are true and without misleading statements. 3.Requires that corporate board of directors' audit committees consist of independent members who have no material Interests in the company. 4.Prohibits corporations from making or offering loans to officers and board members. 5.Requires codes of ethics for senior financial officers; code must be registered with the SEC. 6.Prohibits accounting firms from providing both auditing and consulting services to the same client without the approval of the client firm's audit committee. 7. Requires company attorneys to report wrongdoing to top managers and, if necessary, to the board of directors; if managers and directors fail to respond to reports of wrongdoing, the attorney should stop representing the company. 8.Mandates "whistle-blower protection" for persons who disclose wrongdoing to authorities. 9.Requires financial securities analysts to certify that their recommendations are based on objective reports. 10.Requires mutual fund managers to disclose how they vote shareholder proxies, giving investors Information about how their shares influence decisions. 11.Establishes a ten-year penalty for mail/wire fraud. 12. Prohibits the two senior auditors from working on a corporation's account for more than five years; other auditors are prohibited from working on an account for more than seven years. In other words, accounting firms must rotate Individual auditors from one account to another from time to time.
What are Core Practices contain as they pertain to the Institutionalization of Business Ethics in Corporations?
A highly appropriate and common practice that helps ensure compliance with legal requirements, Industry self-regulation, and societal expectations. Core practices are documented best practices, of ten encouraged by legal and regulatory forces as well as industry trade associations. The Better Business Bureau is a leading self-regulatory body that provides directions for managing customer disputes and reviews advertising cases.
What is the McCarran-Ferguson Act of 1944?
Exempts the Insurance Industry from antitrust laws.
Describe Institutionalization as it pertains to Business Ethics.
Institutionalization relates to legal and societal forces that provide both rewards and punishment to organizations based on the stakeholder evaluations of specific conduct. Institutionalization in business ethics relates to established laws, customs, and expected organizational programs that are considered normative in establishing reputation. Institutions provide requirements, structure, and societal expectations to reward and sanction ethical decision making.
What are the two categories of Law?
Laws are categorized as either civil or criminal.
What is Procompetitive Legislation?
Laws have been passed to prevent the establishment of monopolies, inequitable pricing practices, and other practices that reduce or restrict competition among businesses. These laws are sometimes called procompetitive legislation because they were enacted to encourage competition and prevent activities that restrain trade
Other examples of anticompetitive strategies include sustained price cuts, discriminatory pricing, and price warsThe primary objective of U.S. antitrust laws is to distinguish competitive strategies that enhance consumer welfare from those that reduce it. What makes this task difficult?
The difficulty of this task lies in determining whether the intent of a company's pricing policy is to weaken or even destroy a competitor.
What is the difference between Criminal and Civil Law?
The primary difference between criminal and civil law is that the state or nation enforces criminal laws, whereas individuals (generally, in court) enforce civil laws. Criminal and civil laws are derived from four sources: the U.S. Constitution (constitutional law), precedents established by judges (common law), federal and state laws or statutes (statutory law), and federal and state administrative agencies (administrative law
What is the Primary Objective of U.S. Antitrust laws?
The primary objective of U.S. antitrust laws is to distinguish competitive strategies that enhance consumer welfare from those that reduce it.
What is Section 404 of the Sarbanes-Oxely Act?
The section that has caused the most cost for companies has been compliance with Section 404. Section 404 has three central issues: It requires that (1) management create reliable internal financial controls, (2) that management attest to the reliability of those controls and the accuracy of financial statements that result from those controls, and (3) an independent auditor to further attest to the statements made by management. Section 404 requires companies to document both the results of financial transactions and the processes they have used to generate them.
What are the duties of the oversight board created by the Sarbanes-Oxely Act?
Their duties include (1) registration of public accounting firms, (2) establishment 104105of auditing, quality control, ethics, independence and other standards relating to preparation of audit reports, (3) inspection of accounting firms, (4) investigations, disciplinary proceedings, and imposition of sanctions, and (5) enforcement of compliance with accounting rules of the board, professional standards, and securities laws relating to the preparation and issuance of audit reports and obligations and liabilities of accountants.
1991 Organizational Sentencing Guidelines created.
These guidelines, added to the FSGO, created organizational responsibility for employee conduct. Sentences and fines are lessened for organizations with ethics programs. Firms that fall to take due diligence actions to prevent misconduct are given stricter sentences or fines.
