CORPORATE COMPLIANCEINTRODUCTIONCorporate compliance is an issue that is gaining attention in the business world today. This has happened due to the high profile collapse of Enron and WorldCom recently. Thus compliance and compliance standards debate has started in both the business and political arena. In this essay, we will first try to look at the history of the political efforts that have tried to encourage corporate compliance. Thereafter both the success and problems caused by the government's efforts to enforce corporate compliance will be looked at from an international perspective. And finally this essay will illustrate that despite all the criticism, both established and new laws enforcing corporate compliance have contributed significantly to the prevention of many bad business practices as well as the creation of many good corporate citizens nowadays.
Moreover, we will take a close look at how and why Enron failed and how non compliance led to the disaster. The accounting and financial scandals that rocked the year 2001 and 2002 has had far-reaching consequences for the companies and issues of corporate compliance. The governments have introduced new laws and regulations such as the Sarbanes-Oxley Act 2002 to ensure stricter compliance.
And new codes of conduct have been developed and corporate boards have tried to restructure themselves to include more independent members to avoid Enron like situations. It has been seen that the Sarbanes-Oxley Act and the related policies by the Securities and Exchange Commission and new rules and regulations introduced by the major stock exchanges, have resulted in more ethical behavior and effective corporate compliance from private companies. As per these regulations, the companies and their senior executives and board members can now be held personally accountable in the case of the financial reporting irregularities and other areas relating to ethics and corporate compliance.
And the companies that follow the code of ethical policies and corporate compliance are getting a distinct advantage in the marketplace. BACKGROUNDAll industries have faced the issues of non compliance by corporate companies since long. The governments and regulating bodies have come up with new rules and regulations to prevent these issues from time to time. The False Claims Act of 1986, the U. S. Federal Sentencing Guidelines for Organizations of 1991, the, the historic decision given by the Delaware Chancery Court in 1996 regarding Caremark International, Inc. , and the Sarbanes-Oxley Act of 2002 all have contributed to the issues of compliance and ethical behavior of private companies.
All these have in some or the other way tried to protect the shareholders and other stakeholders from incurring losses due to misconduct and malpractices of companies. But all this has not still deterred companies from resorting to wrong practices. Actually, till recently, the rules or the laws have been quite lenient in dealing with the cases of wrong practices by the private companies and the low fines have contributed to the relative nonchalance shown by the defaulting companies as they treat them as a cost of doing business.
(Harvard Law Review, 1783). But in 1991, the guidelines required companies to not only implement the ethical policies and prevent corporate crimes but also to self evaluate and self enforce them. But the critics have argued that these guidelines do not provide adequate guidance for companies who are interested in compliance.
They further add that in cases where companies have tries to implement policies of ethical behavior and still some particular employee has been acting unethically, company should not be blamed for it. Otherwise the companies will become very strict and normal employee behavior will also come under unnecessary scrutiny. As per the Harvard law review of 1996, about two-thirds of the organizations included compliance in their employee evaluations, but only about 40% used audits as the tool for preventing and detecting violations.