Code of Ethics Corporate Compliance Competence

Question: Describe about the Code of Ethics for Corporate Compliance Competence. Answer: 1: Sarbanes-Oxley Act was passed by the US Congress with the main aim of safeguarding the interest of the investors against the fraudulent accounting done by organizations. This Act has led to improvement in financial disclosures by organizations. The key provisions of Sarbanes-Oxley Act are: Each organization should adopt financial control measures. An organization cannot offer personal loans to its managers or directors. Senior management needs to certify the accuracy of the financial statements disclosed by an organization. In the case of violations, the senior managers will be subjected to penalties. It also specifies how the company records should be stored using Information and Technology (Diederichs, 2005). Each organization must disclose its code of conducts and its business ethics. It provides protection to employees that indulge in whistle-blowing. Establishment of independent accounting firms for the purpose of conducting audits for public companies. Procedures must be established for the handling complaints regarding matters related to accounting and auditing. Criminal penalties to be issued for interference in investigation or audit. Penalties to be issued for the destruction of documents. This Act has definitely benefitted the society. This Act has put a check on the corporate frauds that have the potential to harm the global stock markets (Diederichs, 2005). This Act has helped the investors to assess the organizations in a better way and helped in improving the internal processes within an organization. It has improved documentation, corporate governance, and financial reporting. It has helped to strengthen the control environment that encompasses the values of the organization, transparency in operations and execution of company policies. 2: Apart from making profits, an organization is accountable to its stakeholders and shareholders for their conduct. According to Federal Sentencing Guidelines for Organizations, the organization's values, code of conduct, code of ethics, objectives, procedures and policies should be communicated to all employees. The presence of misconduct and unethical conduct leads to organizational penalties/ fines. According to the guidelines, officers or committees should be appointed to monitor the ethics/ compliance program (Adelstein Clegg, 2015). These officers/ committees are responsible for training the employees, ensuring proper communication, ensuring that the organization complies with the government regulations, developing audit/ control systems, taking actions for violation of ethics, reviewing revising the codes of conduct/ ethics etc. An internal system should be developed for employees for the purpose of reporting the misconducts that happen in the organization. Continuous revis ions and updates should be made in the ethics/ compliance program. Senior management should take ownership of the ethics/ compliance program. The audits should encompass privacy, fraud, discrimination, employee rights, legal compliance etc (Adelstein Clegg, 2015). Thus, these measures will help to prevent unethical behavior within an organization. If an organization is found guilty of unethical behavior, it is important to analyze if the organization is capable of paying a fine. Following elements act as aggravators for the penalty/ fine- previous history of unethical conduct, involvement in criminal activities, violation of government regulations etc. Following elements mitigate the penalty/ fine- self reporting regarding violation of law, prevalence of internal control system against standards of conduct, establishment of program for prevention of violation of law, cooperation with authorities conducting checks/ audits etc. For the mitigation of civil and criminal sanctions, evidence of the organizations good character needs to be given. 3: Corporate culture may be defined as the values, traditions, and beliefs that are passed from the upper-level management to the frontline executives in the form of manuals, memos, handbooks, forms etc. There are two dimensions that define the culture of an organization- concern for people i.e. for the wellbeing of the employees and concern for performance i.e. productivity of the employees (Edwards, 2003). Corporate culture plays a significant role in the ethical decision making within the organization. It is very important for the employees to understand the values of the organization and follow the code of conduct laid down by the organization. Yes, it is possible for an organization to gain profits and behave in a socially responsible manner. Irrespective of the market and industry in which a company operates, it should protect the environment from damage, use natural resources judiciously and reduce carbon footprints. Companies should regulate their conduct in the public interest. While earning profits and maintaining a position in the market, an organization should focus on CSR (Corporate Social Responsibility). CSR can be defined as the initiatives or practices adopted for the wellbeing of the society and sustenance of environment. Successful companies like Microsoft, Google, BMW, Apple, Daimler, Volkswagen, Sony etc. have strong CSR programs. These companies try to minimize the negative impact of their operations on the environment, ensure business ethics are followed, raise public awareness on certain social/ environmental issues, improve employee satisfaction, raise funds, and organize charity events (Levitt, 2005). A CSR report is published by companies that enlist the impact of company operations on the society/ environment, initiatives taken by the Research and Development department, code of ethics, employee empowerment, labor and human rights etc. Researchers suggest that organizations engaged in socially responsible activities gain a competitive advantage over its rivals. CSR helps to boost an organization's reputation. 4: The cause of the crisis that occurred on 2008 can be linked to greed. The managers withheld information, gave misleading advertisements and manipulated stock recommendations. There as a crisis of leadership in banks, rating agencies, government organizations etc. The presence of irrational/ unethical incentives can be credited to the occurrence of the crisis. This led to excessive risk taking and manipulation of stock prices. Lack of transparency in operations and non-disclosure of information to customers/ investors also led to the crisis of 2008. The subprime securities were classified as investment grade by the rating agencies. This happened due to incompetence and clash of interests (Gregoriou Lhabitant, 2011. Homeowners wanted to become rich overnight. Loans were given in large volumes. Politicians forced the banks to lend money to their acquaintances without checking their credit-worthiness and wanted to gain popularity. Financial firms committed fraud by selling securities backed by mortgage to investors. In order to prevent re-occurrence of such a crisis, it is very important to set ethical standards and ensure that there is no deviation in terms of ethics. An auditing committee should be established. Global ethical standards should be set that include values like- honesty, integrity, loyalty, respect for others, non-discrimination (Wildy, 2013). The committee should address issues like human rights, racial discrimination, bribery, use of harmful products, corruption, intellectual property rights, environmental pollution etc. Penalties or fines should be imposed in the case of violation of ethics. 5: An organization should take into account the social and environmental impact of its activities and decisions. An organization is answerable/ accountable to all its stakeholders (employees, customers, suppliers, investors, government) and shareholders. Primary stakeholders can be defined as those stakeholders that are involved in some economic transactions with the organization like employees, customers, investors, suppliers etc. Secondary stakeholders can be defined as those stakeholders that are not involved in economic transactions with the organization like the general public, support groups, media, government etc. Primary stakeholders are more important than the secondary stakeholders as they are directly affected by the actions and decisions of an organization (Zemite, 2016). It is the organizations responsibility to maximize value creation for all its stakeholders, shareholders and the general public for the sustenance of company reputation and market share. From the primary stakeholders, customers and employees have the highest importance followed by suppliers and investors. Customers are those primary stakeholders that buy the goods/ services provided by an organization and help the organization in generating revenues. An organization can enhance its customer base and increase their loyalty by maximizing the value creation either by providing products at a lower cost in comparison to its competitors or by providing high quality products and services. Employees work for an organization for remuneration. The effort put by the employees can be credited to the growth and success of an organization. Capital can be considered as the lifeline of an organization thus each and every investor is valuable to an organization (Roberts, 2009). Suppliers provide raw material and equipment/ machinery to an organization. Special groups play an instrumental role in changing corporate behavior when unethical behavior is reported. The issues taken up by s pecial groups/ pressure groups may range from working conditions to environmental pollution. References Adelstein, J. Clegg, S. (2015). Code of Ethics: A Stratified Vehicle for Compliance.J Bus Ethics. Diederichs, M. (2005). Sarbanes-Oxley Act (SOA).CON,17(4-5), 301-304. Edwards, J. (2003). Individual and corporate compliance competence: An ethical approach.J Of Fin Reg And Compliance,11(3), 225-235. Gregoriou, G. Lhabitant, F. (2011). Is Greed Still Good? What Have Hedge Fund Managers and Investors Learned from the 2008 Crisis?.Wealth Management,14(2), 42-48. Levitt, A. (2005). Corporate Culture and the Problem of Executive Compensation.Journal Of Applied Corporate Finance,17(4), 41-43. Roberts, R. (2009). The Rise of Compliance-Based Ethics Management.Public Integrity,11(3), 261-278. Wildy, M. (2013). Teaching Global Ethical Standards: A Case and Strategy for Broadening the Accounting Ethics Curriculum.CFA Digest,43(5). Zemite, I. (2016). The Role of Stakeholders in Cultural Entrepreneurship Management.Economics And Culture,13(1).