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Explain which piece of legislation is most effective for enforcing ethical business...

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lscrivy | Student, Undergraduate | Salutatorian

Posted June 12, 2013 at 2:20 PM via web

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Explain which piece of legislation is most effective for enforcing ethical business practices: FCPA, FSGO, SOX, or Dodd-Frank.

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kipling2448 | (Level 2) Educator Emeritus

Posted June 12, 2013 at 3:14 PM (Answer #1)

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When discussing the practical utility of laws intended to address unethical business practices, it is important to keep in mind that each set of laws arose under a different set of circumstances.  Having worked for the United States Senate Committee on Banking, with responsibility for regulatory compliance issues, this educator witnessed first-hand not only the debates regarding some of these measures, but their effectiveness in practice.

Because the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is new, it is difficult to measure its effectiveness to date.  Just because a set of laws is passed does not mean it is enforced right away.  More important to the actual enforcement is the issuance of the regulations that detail how the law is to be administered and enforced.  Completion of those regulations can take years, and, consequently, it will be a while before the full impact of Dodd-Frank can be determined.

The greatest impact to date on the ability of U.S. corporations to function overseas was clearly the Foreign Corrupt Practices Act of 1977, which prohibits American companies from using bribes to win contracts with foreign governments.  A result of the Lockheed Corporation's efforts at bribing Japanese Government officials for the right to sell Japan aircraft, the FCPA has been effective at eliminating that practice.  Unfortunately, few other countries followed the U.S. example, so American businesses are occasionally at a disadvantage when competing internationally.

It is hard to say that the Federal Sentencing Guidlines Organization has had much of an impact, given its relative obscurity even in government.  Over time, even companies with well-drafted ethics guidelines become complacent or individual employees act improperly and the fact of the existence of the guidelines will have proven ineffective as a deterrent to unethical behavior.  Within the financial services industries, there are specific federal statutes that require ethical conduct, and federal investigators are required to conduct routine examinations of these companies, but scandals continue to appear with alarming regularity.

That leaves the Sarbanes-Oxley Public Company Accounting Reform and Investor Protection Act of 2002 (SOX), passed in reaction to a major financial scandal, in which large American companies like Enron, Tyco International, and WorldCom were found to be using unethical accounting practices to deceive the public regarding the state of their financial health, which had enormous ramifications for the integrity of the securities industry.  SOX established a Public Company Accounting Oversight Board (PCAOB) that exercises considerable oversight of the accounting industry with regard to that industry's role in auditing publicly-traded companies.  As with Dodd-Frank, SOX is still relatively new, so it would be unfair to render a verdict on its effectiveness to date.  It can be said, however, that the accounting industry finds it enormously distasteful, which may not be bad if that means the Board is doing its job.

Similar to the PCAOB is the Consumer Financial Protection Bureau, established by Dodd-Frank.  Like the PCAOB, the new CFPB is intended to protect the public against excessivel complex financial instruments used by the financial services and securities industries. If it functions as intended, consumers will protected against the type of industry practices that contributed to the housing crisis of 2008.

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