In 2002, former Enron CEO, Jeffery Skilling, received a twenty-four year prison sentence and ordered to pay $45 million in restitution. When questioned after the sentencing, he was quoted as say, “Of course I feel bad – I feel horrible, but that’s not to say I feel I did anything illegal” (PBS New Hour, 2008, video supplement). This profound mindset, sadly, was indicative of the mentality of many corporate officers at that time.
In 2002, the Sarbanes-Oxley Act was passed. Its origin was triggered by a serious of high profile corporate scandals, none of which was more damaging than the exposed corrupt behavior, displayed by those in positions of power and leadership, at Enron Corporation. The Sarbanes-Oxley Act, signed into law by President Bush on July 30, 2002, sole purpose was to revise and strengthen auditing and accounting standards for publically traded corporations (Pearson & Robinson, 2011, p.57). By redefining corporate responsibility, insisting upon financial transparency, and implementing strict auditing procedures, corporate corruption and unethical business conduct was now a lawfully punishable act.
As Sarbanes-Oxley sought to put an end to corporate fraud and corruption, by holding executives liable for misstated earnings, it also became the catalyst that propelled the evolution of what is now deemed ethical business conduct. As Pearson & Robinson (2011) have stated, ethical responsibility and economic responsibility are, unfortunately, not interconnected.
If we look at the positive attributes associated with ethical business practice, an argument can be made that socially responsible and ethically-minded corporate reputation can have a positive impact on an organizations bottom line; certainly companies like Starbucks Coffee or Heinz Corporation are examples of this. On the other hand, there is a cost associated with this newly adopted business model. Right or wrong, the Sarbanes-Oxley Act produced new corporate governance structure that has infused multiple layers into the traditional organizational hierarchy. As mentioned in the video Corporate Crackdown: Enron (2008), “this Act comes as a wonderful gift to the accounting community” (PBS New Hour, 2008); one could say that the cost of doing (ethical) business just went up.