Corporate Ethics

A strong ethical culture plays a significant role in ensuring future value and stability for any corporation as there are numerous consequences associated with unethical behavior. Publicly traded corporations specifically risk stability and continued success through legal ramifications relative to established ethical practices, employee performance and commitment resulting from tolerance of unethical and irresponsible behavior, and through decreased shareholder confidence and investment in the company (CTU Online, 2008). For any organization to establish and maintain a strong ethical culture, continuing education at all levels, a firm, zero tolerance approach, and excellent example of ethical and responsible behaviors must be employed at executive and management or supervisory levels. Establishing, implementing, and enforcing a strict cultural standard is dependent upon thorough awareness of acceptable behaviors on the individual, corporate, societal, and regulatory levels. Following, expectant ethical practices and specific ethics related issues that apply to the corporation are explored and discussed in an effort to increase awareness and provide necessary facts relative to the ensurance of the highest ethical standards as desired by the company.

Within the realm of operations, or decisions in which there is no clear, established ethical and unethical approach, the distinctive personality and promise of the organization serves as the reference point upon which decisions are deemed ethical and unethical. However, public perception, and standards as promoted and applied by others in the industry will impact how "ethical" the organization's actions are received by others. This creates a balancing act for any organization striving to remain competitive and stable, and increase its value in a fiercely competitive global economy where some companies outperform others in specific areas of responsibility, or ethical considerations (Entine, 1996).

It is inconceivable that any organization can be the best at perfecting the numerous processes and operations, that will be consistently reviewed and critiqued, and always maintain the highest possible standard in each of these as is compared to what others might view as the highest possible ethical standard within that specific process or industry. As such, each organization much determine and communicate the exact internal expectations for excellence within its own organization, and focus on realizing success in these expectations without losing sight of impact on the many stakeholders who assume their interest plays a role in the decision-making process, or losing sight of governing standards and regulations that directly influence decisions and processes.

Although a portion of corporate ethics will be unique to the company, the majority of organizational ethics are considered standard, and are regulated by different organizations governing multinational or domestic corporations. Numerous agencies and/or organizations have set forth expected standards and behaviors applicable in all corporations that specify ethical standards as are necessary to ensure protection of investors and other stakeholders. Many of the regulations and standards that will apply to the corporation are a direct result of addressing and correcting corporate behaviors related to past scandal and manipulation that have erupted within numerous major corporations.

The Sarbanes Oxley Act, or SOX, of 2002 is mandatory legislation that was developed to help ensure successful, and ethical, management and audit practices within the corporation. Pertaining to corporate responsibility in financial reporting, section 302 of SOX relates to certification of the information included in financial reporting including the signature of officers, review for misleading or absent, relevant financial information, materially accurate financial representation, and review of the effectiveness of the current system of internal controls (Sarbanes Oxley Act, 2006).

Increased accountability of financial reporting at the highest level of the organization helps to ensure that accurate information is shared and reported as more individuals become liable and responsible for financial information. Section 401 and 409 of SOX details elements pertaining to full disclosure of all financial information that is deemed relevant to the decision making process with respect to investors and/or other interests, in an easily understandable format. Section 404 communicates the further requirement to annually assess and report on the effectiveness of the internal control system, bringing any current problems to light, and allowing for continual improvement in the area of controlling and ensuring the accuracy of the financial information as it moves through the organization. Section 802 of SOX details the penalties associated with non-compliance of the reporting regulations set forth, including at a minimum, fines and escalating to up to 20 years of imprisonment for individuals engaging in alteration of, mutilation of, concealment of, or falsification of financial documents or data, as well as individuals who obstruct the justice and investigatory processes (Sarbanes Oxley Act, 2006).

Operations of the publicly traded multi-national corporation further fall under the governance of the Securities and Exchange Commission. The Securities Act of 1933 takes steps to ensure that investors receive accurate financial information from current or potential investment options, as well as prohibiting fraud relative to reporting practices. Later legislations brought on additional regulations including financial reporting frequency, solicitation for investment, regulations on significant corporate ownership purchases, and insider training resulting from non-publicized financial data (SEC, 2008). Investment, reinvestment, sales of securities, such as stocks, both domestically and abroad provides for much opportunity for misrepresentation and the legislation provided through the SEC seeks to better control and ensure ethical practices within these activities in an effort to protect those investors who have placed their trust, and their money, in large, publicly traded corporations.

Multi-national corporations encounter numerous opportunities for irresponsible or unethical tax reporting practices. Many of the elements in place that assist corporations in legally minimizing taxable income, such as tax shelters or corporate welfare incentives, are considered ethical only to a certain utilization, abuse of these tools quickly becomes unethical when the focus of the organization turns to avoiding tax obligation, and in turn neglects its responsibilities as a respectable citizen. The ability to set up accounts in banks offshore provides the opportunity for the company to avoid paying US taxes. Although it may be considered ethical and acceptable to maintain an account in a foreign nation, abuse of this option relates to the fairness of this act as it relates to all US businesses. This practice is not typically an option to a new business, for small businesses, or domestic corporations who will be obligated to pay taxes on their income, while still attempting to compete with those corporations who are avoiding their tax responsibilities and gaining a competitive advantage as a result (CTU Online 2008).

Tax shelters are investment options created by the US government with the specific intent of providing an avenue for tax savings (Schnepper, 2008). It was found, however, that the top US corporations ended up paying 15-20% in taxes vs. the 35% rate of tax that would have otherwise been implied. The ethical implications relative to the use and/or abuse of tax shelters once again relates to fairness, in addition to the use of those savings. It would be more likely be perceived as unethical behavior by investors, communities, and other interests if these savings were focused only on increasing the bottom line. In contrast, if these savings resulted in improvements in employee benefits, or used toward more environmentally conscious processes, the greater benefit would be realized and viewed as a more ethical utilization of the tax shelter. The situation is similar in the treatment of, and the perception of the ethical employment of corporate welfare incentives and transfer pricing. All of these methods used to lessen tax liability are legal, even ethical, dependent upon their actual application, use, and resulting influence on income use.

The AICPA, or American Institute of Certified Public Accountants, established new standards for tax practices in 2000, adopting eight Statements on Standards for Tax Services, (STSSs), deemed enforceable standards for the CPA. As BLCs tax analyst, and as a professional in the accounting industry, it is essential to uphold and embrace the STSSs to protect the organization and its stakeholders, as well as to protect the integrity of and confidence in the accounting industry. The different STSSs address many aspects of tax reporting such as the tax payer's responsibility to the domestic tax system, realistic standards and expectations, endorsing questionable returns, return preparation procedure, provisions on estimation, acceptable procedure for addressing errors, inconsistencies, and changing position on previous advisement (AICPA, 2008). Although the overall goal is to increase value, shunning the ethical responsibilities inherent with operating as a US corporation is not considered acceptable ethical behavior.

An effective system of internal controls is essential to ensuring that all processes are handled and reported with the greatest degree of accuracy and integrity. Controls must be frequently tested and evaluated to ensure their effectiveness, and changes made as necessary to continually improve upon effectiveness of those controls as lessons are learned. If a corporation is to ensure the highest of ethical standards among employees at all levels and divisions of the organization, the most important focus, or area of attention is in developing a strong ethical culture. A firm commitment to a well-defined and well-communicated ethical stance must be embraced and employed at the highest levels, setting an example of expected behaviors throughout all levels of the company. The benefits of a responsible, ethical corporation result in an overall greater commitment to expected standards as responsible and ethical actions are easier to support than unethical or irresponsible actions. The opportunity for unethical behavior dwells within countless processes, requiring continual education for all employees, at all levels, enforcing the focus on ethical expectations and clearly conveying the consequences associated with non-compliance of ethical standards and regulations as they apply to individual, corporate, and societal interests. Not only does strict adherence to firm ethical standards benefit the firm through avoidance of fines and other consequences associated with regulatory non-compliance, but also through benefits associated through improved decision-making, improved job satisfaction, improved public perception, all resulting in increased value and stability.

Sources Cited:

AICPA (2008). New standards for tax practice. American Institute of Certified Public

Accountants. New York, NY. Retrieved on July 19, 2008 from Web site

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CTU Online (2008). Phase 2 course materials. Colorado Technical University Online. Colorado

Springs, CO. ACC618-0803A-01:Taxation and Business Decisions.

Entine, J. (1996). Corporate ethics and accountability. At Work. (September/October, 1996).

Berrett-Koehler Publishers. Retrieved on July 19, 2008 from Web site

http://www.corpgov.net/forums/commentary/entine1.html

Sarbanes Oxley Act (2006). A guide to the Sarbanes Oxley Act. Soxlaw.com. Retrieved on July

19, 2008 from Web site http://www.soxlaw.com/

Securities and Exchange Commission (2008). How the SEC protects investors, maintains market

integrity, and facilitates capital formation. Securities and Exchange Commission.

Washington, DC. Retrieved on July 19, 2008 from Web site

http://www.sec.gov/about/whatwedo.shtml#laws

Schnepper, J. (2008). Tax shelters still exist and can save you money. MSN Money, Microsoft.

Retrieved on July 19, 2008 from Web site

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