Cognizant Technology Solutions

From Wikipedia, the free encyclopedia

This article is about the corporation. For a definition of the word "cognizant",
see the Wiktionary entry cognizant.
This article may contain original research. Please improve it by verifying the
claims made and adding references. Statements consisting only of original research
may be removed. More details may be available on the talk page. (January 2012)
Cognizant Technology Solutions Corp.TypePublicTraded asNASDAQ:�CTSH
S&P 500 ComponentIndustryIT services, IT consultingFounded1994Founder(s)Kumar
MahadevaHeadquartersTeaneck, New Jersey, United StatesArea servedWorldwideKey
peopleJohn E. Klein (Chairman)
Francisco D'Souza (CEO)ServicesIT, business consulting and outsourcing services
Revenue$6.12 billion (2011)[1]Operating income$1.13 billion (2011)[1]Profit$883
million (2011)[1]Total assets$6.12 billion (2011)[1]Total equity$3.95 billion
(2011)[1]Employees137,700 (Q4, 2011)[1]Websitewww.cognizant.comCognizant Technology
Solutions Corp. (NASDAQ:�CTSH) is an American multinational provider of custom
information technology, consulting and business process outsourcing services. Its
headquartered in Teaneck, New Jersey, United States and is a member of NASDAQ-100,
the S&P 500 and Fortune 500. Cognizant has been named to Fortune magazine's 100
Fastest-Growing Companies list for nine consecutive years, including 2011 when it
was ranked first in the "All-Stars" list of 16 companies that appear on the
fastest-growing list year after year.
Contents
�[hide]�
* 1 History
* 2 Financial Health
* 3 Revenue Mix
* 4 Services
o 4.1 List of companies acquired by Cognizant
* 5 Offshoring and Hiring in the U.S.
* 6 Corporate Social Responsibility
* 7 Community
* 8 Cognizant Academy
* 9 Global Offices
* 10 See also
* 11 References
* 12 External links[edit] History
Cognizant was started as an arm of Dun & Bradstreet Corporation (D&B) in 1994. D&B,
which first had a 76 per cent stake in the venture, bought Satyam�s 24 per cent
after the second year of operations.[2]Kumar Mahadeva [3] was its Chairman and CEO.
[4] The company was spun off as an independent organization two years later and
moved its headquarters to the US. Kumar Mahadeva resigned in 2003 when Lakshmi
Narayanan took charge as CEO.[5]
Cognizant currently provides a wide range of business, technology and consulting
services including business process outsourcing (BPO) and has significant practices
in Banking and Financial services, Communications, Consumer Goods, Energy &
Utilities, Health care, Information, Media & Entertainment, Insurance, Life
Sciences, Manufacturing, Retail, Technology, Transportation & Logistics and Travel
and Hospitality.
[edit] Financial Health
Cognizant was listed on NASDAQ in 1998 and moved to the NASDAQ-100 Index in 2004.
After the close of trading on 16 November 2006, Cognizant moved from the mid cap
S&P 400 to the S&P 500. The company claims to be in excellent financial health,
reporting over $2.2 billion in cash and short term investments for the quarter
ending June 30, 2011.[6]
[edit] Revenue Mix
Major portion of the revenue for Cognizant is derived out of clients from US.[7]
North America: 77.2%, Europe: 19.2%, Rest of World: 3.6%
Financial Services: 42.3%, Health-care: 25.9%,Manufacturing, Retail & Logistics:
18.6%, Communications, Information, Media & Entertainment and Technology: 13.2%
[edit] Services
Cognizant provides a range of information technology, consulting and Business
Processing Outsourcing (BPO) services, including Business and Technology
Consulting, Complex Systems Integration, Application Development and Maintenance,
Business Process Outsourcing, IT Infrastructure Services, Analytics, Web Analytics,
Business Intelligence, Data Warehousing, CRM and social CRM, Supply Chain
Management, Engineering & Manufacturing Solutions, ERP, R&D Outsourcing, and
Testing solutions.
The company's revenue from IT services is split roughly evenly between application
development (which is considered discretionary spend and hence arguably more
susceptible to the economic climate) and application maintenance.
Cognizant's largest horizontals are Testing and DW/BI (Data warehousing and
business intelligence).
Its business process outsourcing unit leans towards "higher-end" services i.e. work
that involves unique skills and domain knowledge, such as legal services or
healthcare claims processing rather than simple voice-based support services.
[edit] List of companies acquired by Cognizant
Company acquiredGeographyAnnouncement DateArea of BusinessZafferaUnited States
September 27, 2011SAP ConsultingCoreLogicIndiaJuly 26, 2011Mortgage processing
Galileo PerformanceFranceJune 17, 2010PIPC GroupUnited KingdomMay 10, 2010Program &
Project Management ConsultingUBS India Service CenterIndiaOctober 15, 2009Business
process outsourcing, industry researchPepperweed AdvisorsEurope, AustraliaSeptember
8, 2009Business Consulting, Program ManagementStrategic Vision ConsultingUnited
StatesJune 9, 2008Business Consulting for media and entertainment companiesmarketRx
United States, IndiaNovember 16, 2007Life Sciences AnalyticsAimNetUnited States
September 5, 2006IT infrastructure servicesFathom ConsultingCanadaApril 18, 2005
Telecom & FinServices ITYgyan ConsultingUnited States, IndiaFebruary 22, 2004SAP
consultingAces InternationalUS, IndiaApril 1, 2003Siebel CRM consulting[edit]
Offshoring and Hiring in the U.S.
Cognizant is among the Top 10 companies receiving L1 visas to bring highly skilled
immigrant workers to the United States. In their SEC 10-k filing of 2/23/2011, they
recognize their dependence on the practice: "Our future success will depend on our
ability to attract and retain employees with technical and project management
skills from developing countries, especially India. The vast majority of our
professionals in the United States and in Europe are Indian nationals. The ability
of Indian nationals to work in the United States and Europe depends on their
ability and our ability to obtain the necessary visas and work permits.[8]
The company has been steadily increasing its U.S. work force. In January 2011, the
company announced plans to expand its U.S. delivery centers including a new 1,000-
person facility in Phoenix, Ariz.[9] In Feb 2011 the company said it had 60 full
time recruiters actively hiring in the U.S.[10] Over 70% of its 120,000-plus
employees are based in India or other offshore service locations like Philippines,
China, Hungary and Argentina.[11]
In 2009, a Department of Labor (DOL) investigation found Cognizant in violation of
the H-1B provisions of the Immigration and Nationality Administrative Act. Out of
the several thousand non-immigrant workers that the company employs, 67 were found
to have been underpaid. Per the Department of Labor Press release "An investigation
by the department's Wage and Hour Division found that the company violated the law
when it failed to pay computer professionals hired under the H-1B program the
proper wages, failed to offer all H-1B workers equal benefits or eligibility for
equal benefits, and failed to maintain required records." The company paid $509,607
in back wages to these employees. While these were administrative errors, the
Department of Labor did not find a pattern of wrongdoing. According to a DOL
statement: "'Cognizant Technology Solutions has taken immediate steps to correct
all identified violations and ensure future compliance,' said Joseph Petrecca,
director of the Wage and Hour Division's Northern New Jersey District Office. 'This
level of cooperation sets a standard for others in the industry.'"[12]
[edit] Corporate Social Responsibility
* Cognizant's philanthropic efforts are conducted worldwide through the voluntary
efforts of Cognizant employees and the financial and administrative support of the
Cognizant Foundation. Registered in March 2005 as a "Charitable Company" under the
Indian Companies Act, the Cognizant Foundation helps unprivileged members of
society gain access to quality education and healthcare by providing financial and
technical support; designing and implementing educational and healthcare
improvement programs; and partnering with Non-Government Organizations (NGOs),
educational institutions, healthcare institutions, government agencies and
corporations.
* Through its Project Outreach, Cognizant's employees volunteer to support schools
and orphanages through more than 400 initiatives reaching more than 200,000
children worldwide.
* Cognizant's sustainability efforts include a "Go Green" initiative launched in
2008 focused on energy conservation, recycling, and responsible waste management.
* At the 2011 Maker Faire, the company announced plans to fund a Maker Space at the
New York Hall of Science, a Making the Future after-school program and a
partnership with Citizen Schools to promote STEM education in the United States.
[13]
* In October 2011, Newsweek magazine announced their annual Green Rankings;
Cognizant moved up from 138th to 16th place in the Green Rankings of the 500
largest publicly traded companies in America.[14]
[edit] Community
The company's flagship customer conference is Cognizant Community -- sometimes
simply called Community. It is usually held in the spring in the United States and
in the fall in Europe. The summit, which features notable keynote speakers in the
world of business, technology, economics and even adventure sports, has been
praised as "a model industry event".[15]
[edit] Cognizant Academy
All learning programs are conducted through Cognizant Academy, the in-house
training center. The four key educational initiatives are: Continuing Education,
Role-based Training, Executive Training program, Certification. In addition to
internal training programs, associates undergo management-specific training at
notable universities and colleges. In addition to the formal learning in
classrooms, Cognizant Academy takes learning to employees' desktops. They use
multi-modal learning, as well as Technology-Based Training (TBT) material.[16]
[edit] Global Offices
* In addition to its headquarters and delivery center in Teaneck, N.J., Cognizant
has five additional delivery centers in the United States of America: Bentonville,
Arkansas; Bridgewater, New Jersey; Chicago, Illinois; Holliston, Massachusetts; and
Phoenix, Arizona
* The company also has local, regional and global delivery centers in the UK,
Europe, India, China, The Philippines, Canada, Argentina, and Mexico. It has over
130,000 employees (Sep. 2011), the majority of those are based in China and India.
*
Cognizant's Delivery Center in Pune, India.
*
Cognizant's Delivery Center in Chennai, India.
*
Cognizant's Delivery Center in Kolkata, India.
Francisco D'Souza
From Wikipedia, the free encyclopedia
Francisco D'Souza is the president and CEO of Cognizant and was part of the team
that founded the Nasdaq-100 company in 1994. In 2007, at the age of 38, he took
over from Lakshmi Narayanan, who was promoted to Vice Chairman. Francisco D'Souza
is among the youngest Chief Executive Officers in the software services sector.
He is a person of Indian origin (PIO), born in Nairobi, Kenya in 1968, and has
lived in 11 countries. His father was a diplomat with Indian Foreign Services.
Francisco D'Souza holds a Bachelor of Business Administration degree from the
University of East Asia and a Master of Business Administration degree from
Carnegie-Mellon University.[1]
[edit] Profile
Francisco D'Souza has more than 20 years of experience in the information
technology industry, in both operational and advisory roles. Effective January 1,
2007, D'Souza was appointed President and Chief Executive Officer and a member of
the Board of Directors of Cognizant. He oversees much of the operations and
business development of the company, working closely with Cognizant clients who are
using offshore resources to execute large software development and maintenance
projects.
At Cognizant, which he joined in its early days, D'Souza was elected Chief
Operating Officer in December 2003. Prior to that, from November 1999 to December
2003, he served as Senior Vice President, North American Operations and Business
Development. From March 1998 to November 1999, he served as Vice President, North
American Operations and Business Development and as Director-North American
Operations and Business Development from June 1997 to March 1998. From January 1996
to June 1997, D'Souza was engaged as a consultant.He is one of the CEO's who could
achieve this feat at an early age and thus made Cognizant on remarkable stage,his
long years of experience is a lesson to many.
From February 1995 to December 1995, D'Souza was employed as Product Manager at
Pilot Software. Between 1992 and 1995, D'Souza held various marketing, business
development and technology management positions as a Management Associate at The
Dun & Bradstreet Corporation in Germany, the U.S. and India. While working at The
Dun & Bradstreet Corporation, D'Souza was part of the team that established the
software development and maintenance business conducted by Cognizant.
D'Souza won The Economic Times Entrepreneur Award in 2005. He was also a 2002 Ernst
& Young Entrepreneur of the Year finalist. In 2009 he was named among "America's
Best CEOs" by Institutional Investor magazine.[2]
Lakshmi Narayanan
From Wikipedia, the free encyclopedia
Lakshmi Narayanan is the vice chairman and ex-CEO of Cognizant. He was the CEO and
president of Cognizant until 2006. [1]
File:Lakshmi Narayanan.jpg
Lakshmi Narayanan, vice chairman of Cognizant
Lakshmi has played a leading role in the global information technology industry for
more than 25 years, managing divisions and business units in Europe, India and the
United States. Since joining Cognizant Technologies in 1994, he has been
instrumental in formulating the company�s strategy and building and managing the
organization�s development centers in India, where he is based. A member of
Cognizant�s Board of Directors, Lakshmi spends time traveling extensively in the
U.S. and Europe to meet clients.
He recently served as Chairman on NASSCOM (National Association of Software and
Service Companies). http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?
id=28660
Lakshmi began his career at Tata Consultancy Services, growing through the ranks
from developer, to technologist, to program manager, to business leader. He was a
regional head of Tata in India when he joined Cognizant as CTO. He holds a BS and
MS in science and electronics from Bangalore University (University Visvesvaraya
College of Engineering) and an PG Diploma from the Indian Institute of Science,
Bangalore.
Lakshmi Narayanan was awarded the Dataquest IT Person of the Year 2008 by the
CyberMedia group's IT publication, Dataquest.
Kumar Mahadeva
From Wikipedia, the free encyclopedia
Kumar MahadevaBornSri LankaOccupationFounder of CognizantReligionHinduKumar
Mahadeva (Tamil: ?????? ???????) was a Sri Lankan American founder, chairman and
chief executive officer of Cognizant Technology Solutions.[1] He resigned from
Cognizant Technology Solutions in 2003. He has held senior positions at BBC,
McKinsey, AT&T, and Dun & Bradstreet.[2] He is of Sri Lankan Tamil descent.
Dun & Bradstreet
From Wikipedia, the free encyclopedia
"D&B" redirects here. For other uses, see D&B (disambiguation).
Dun & BradstreetTypePublic (NYSE:�DNB)
S&P 500 ComponentFoundedNew York City, New York 1841HeadquartersShort Hills, New
Jersey, U.S.Key peopleSara Mathew, Chairman & CEOProductsBusiness information,
information technology, services, research, softwareRevenue$1.69 billion USD (2009)
Employees5,000Websitewww.dnb.comDun & Bradstreet (NYSE:�DNB) is a Fortune 500
public company headquartered in Short Hills, New Jersey, USA that licenses
information on businesses and corporations for use in credit decisions, B2B
marketing and supply chain management. Often referred to as D&B, the company
maintains information about more than 204 million companies worldwide.[1]
Contents
�[hide]�
* 1 History
* 2 Operations
* 3 Spin-offs
* 4 Products and services
* 5 International branches
* 6 References
* 7 External links[edit] History
Dun & Bradstreet traces its history back to July 20, 1841, with the formation of
The Mercantile Agency in New York City by Lewis Tappan. The company was formed to
create a network of correspondents who would provide reliable, objective credit
information. In 1933, The Mercantile Agency merged with competitor R.G. Dun &
Company to form today's Dun & Bradstreet. The Data Universal Numbering System
(DUNS) was invented in 1962.
[edit] Operations
Dun & Bradstreet maintains a database of over 150 million companies globally[1] and
over 53 million professional contact names using a variety of sources including
public records, trade references, telco providers, newspapers and publications,
telephone interviews and others. The company derives revenues through subscriptions
as well as pay per business report, and to a smaller extent, third-party licensing
agreements. Additional revenue is derived from subsidiaries including Hoovers,
Purisma, AllBusiness.com and JVKelly Group.
[edit] Spin-offs
In August 2010, D&B spun off and sold their credit monitoring and management
business to a newly formed company, Dun & Bradstreet Credibility Corp.[2] The
company previously spun off Moody's and Nielsen.[3] D&B spun off Cognizant
Technology Solutions as an independent organization in the year 1996.
[edit] Products and services
Dun & Bradstreet products and services fall into three categories: risk management,
sales and marketing, and supply chain management. Risk management products include
the Business Information Report, Comprehensive Report and the DNBi platform. These
provide current and historical business information primarily used for making
credit decisions. Sales and marketing products such as the DUNS Market Identifier
database, Optimizer, and D&B Professional Contacts provide sales and marketing
professionals with business data for both prospecting and CRM activity.
[edit] International branches
Dun & Bradstreet has had offices in Australia since 1887, New Zealand since 1903,
Mexico since 1896, Argentina since 1911, Venezuela since 1920, Brasil since 1933,
Peru since 1981.[4]
Information technology
From Wikipedia, the free encyclopedia
Information technology (IT) is concerned with technology to treat information. The
acquisition, processing, storage and dissemination of vocal, pictorial, textual and
numerical information by a microelectronics-based combination of computing and
telecommunications are its main fields.[1] The term in its modern sense first
appeared in a 1958 article published in the Harvard Business Review, in which
authors Leavitt and Whisler commented that "the new technology does not yet have a
single established name. We shall call it information technology (IT).".[2] Some of
the modern and emerging fields of Information technology are next generation web
technologies, bioinformatics, cloud computing, global information systems, large
scale knowledgebases, etc. Advancements are mainly driven in the field of computer
science.
Contents
�[hide]�
* 1 Information
* 2 Technology
* 3 Technological capacity and growth
* 4 See also
* 5 References
* 6 Further reading
* 7 External links[edit] Information
Main article: Information
The English word was apparently derived from the Latin stem (information-) of the
nominative (informatio): this noun is in its turn derived from the verb "informare"
(to inform) in the sense of "to give form to the mind", "to discipline",
"instruct", "teach".Information,in simple terms is the exchange of data with one
another.
Raw data is given structure and then is called information. Understanding this
information is then called knowledge, which leads to an information ladder.
[edit] Technology
Main article: Technology

Information and communication technology spending in 2005

IT is the area of managing technology and spans wide variety of areas that include
computer software, information systems, computer hardware, programming languages
but are not limited to things such as processes, and data constructs. In short,
anything that renders data, information or perceived knowledge in any visual format
whatsoever, via any multimedia distribution mechanism, is considered part of the IT
domain. IT provides businesses with four sets of core services to help execute the
business strategy: business process automation, providing information, connecting
with customers, and productivity tools.
IT professionals perform a variety of functions (IT Disciplines/Competencies) that
ranges from installing applications to designing complex computer networks and
information databases. A few of the duties that IT professionals perform may
include data management, networking, engineering computer hardware, database and
software design, as well as management and administration of entire systems.
Information technology is starting to spread further than the conventional personal
computer and network technologies, and more into integrations of other technologies
such as the use of cell phones, televisions, automobiles, and more, which is
increasing the demand for such jobs.
In the recent past, the Accreditation Board for Engineering and Technology and the
Association for Computing Machinery have collaborated to form accreditation and
curriculum standards[3] for degrees in Information Technology as a distinct field
of study as compared[4] to Computer Science and Information Systems today. SIGITE
(Special Interest Group for IT Education)[5] is the ACM working group for defining
these standards. The Worldwide IT services revenue totaled $763 billion in 2009.[6]
[edit] Technological capacity and growth
Hilbert and Lopez[7] identify the exponential pace of technological change (a kind
of Moore's law): machines� application-specific capacity to compute information per
capita has roughly doubled every 14 months between 1986-2007; the per capita
capacity of the world�s general-purpose computers has doubled every 18 months
during the same two decades; the global telecommunication capacity per capita
doubled every 34 months; the world�s storage capacity per capita required roughly
40 months to double (every 3 years); and per capita broadcast information has
doubled roughly every 12.3 years.[7]
Maytas
From Wikipedia, the free encyclopedia
Maytas ("Satyam" read backwards) refers to a group of companies founded by B.
Ramalinga Raju. It includes Maytas Properties and Maytas Infra Limited.
Contents
�[hide]�
* 1 Maytas Properties
* 2 Maytas Infra Limited
* 3 Acquisition attempt
* 4 After the 2009 Satyam accounting scandal
* 5 References[edit] Maytas Properties
A property development company founded in 2005. The Ernst & Young is the statutory
auditor of Maytas Properties[1]. It was run by Mr. B Ramalinga Raju.
[edit] Maytas Infra Limited
An infrastructure development, construction and project management company. Maytas
Infra was originally run by Satyam Computer Services founder B Ramalinga Raju. It
came under the scanner due to its association with B. Ramalinga Raju. Various
agencies, including the state Crime Investigation Department, probed the Maytas
affair after B Ramalinga Raju admitted to serious financial scam in Satyam
Computer. Also, there were allegations that funds from Satyam were diverted to
Maytas, causing the Government agencies to verify the infrastructure company�s
records as well. Maytas Infra later requested for an extension of its quarterly
results due to these investigations.
In August 2009, IL&FS replaced B Ramalinga Raju as promoter of Maytas Infra.[2]
[edit] Acquisition attempt
In 2008, the Satyam board approved a US$ 1.6 billion acquisition of the Maytas
Infra ($300 million) and Maytas Properties ($1.3 billion). The acquisition attempt
was seen as an attempt by the Raju family to exploit Satyam's cash resources, as
the transaction would have left Satyam in a debt of around $400m.[3] After protests
from the institutional shareholders, the deal was abandoned.
In 2009, B Ramalinga Raju resigned as the Satyam CEO, admitting to an accounting
scam to the tune of 7136crore rupees. Raju stated that the aborted Maytas deal was
actually a last attempt to "fill the fictitious assets with real ones".
[edit] After the 2009 Satyam accounting scandal
After B Ramalinga Raju admitted Satyam scam, the Maytas stock slumped to a 52-week
low on 9 January 2009.[4]
In wake of the Satyam scam, the Citizens for a Better Public Transport in Hyderabad
(CBPTH) demanded a CBI inquiry into the process of how Maytas bagged the Hyderabad
Metro Rail project. The CBPTH convener C Ramachandraiah alleged that the state
government had been favouring Maytas for infrastructure projects.[5] The Economic
Times reported that the Andhra Pradesh government has had paid Rs. 1,800 crore to
Maytas Infra towards works under the irrigation department's Jalayagnam project.
The major irrigation minister Ponnala Lakshmaiah said that works totalling another
Rs 11,000 crore had been sanctioned to Maytas Infra, since Y S Rajasekhara Reddy
took as the chief minister in 2004.[6] Maytas Infra-led consortium failed to
achieve financial closure and give performance guarantee, the state government of
Andhra Pradesh was on Tuesday forced to end its unprecedented generosity and cancel
the concession agreement with the group on the Rs 12,132-crore Hyderabad Metro Rail
project.[7] On July 21, 2009, a case was registered against the promoters of the
company by the Hyderabad police under Section 406 (breach of trust) and Section 420
(cheating) of the Indian Penal Code[8]

In January 2011, The Company Law Board has cleared the decks for IL&FS to acquire a
controlling stake in Maytas Properties, a privately held company promoted by the
family of B Ramalinga Raju , the founder of erstwhile Satyam Computer .
IL&FS will hold 80% of the total equity in Maytas Properties (MPL), as per the
order issued by the CLB on Thursday. �The IL&FS group will reconstruct the capital
of the company by investing Rs 20 lakh in equity share capital of the company to be
issued at par whereby the total paid-up capital of the company stands increased to
Rs 25 lakh,� corporate affairs minister Salman Khurshid said.
�I hope that this can be seen as the end of the saga of Satyam,� said Mr Khurshid,
welcoming the order. Maytas Properties has been facing a severe liquidity crunch
for the last few years due to which many of its real estate projects, including the
Hill county residential project in Hyderabad, got stalled.
Maytas was promoted by the family of Ramalinga Raju. In 2009, Raju sensationally
confessed to inflating profits and revenue at his company was jailed. Thursday�s
announcement concludes the government's nearly two-year-long search to find another
owner for all the three companies and stabilise their operations. Thursday's order
strips the Raju family of control in the firm.
Byrraju Ramalinga Raju
From Wikipedia, the free encyclopedia
Ramalinga RajuBornSeptember 16, 1954 (age�57)
Bhimavaram, Andhra Pradesh, IndiaResidenceHyderabad, Andhra Pradesh, India
NationalityIndianOccupationformer Chairman of Satyam Computer ServicesSpouse
NandhiniRamalinga Raju is a former Indian IT Industrialist, who founded Satyam
Computers in 1987 and was a Chairman of the company until January 7, 2009.
Contents
�[hide]�
* 1 Early life
* 2 Accounting scandal
* 3 Supreme court verdict
* 4 References
* 5 External links[edit] Early life
Ramalinga Raju was born on September 16, 1954 in a family of farmers. He did his B.
Com from Andhra Loyola College at Vijayawada and subsequently did his MBA from Ohio
University, USA. He was enrolled in the Executive Owner/President Management
Program (OPM) at Harvard Business School.[1]
After returning to India in 1977, Ramalinga Raju moved away from the traditional
agriculture business and set up a spinning and weaving mill named Sri Satyam. .
Thereafter he shifted to the real estate business and started a construction
company called Satyam Constructions. In 1987, Ramalinga Raju founded Satyam
Computer Services along with one of his brothers-in-law, DVS Raju. The company went
public in 1992. With the launch of Satyam Infoway (Sify) Satyam became one of the
first to enter Indian internet service market.[2]
[edit] Accounting scandal
Ramalinga Raju resigned from the Satyam board after admitting to cheating six
million shareholders.[3][4] After being held in Hyderabad's Chanchalguda jail on
charges including cheating, embezzlement and insider trading, Raju was granted bail
on 18 August 2010.[5]
A botched acquisition attempt involving Maytas in December 2008 led to a plunge in
the share price of Satyam.[6] In January 2009, Raju indicated that Satyam's
accounts had been falsified over a number of years.[6] He admitted to an accounting
dupery to the tune of 14000crore rupees or 1.5 Billion US Dollars and resigned from
the Satyam board on January 7, 2009.[7][8] In his letter of resignation, Raju
described how an initial cover-up for a poor quarterly performance escalated: "It
was like riding a tiger, not knowing how to get off without being eaten."[9]
Raju and his brother, B Rama Raju, were then arrested by the CID Andhra Pradesh
police headed by Mr. V S K Kaumudi, IPS on charges of breach of trust, conspiracy,
cheating, falsification of records. Raju may face life imprisonment if convicted of
misleading investors.[10] Raju had also used dummy accounts to trade in Satyam's
shares, violating the insider trading norm.[11]
It has now been alleged that these accounts may have been the means of siphoning
off the missing funds.[12] Raju has admitted to overstating the company's cash
reserves by USD$ 1.5 billion.[12][13] Raju was hospitalized in September 2009
following a minor heart attack and underwent angioplasty. Raju was granted bail on
condition that he should report to the local police station once a day and that he
shouldn't attempt to tamper with the current evidence. This bail was revoked on 26
October 2010 by the Supreme Court of India and he has been ordered to surrender by
8 November 2010.[14] The people of his native village, Garagaparru, hail the
development works undertaken by the Byrraju Foundation, the charitable arm of
Satyam.[15] Ramalinga Raju was Granted a bail by the supreme court on 4th november
2011 after the Central Bureau of investigation failed to chargesheet Raju within
the statutory period.[16]
[edit] Supreme court verdict
The Supreme Court on November 4, 2011 granted bail to Ramalinga Raju, founder and
former chairman of outsourcing firm Satyam Computer Services Ltd, in a $1.5 billion
financial fraud case, after the Central Bureau of Investigation (CBI) failed to
file charges on time.[17] Mr. Raju said that INR 50.4 billion , or $1.04 billion,
of the 53.6 billion rupees in cash and bank loans the company listed in assets at
the end of its second quarter that ended in September 2008 were nonexistent
Corporate governance
From Wikipedia, the free encyclopedia
This article may require cleanup to meet Wikipedia's quality standards. (Consider
using more specific cleanup instructions.) Please help improve this article if you
can. The talk page may contain suggestions. (July 2011)
This article may contain original research. Please improve it by verifying the
claims made and adding references. Statements consisting only of original research
may be removed. More details may be available on the talk page. (April 2011)Not to
be confused with corporate statism, a corporate approach to government rather than
the government of a corporation
Corporate governance is "the system by which companies are directed and controlled"
(Cadbury Committee, 1992). It involves a set of relationships between a company�s
management, its board, its shareholders and other stakeholders; it deals with
prevention or mitigation of the conflict of interests of stakeholders.[1] Ways of
mitigating or preventing these conflicts of interests include the processes,
customs, policies, laws, and institutions which have impact on the way a company is
controlled.[2][3] An important theme of corporate governance is the nature and
extent of accountability of people in the business, and mechanisms that try to
decrease the principal�agent problem.[4]
Corporate governance also includes the relationships among the many stakeholders
involved and the goals for which the corporation is governed.[5][6] In contemporary
business corporations, the main external stakeholder groups are shareholders,
debtholders, trade creditors, suppliers, customers and communities affected by the
corporation's activities. Internal stakeholders are the board of directors,
executives, and other employees. It guarantees that an enterprise is directed and
controlled in a responsible, professional, and transparent manner with the purpose
of safeguarding its long-term success. It is intended to increase the confidence of
shareholders and capital-market investors. [7]
A related but separate thread of discussions focuses on the impact of a corporate
governance system on economic efficiency, with a strong emphasis on shareholders'
welfare; this aspect is particularly present in contemporary public debates and
developments in regulatory policy (see regulation and policy regulation).[8]
There has been renewed interest in the corporate governance practices of modern
corporations since 2001, particularly due to the high-profile collapses of a number
of large corporations, most of which involved accounting fraud. Corporate scandals
of various forms have maintained public and political interest in the regulation of
corporate governance. In the U.S., these include Enron Corporation and MCI Inc.
(formerly WorldCom). Their demise is associated with the U.S. federal government
passing the Sarbanes-Oxley Act in 2002, intending to restore public confidence in
corporate governance. Comparable failures in Australia (HIH, One.Tel) are
associated with the eventual passage of the CLERP 9 reforms. Similar corporate
failures in other countries stimulated increased regulatory interest (e.g.,
Parmalat in Italy).
Contents
�[hide]�
* 1 Principles of corporate governance
* 2 Corporate governance models around the world
o 2.1 Continental Europe
o 2.2 India
o 2.3 The United States and the UK
* 3 Regulation
o 3.1 Legal environment - General
o 3.2 Codes and guidelines
* 4 History - United States
* 5 Parties to corporate governance
o 5.1 Control and ownership structures
* 5.1.1 Family control
* 6 Mechanisms and controls
o 6.1 Internal corporate governance controls
o 6.2 External corporate governance controls
o 6.3 Financial reporting and the independent auditor
* 7 Systemic problems of corporate governance
* 8 Executive remuneration/compensation
* 9 See also
* 10 References
* 11 Further reading
* 12 External links[edit] Principles of corporate governance
Contemporary discussions of corporate governance tend to refer to principles raised
in three documents released since 1990: The Cadbury Report (UK, 1992), the
Principles of Corporate Governance (OECD, 1998 and 2004), the Sarbanes-Oxley Act of
2002 (US, 2002). The Cadbury and OECD reports present general principals around
which businesses are expected to operate to assure proper governance. The Sarbanes-
Oxley Act, informally referred to as Sarbox or Sox, is an attempt by the federal
government in the United States to legislate several of the principles recommended
in the Cadbury and OECD reports.
* Rights and equitable treatment of shareholders:[9][10][11] Organizations should
respect the rights of shareholders and help shareholders to exercise those rights.
They can help shareholders exercise their rights by openly and effectively
communicating information and by encouraging shareholders to participate in general
meetings.
* Interests of other stakeholders:[12] Organizations should recognize that they
have legal, contractual, social, and market driven obligations to non-shareholder
stakeholders, including employees, investors, creditors, suppliers, local
communities, customers, and policy makers.
* Role and responsibilities of the board:[13][14] The board needs sufficient
relevant skills and understanding to review and challenge management performance.
It also needs adequate size and appropriate levels of independence and commitment
* Integrity and ethical behavior:[15][16] Integrity should be a fundamental
requirement in choosing corporate officers and board members. Organizations should
develop a code of conduct for their directors and executives that promotes ethical
and responsible decision making.
* Disclosure and transparency:[17][18] Organizations should clarify and make
publicly known the roles and responsibilities of board and management to provide
stakeholders with a level of accountability. They should also implement procedures
to independently verify and safeguard the integrity of the company's financial
reporting. Disclosure of material matters concerning the organization should be
timely and balanced to ensure that all investors have access to clear, factual
information.
[edit] Corporate governance models around the world
There are many different models of corporate governance around the world. These
differ according to the variety of capitalism in which they are embedded. The
Anglo-American "model" tends to emphasize the interests of shareholders. The
coordinated or multi-stakeholder model associated with Continental Europe and Japan
also recognizes the interests of workers, managers, suppliers, customers, and the
community.
[edit] Continental Europe
Some continental European countries, including Germany and the Netherlands, require
a two-tiered Board of Directors as a means of improving corporate governance.[19]
In the two-tiered board, the Executive Board, made up of company executives,
generally runs day-to-day operations while the supervisory board, made up entirely
of non-executive directors who represent shareholders and employees, hires and
fires the members of the executive board, determines their compensation, and
reviews major business decisions.[20] See also Aktiengesellschaft.
[edit] India
India's SEBI Committee on Corporate Governance defines corporate governance as the
"acceptance by management of the inalienable rights of shareholders as the true
owners of the corporation and of their own role as trustees on behalf of the
shareholders. It is about commitment to values, about ethical business conduct and
about making a distinction between personal & corporate funds in the management of
a company."[21] It has been suggested that the Indian approach is drawn from the
Gandhian principle of trusteeship and the Directive Principles of the Indian
Constitution, but this conceptualization of corporate objectives is also prevalent
in Anglo-American and most other jurisdictions.
[edit] The United States and the UK
The so-called "Anglo-American model" (also known as "the unitary system"[22])
emphasizes a single-tiered Board of Directors composed of a mixture of executives
from the company and non-executive directors, all of whom are elected by
shareholders.[23] Non-executive directors are expected to outnumber executive
directors and hold key posts, including audit and compensation committees. The
United States and the United Kingdom differ in one critical respect with regard to
corporate governance: In the United Kingdom, the CEO generally does not also serve
as Chairman of the Board, whereas in the US having the dual role is the norm,
despite major misgivings regarding the impact on corporate governance.[24]
In the United States, corporations are directly governed by state laws, while the
exchange (offering and trading) of securities in corporations (including shares) is
governed by federal legislation. Many U.S. states have adopted the Model Business
Corporation Act, but the dominant state law for publicly-traded corporations is
Delaware, which continues to be the place of incorporation for the majority of
publicly-traded corporations.[25] Individual rules for corporations are based upon
the corporate charter and, less authoritatively, the corporate bylaws.[25]
Shareholders cannot initiate changes in the corporate charter although they can
initiate changes to the corporate bylaws.[25]
[edit] Regulation
Companies lawCompany�� BusinessBusiness entitiesSole proprietorship
Partnership
(General�� Limited�� Limited liability)
Corporation
CooperativeEuropean Union�/ EEAEEIG�� SCE�� SE�� SPEUK�/ Ireland�/ Commonwealth
Community interest company
Limited company
(by guarantee�� by shares�� Proprietary�� Public)
Unlimited companyUnited StatesBenefit corporation�� C corporation
LLC�� Series LLC�� LLLP�� S corporation
Delaware corporation
Delaware statutory trust
Massachusetts business trust
Nevada corporationAdditional entitiesAB�� AG�� ANS�� A/S�� AS�� GmbH
K.K.�� N.V.�� Oy�� S.A.�� moreDoctrinesBusiness judgment rule
Corporate governance
De facto corporation and
corporation by estoppel
Internal affairs doctrine�� Limited liability
Piercing the corporate veil
Rochdale Principles�� Ultra viresRelated areasCivil procedure�� Contract* v
* t
* e[edit] Legal environment - General
Corporations are created as legal persons by the laws and regulations of a
particular jurisdiction. These may vary in many respects between countries, but a
corporation's legal person status is fundamental to all jurisdictions and is
conferred by statute. This allows the entity to hold property in its own right
without reference to any particular real person. It also results in the perpetual
existence that characterizes the modern corporation. The statutory granting of
corporate existence may arise from general purpose legislation (which is the
general case) or from a statute to create a specific corporation, which was the
only method prior to the 19th century.
In addition to the statutory laws of the relevant jurisdiction, corporations are
subject to common law in some countries, and various laws and regulations affecting
business practices. In most jurisdictions, corporations also have a constitution
that provides individual rules that govern the corporation and authorize or
constrain its decision-makers. This constitution is identified by a variety of
terms; in English-speaking jurisdictions, it is usually known as the Corporate
Charter or the [Memorandum and] Articles of Association. The capacity of
shareholders to modify the constitution of their corporation can vary
substantially.
[edit] Codes and guidelines
Corporate governance principles and codes have been developed in different
countries and issued from stock exchanges, corporations, institutional investors,
or associations (institutes) of directors and managers with the support of
governments and international organizations. As a rule, compliance with these
governance recommendations is not mandated by law, although the codes linked to
stock exchange listing requirements may have a coercive effect. For example,
companies quoted on the London, Toronto and Australian Stock Exchanges formally
need not follow the recommendations of their respective codes. However, they must
disclose whether they follow the recommendations in those documents and, where not,
they should provide explanations concerning divergent practices. Such disclosure
requirements exert a significant pressure on listed companies for compliance.
One of the most influential guidelines has been the 1999 OECD Principles of
Corporate Governance. This was revised in 2004. The OECD guidelines are often
referenced by countries developing local codes or guidelines. Building on the work
of the OECD, other international organizations, private sector associations and
more than 20 national corporate governance codes, the United Nations
Intergovernmental Working Group of Experts on International Standards of Accounting
and Reporting (ISAR) has produced their Guidance on Good Practices in Corporate
Governance Disclosure. This internationally agreed[26] benchmark consists of more
than fifty distinct disclosure items across five broad categories:[27]
* Auditing
* Board and management structure and process
* Corporate responsibility and compliance
* Financial transparency and information disclosure
* Ownership structure and exercise of control rights
The investor-led organisation International Corporate Governance Network (ICGN) was
set up by individuals centered around the ten largest pension funds in the world
1995. The aim is to promote global corporate governance standards. The network is
led by investors that manage 18 trillion dollars and members are located in fifty
different countries. ICGN has developed a suite of global guidelines ranging from
shareholder rights to business ethics. The World Business Council for Sustainable
Development (WBCSD) has done work on corporate governance, particularly on
accountability and reporting, and in 2004 released Issue Management Tool: Strategic
challenges for business in the use of corporate responsibility codes, standards,
and frameworks. This document offers general information and a perspective from a
business association/think-tank on a few key codes, standards and frameworks
relevant to the sustainability agenda.
In 2009, the International Finance Corporation and the UN Global Compact released a
report, Corporate Governance - the Foundation for Corporate Citizenship and
Sustainable Business, linking the environmental, social and governance
responsibilities of a company to its financial performance and long-term
sustainability.
Most codes are largely voluntary. An issue raised in the U.S. since the 2005 Disney
decision[28] is the degree to which companies manage their governance
responsibilities; in other words, do they merely try to supersede the legal
threshold, or should they create governance guidelines that ascend to the level of
best practice. For example, the guidelines issued by associations of directors,
corporate managers and individual companies tend to be wholly voluntary but such
documents may have a wider effect by prompting other companies to adopt similar
practices.
[edit] History - United States
In 19th century United States, state corporation laws enhanced the rights of
corporate boards to govern without unanimous consent of shareholders in exchange
for statutory benefits like appraisal rights, to make corporate governance more
efficient. Since that time, and because most large publicly traded corporations in
the US are incorporated under corporate administration friendly Delaware law, and
because the US's wealth has been increasingly securitized into various corporate
entities and institutions, the rights of individual owners and shareholders have
become increasingly derivative and dissipated.
In the 20th century in the immediate aftermath of the Wall Street Crash of 1929
legal scholars such as Adolf Augustus Berle, Edwin Dodd, and Gardiner C. Means
pondered on the changing role of the modern corporation in society. Berle and
Means' monograph "The Modern Corporation and Private Property" (1932, Macmillan)
continues to have a profound influence on the conception of corporate governance in
scholarly debates today. From the Chicago school of economics, Ronald Coase's "The
Nature of the Firm" (1937) introduced the notion of transaction costs into the
understanding of why firms are founded and how they continue to behave. Fifty years
later, Eugene Fama and Michael Jensen's "The Separation of Ownership and Control"
(1983, Journal of Law and Economics) firmly established agency theory as a way of
understanding corporate governance: the firm is seen as a series of contracts.
Agency theory's dominance was highlighted in a 1989 article by Kathleen Eisenhardt
("Agency theory: an assessment and review", Academy of Management Review).
US expansion after World War II through the emergence of multinational corporations
saw the establishment of the managerial class. Accordingly, the following Harvard
Business School management professors published influential monographs studying
their prominence: Myles Mace (entrepreneurship), Alfred D. Chandler, Jr. (business
history), Jay Lorsch (organizational behavior) and Elizabeth MacIver
(organizational behavior). According to Lorsch and MacIver "many large corporations
have dominant control over business affairs without sufficient accountability or
monitoring by their board of directors."
Over the past three decades, corporate directors� duties in the U.S. have expanded
beyond their traditional legal responsibility of duty of loyalty to the corporation
and its shareholders.[29]
In the first half of the 1990s, the issue of corporate governance in the U.S.
received considerable press attention due to the wave of CEO dismissals (e.g.: IBM,
Kodak, Honeywell) by their boards. The California Public Employees' Retirement
System (CalPERS) led a wave of institutional shareholder activism (something only
very rarely seen before), as a way of ensuring that corporate value would not be
destroyed by the now traditionally cozy relationships between the CEO and the board
of directors (e.g., by the unrestrained issuance of stock options, not infrequently
back dated).
In 1997, the East Asian Financial Crisis severely affected the economies of
Thailand, Indonesia, South Korea, Malaysia, and the Philippines through the exit of
foreign capital after property assets collapsed. The lack of corporate governance
mechanisms in these countries highlighted the weaknesses of the institutions in
their economies.
In the early 2000s, the massive bankruptcies (and criminal malfeasance) of Enron
and Worldcom, as well as lesser corporate scandals, such as Adelphia
Communications, AOL, Arthur Andersen, Global Crossing, Tyco, led to increased
political interest in corporate governance. This is reflected in the passage of the
Sarbanes-Oxley Act of 2002.
[edit] Parties to corporate governance
The most influential parties involved in corporate governance include government
agencies and authorities, stock exchanges, management (including the board of
directors and its chair, the Chief Executive Officer or the equivalent, other
executives and line management, shareholders and auditors). Other influential
stakeholders may include lenders, suppliers, employees, creditors, customers and
the community at large.
The agency view of the corporation posits that the shareholder forgoes decision
rights (control) and entrusts the manager to act in the shareholders' best (joint)
interests. Partly as a result of this separation between the two investors and
managers, corporate governance mechanisms include a system of controls intended to
help align managers' incentives with those of shareholders. Agency concerns (risk)
are necessarily lower for a controlling shareholder.
A board of directors is expected to play a key role in corporate governance. The
board has the responsibility of endorsing the organization's strategy, developing
directional policy, appointing, supervising and remunerating senior executives, and
ensuring accountability of the organization to its investors and authorities.
All parties to corporate governance have an interest, whether direct or indirect,
in the financial performance of the corporation. Directors, workers and management
receive salaries, benefits and reputation, while investors expect to receive
financial returns. For lenders, it is specified interest payments, while returns to
equity investors arise from dividend distributions or capital gains on their stock.
Customers are concerned with the certainty of the provision of goods and services
of an appropriate quality; suppliers are concerned with compensation for their
goods or services, and possible continued trading relationships. These parties
provide value to the corporation in the form of financial, physical, human and
other forms of capital. Many parties may also be concerned with corporate social
performance.
A key factor in a party's decision to participate in or engage with a corporation
is their confidence that the corporation will deliver the party's expected
outcomes. When categories of parties (stakeholders) do not have sufficient
confidence that a corporation is being controlled and directed in a manner
consistent with their desired outcomes, they are less likely to engage with the
corporation. When this becomes an endemic system feature, the loss of confidence
and participation in markets may affect many other stakeholders, and increases the
likelihood of political action. There is substantial interest in how external
systems and institutions, including markets, influence corporate governance.
[edit] Control and ownership structures
Control and ownership structure refers to the types and composition of shareholders
in a corporation. In some countries such as most of Continental Europe, ownership
is not necessarily equivalent to control due to the existence of e.g. dual-class
shares, ownership pyramids, voting coalitions, proxy votes and clauses in the
articles of association that confer additional voting rights to long-term
shareholders.[30] Ownership is typically defined as the ownership of cash flow
rights whereas control refers to ownership of control or voting rights.[31]
Researchers often "measure" control and ownership structures by using some
observable measures of control and ownership concentration or the extent of inside
control and ownership. Some features or types of control and ownership structure
involving corporate groups include pyramids, cross-shareholdings, rings, and webs.
German "concerns" (Konzern) are legally recognized corporate groups with complex
structures. Japanese keiretsu (??) and South Korean chaebol (which tend to be
family-controlled) are corporate groups which consist of complex interlocking
business relationships and shareholdings. Cross-shareholding are an essential
feature of keiretsu and chaebol groups [4]. Corporate engagement with shareholders
and other stakeholders can differ substantially across different control and
ownership structures.
[edit] Family control
In many jurisdictions, family interests dominate ownership and control structures.
It is sometimes suggested that corporations controlled by family interests are
subject to superior oversight compared to corporations "controlled" by
institutional investors (or with such diverse share ownership that they are
controlled by management). A recent study by Credit Suisse found that companies in
which "founding families retain a stake of more than 10% of the company's capital
enjoyed a superior performance over their respective sectorial peers." Since 1996,
this superior performance amounts to 8% per year.[32] Forget the celebrity CEO.
"Look beyond Six Sigma and the latest technology fad. A study by Business Week[33]
claims that "BW identified five key ingredients that contribute to superior
performance. Not all are qualities are unique to enterprises with retained family
interests."
The significance of institutional investors varies substantially across countries.
In developed Anglo-American countries (Australia, Canada, New Zealand, U.K., U.S.),
institutional investors dominate the market for stocks in larger corporations.
While the majority of the shares in the Japanese market are held by financial
companies and industrial corporations, these are not institutional investors if
their holdings are largely with-on group.
The largest pools of invested money (such as the mutual fund 'Vanguard 500', or the
largest investment management firm for corporations, State Street Corp.) are
designed to maximize the benefits of diversified investment by investing in a very
large number of different corporations with sufficient liquidity. The idea is this
strategy will largely eliminate individual firm financial or other risk and. A
consequence of this approach is that these investors have relatively little
interest in the governance of a particular corporation. It is often assumed that,
if institutional investors pressing for will likely be costly because of "golden
handshakes") or the effort required, they will simply sell out their interest.
[edit] Mechanisms and controls
Corporate governance mechanisms and controls are designed to reduce the
inefficiencies that arise from moral hazard and adverse selection. For example, to
monitor managers' behavior, an independent third party (the external auditor)
attests the accuracy of information provided by management to investors. An ideal
control system should regulate both motivation and ability.
[edit] Internal corporate governance controls
Internal corporate governance controls monitor activities and then take corrective
action to accomplish organisational goals. Examples include:
* Monitoring by the board of directors: The board of directors, with its legal
authority to hire, fire and compensate top management, safeguards invested capital.
Regular board meetings allow potential problems to be identified, discussed and
avoided. Whilst non-executive directors are thought to be more independent, they
may not always result in more effective corporate governance and may not increase
performance.[34] Different board structures are optimal for different firms.
Moreover, the ability of the board to monitor the firm's executives is a function
of its access to information. Executive directors possess superior knowledge of the
decision-making process and therefore evaluate top management on the basis of the
quality of its decisions that lead to financial performance outcomes, ex ante. It
could be argued, therefore, that executive directors look beyond the financial
criteria.
* Internal control procedures and internal auditors: Internal control procedures
are policies implemented by an entity's board of directors, audit committee,
management, and other personnel to provide reasonable assurance of the entity
achieving its objectives related to reliable financial reporting, operating
efficiency, and compliance with laws and regulations. Internal auditors are
personnel within an organization who test the design and implementation of the
entity's internal control procedures and the reliability of its financial reporting
* Balance of power: The simplest balance of power is very common; require that the
President be a different person from the Treasurer. This application of separation
of power is further developed in companies where separate divisions check and
balance each other's actions. One group may propose company-wide administrative
changes, another group review and can veto the changes, and a third group check
that the interests of people (customers, shareholders, employees) outside the three
groups are being met.
* Remuneration: Performance-based remuneration is designed to relate some
proportion of salary to individual performance. It may be in the form of cash or
non-cash payments such as shares and share options, superannuation or other
benefits. Such incentive schemes, however, are reactive in the sense that they
provide no mechanism for preventing mistakes or opportunistic behavior, and can
elicit myopic behavior.
* Monitoring by large shareholders and/or monitoring by banks and other large
creditors: Given their large investment in the firm, these stakeholders have the
incentives, combined with the right degree of control and power, to monitor the
management.[35]
In publicly-traded U.S. corporations, boards of directors are largely chosen by the
President/CEO and the President/CEO often takes the Chair of the Board position for
his/herself (which makes it much more difficult for the institutional owners to
"fire" him/her). The practice of the CEO also being the Chair of the Board is known
as "duality". While this practice is common in the U.S., it is relatively rare
elsewhere. In the U.K., successive codes of best practice have recommended against
duality.
[edit] External corporate governance controls
External corporate governance controls encompass the controls external stakeholders
exercise over the organization. Examples include:
* competition
* debt covenants
* demand for and assessment of performance information (especially financial
statements)
* government regulations
* managerial labour market
* media pressure
* takeovers
[edit] Financial reporting and the independent auditor
The board of directors has primary responsibility for the corporation's external
financial reporting functions. The Chief Executive Officer and Chief Financial
Officer are crucial participants and boards usually have a high degree of reliance
on them for the integrity and supply of accounting information. They oversee the
internal accounting systems, and are dependent on the corporation'saccountants and
internal auditors.
Current accounting rules under International Accounting Standards and U.S. GAAP
allow managers some choice in determining the methods of measurement and criteria
for recognition of various financial reporting elements. The potential exercise of
this choice to improve apparent performance (see creative accounting and earnings
management) increases the information risk for users. Financial reporting fraud,
including non-disclosure and deliberate falsification of values also contributes to
users' information risk. To reduce these risk and to enhance the perceived
integrity of financial reports, corporation financial reports must be audited by an
independent external auditor who issues a report that accompanies the financial
statements (see financial audit). It is
One area of concern is whether the auditing firm acts as both the independent
auditor and management consultant to the firm they are auditing. This may result in
a conflict of interest which places the integrity of financial reports in doubt due
to client pressure to appease management. The power of the corporate client to
initiate and terminate management consulting services and, more fundamentally, to
select and dismiss accounting firms contradicts the concept of an independent
auditor. Changes enacted in the United States in the form of the Sarbanes-Oxley Act
(following numerous corporate scandals, culminating with the Enron scandal)
prohibit accounting firms from providing both auditing and management consulting
services. Similar provisions are in place under clause 49 of Standard Listing
Agreement in India.
[edit] Systemic problems of corporate governance
* Demand for information: In order to influence the directors, the shareholders
must combine with others to form a voting group which can pose a real threat of
carrying resolutions or appointing directors at a general meeting.
* Monitoring costs: A barrier to shareholders using good information is the cost of
processing it, especially to a small shareholder. The traditional answer to this
problem is the efficient market hypothesis (in finance, the efficient market
hypothesis (EMH) asserts that financial markets are efficient), which suggests that
the small shareholder will free ride on the judgments of larger professional
investors.
* Supply of accounting information: Financial accounts form a crucial link in
enabling providers of finance to monitor directors. Imperfections in the financial
reporting process will cause imperfections in the effectiveness of corporate
governance. This should, ideally, be corrected by the working of the external
auditing process.
[edit] Executive remuneration/compensation
Research on the relationship between firm performance and executive compensation
does not identify consistent and significant relationships between executives'
remuneration and firm performance. Not all firms experience the same levels of
agency conflict, and external and internal monitoring devices may be more effective
for some than for others.
Some researchers have found that the largest CEO performance incentives came from
ownership of the firm's shares, while other researchers found that the relationship
between share ownership and firm performance was dependent on the level of
ownership. The results suggest that increases in ownership above 20% cause
management to become more entrenched, and less interested in the welfare of their
shareholders.
Some argue that firm performance is positively associated with share option plans
and that these plans direct managers' energies and extend their decision horizons
toward the long-term, rather than the short-term, performance of the company.
However, that point of view came under substantial criticism circa in the wake of
various security scandals including mutual fund timing episodes and, in particular,
the backdating of option grants as documented by University of Iowa academic Erik
Lie and reported by James Blander and Charles Forelle of the Wall Street Journal.
Even before the negative influence on public opinion caused by the 2006 backdating
scandal, use of options faced various criticisms. A particularly forceful and long
running argument concerned the interaction of executive options with corporate
stock repurchase programs. Numerous authorities (including U.S. Federal Reserve
Board economist Weisbenner) determined options may be employed in concert with
stock buybacks in a manner contrary to shareholder interests. These authors argued
that, in part, corporate stock buybacks for U.S. Standard & Poors 500 companies
surged to a $500 billion annual rate in late 2006 because of the impact of options.
A compendium of academic works on the option/buyback issue is included in the study
Scandal by author M. Gumport issued in 2006.
A combination of accounting changes and governance issues led options to become a
less popular means of remuneration as 2006 progressed, and various alternative
implementations of buybacks surfaced to challenge the dominance of "open market"
cash buybacks as the preferred means of implementing a share repurchase plan.
Corporate social entrepreneur
From Wikipedia, the free encyclopedia
��(Redirected from Corporate Social Entrepreneurship)
A corporate social entrepreneur (CSE) is defined as "an employee of the firm who
operates in a socially entrepreneurial manner; identifying opportunities for and/
or championing socially responsible activity; in addition to helping the firm
achieve its business targets. The CSE operates regardless of an organisational
context that is pre-disposed towards CSR. This is because the CSE is driven by
their dominant self-transcendent (concerned with the welfare of others) as opposed
to their self-enhancement personal values.[1] Consequently, the CSE does not
necessarily have a formal socially responsible job role, nor do they necessarily
have to be in a senior management position to progress their socially responsible
agenda." [2]
Contents
�[hide]�
* 1 Relevance
* 2 Background
* 3 Business ethics perspective
* 4 Threat or opportunity?
* 5 Further reading
* 6 See also
* 7 References
* 8 Further reading[edit] Relevance
The notion of the CSE primarily relates to the field of corporate social
responsibility. It is thus relevant to both practitioners and scholars of business
and management and more specifically to the fields of business ethics;
organisational behaviour; entrepreneurship; human resource management and business
strategy. Moreover, the concept is inherently linked with the notion of personal
values: in itself, a field of study from sociology; anthropology and social
psychology. Furthermore, due to the concept's associations with ideas about agency,
this also means that this topic connects with moral philosophy. Such complexity
reflects the inter-disciplinary nature of the field of corporate social
responsibility.
[edit] Background
The notion of the CSE emerged from a conceptual working paper which was published
in the Hull University Business School Research Memoranda Series.[3] In that paper,
it was argued that CSR can also be motivated by an altruistic impulse driven by
managers� personal values, in addition to the more obvious economic and macro
political drivers for CSR. This reflected the traditional philosophical and
business ethics debate regarding moral agency.[4][5] This paper was followed by a
U.K. conference paper which highlighted the importance of managerial discretion in
CSR [6] and was published the next year in the Journal of Business Ethics. In this
latter paper, the concept of �entrepreneurial discretion� as an overlooked
antecedent of CSR was mooted.[7]
Consequently, the term corporate social entrepreneur was first coined in a paper
that was presented at the 17th Annual European Business Ethics Network Conference,
in June 2004.[8] Here, the term Corporate Social Entrepreneur was first defined and
differentiated from the different types of entrepreneurs: the �regular� executive
entrepreneur; the intrapreneur; the policy entrepreneur and the public or social
entrepreneur.[9] (See also Austin et al., 2006a for a description of the
similarities and differences between forms of entrepreneurship).[10] Initially, the
concept was discussed in relation to managers. However, it was soon widened to
include employees at any level of the firm, regardless of their formally appointed
status. To be a CSE you do not necessarily have to be a manager.[11] Seniority is
not necessary, but, of course, it helps [12]
Hemingway�s concept of the CSE emerged as a result of her own personal experience
working as a marketing executive in the corporate world and it has also been the
subject of some exploratory empirical investigation[13] [1]. It was also inspired
by Wood, who had previously referred to �Ethical training, cultural background,
preferences�and life experiences�that motivate human behavior�;[14] thereby
supporting Trevino�s conceptual �Interactionist� model of ethical decision making
in organizations.[15] Trevino's model included both individual and situational
moderators, to combine with the individual�s stage of cognitive moral development,
[16] to produce either ethical or unethical behaviour. And whilst studies existed
regarding the activities of environmental champions at work [17] or other change
leaders,[18] none of these studies specifically examined the role of employees'
personal values in entrepreneurial discretion with regard to corporate social
responsibility (CSR).
Thus, the connection between philosophical ideas of moral character as an influence
for corporate social responsibility (CSR) and linked to the psychological notion of
prosocial behavior, provides a different focus from the more commonly discussed
structural drivers for CSR, i.e., business strategy in the form of public relations
activity; encouragement from government or organisational context (see also
philanthropy).
[edit] Business ethics perspective
Significantly, whilst the social entrepreneur and corporate social entrepreneur are
united in their quest to create social value: a business ethics perspective
encourages us to ask the question �For what end?� Here business ethics is useful,
as it uses intellectual frameworks to encourage us to think deeply about means and
ends.[19][20][21] For example, the idea of the CSE creating social value which
benefits both the corporation and society [22][23][24] is known as �enlightened
self interest�. Alternatively, a deontological viewpoint frames acts of socially
responsible behaviour as driven by the individual's sense of duty to society, which
may be viewed in terms of altruism.[25] Altruism is of course very difficult to
support empirically, although there have been many studies of prosocial behaviour
and support for the notion of self-transcendent (other-oriented) personal values in
social psychology.[26][27]
[edit] Threat or opportunity?
All this leads us to the inherent complexity surrounding the subject of CSR,
regarding its connection to stakeholder theory[28] and its �essentially contested�
nature.[29][30][31][32] Indeed, the market fundamentalists [33] ask: Why bother
with CSR, if the raison d'etre of business is to maximise profitability for the
shareholders? See page on Corporate Social Responsibility (CSR), which discusses
all the arguments about CSR in greater depth. So, whilst some claim that the
business case for CSR is unproven,[34] other studies have shown a positive
relationship between CSR and financial performance.[35] Consequently, the notion of
the Corporate Social Entrepreneur is equally controversial: not solely due to the
arguments about the role of business and whether or not CSR helps financial
performance; but also because the concept of employee discretion has been
identified as a key factor regarding a social orientation at work, or, a moral
character (in the ancient philosophical sense).[36] And whilst the possibility of
unethical behaviour is also acknowledged as an outcome of discretion and agency:
corporate irresponsibility [37] which has been the traditional focus in the study
of business ethics, is regarded as insufficient and only the starting point, if the
quest is for organisations to develop a socially responsible organisational
context. This is of particular relevance in the wake of the global financial crisis
caused by financial irregularities and lapses in corporate governance and personal
integrity.
[edit] Further reading
* Corporate social entrepreneurship. Crane and Matten Blog: an informed and
thought-provoking analysis of what lies behind the headlines and headaches of
business ethics and corporate social responsibility. 18 March 2010.[2]
* http://mariaflorenciasegura.blogspot.com/. CSE Blog in Spanish.
Corporate social responsibility
From Wikipedia, the free encyclopedia
��(Redirected from Corporate Social Responsibility)
For other types of responsibility, see Responsibility (disambiguation).
Corporate social responsibility (CSR, also called corporate conscience, corporate
citizenship, social performance, or sustainable responsible business/ Responsible
Business)[1] is a form of corporate self-regulation integrated into a business
model. CSR policy functions as a built-in, self-regulating mechanism whereby a
business monitors and ensures its active compliance with the spirit of the law,
ethical standards, and international norms. The goal of CSR is to embrace
responsibility for the company's actions and encourage a positive impact through
its activities on the environment, consumers, employees, communities, stakeholders
and all other members of the public sphere who may also be considered as
stakeholders.
The term "corporate social responsibility" came into common use in the late 1960s
and early 1970s after many multinational corporations formed the term stakeholder,
meaning those on whom an organization's activities have an impact. It was used to
describe corporate owners beyond shareholders as a result of an influential book by
R. Edward Freeman, Strategic management: a stakeholder approach in 1984.[2]
Proponents argue that corporations make more long term profits by operating with a
perspective, while critics argue that CSR distracts from the economic role of
businesses. Others argue CSR is merely window-dressing, or an attempt to pre-empt
the role of governments as a watchdog over powerful multinational corporations.
CSR is titled to aid an organization's mission as well as a guide to what the
company stands for and will uphold to its consumers. Development business ethics is
one of the forms of applied ethics that examines ethical principles and moral or
ethical problems that can arise in a business environment. ISO 26000 is the
recognized international standard for CSR. Public sector organizations (the United
Nations for example) adhere to the triple bottom line (TBL). It is widely accepted
that CSR adheres to similar principles but with no formal act of legislation. The
UN has developed the Principles for Responsible Investment as guidelines for
investing entities.
Contents
�[hide]�
* 1 Approaches
* 2 Social accounting, auditing, and reporting
* 3 Potential business benefits
o 3.1 Human resources
o 3.2 Risk management
o 3.3 Brand differentiation
o 3.4 License to operate
* 4 Criticisms and concerns
o 4.1 Nature of business
o 4.2 Motives
o 4.3 Ethical consumerism
o 4.4 Globalization and market forces
o 4.5 Social awareness and education
o 4.6 Ethics training
o 4.7 Laws and regulation
o 4.8 Crises and their consequences
o 4.9 Stakeholder priorities
* 5 Arguments for Including Disability in CSR
* 6 See also
* 7 Notes
* 8 References
* 9 External links
* 10 Further reading[edit] Approaches
Some commentators have identified a difference between the Canadian (Montreal
school of CSR), the Continental European and the Anglo-Saxon approaches to CSR.[3]
And even within Europe the discussion about CSR is very heterogeneous.[4]

A more common approach of CSR is philanthropy. This includes monetary donations and
aid given to local organizations and impoverished communities in developing
countries. Some organizations[who?] do not like this approach as it does not help
build on the skills of the local people, whereas community-based development
generally leads to more sustainable development.[clarification needed Difference
between local org& community-dev? Cite]
Another approach to CSR is to incorporate the CSR strategy directly into the
business strategy of an organization. For instance, procurement of Fair Trade tea
and coffee has been adopted by various businesses including KPMG. Its CSR manager
commented, "Fairtrade fits very strongly into our commitment to our
communities."[5]
Another approach is garnering increasing corporate responsibility interest. This is
called Creating Shared Value, or CSV. The shared value model is based on the idea
that corporate success and social welfare are interdependent. A business needs a
healthy, educated workforce, sustainable resources and adept government to compete
effectively. For society to thrive, profitable and competitive businesses must be
developed and supported to create income, wealth, tax revenues, and opportunities
for philanthropy. CSV received global attention in the Harvard Business Review
article Strategy & Society: The Link between Competitive Advantage and Corporate
Social Responsibility [1] by Michael E. Porter, a leading authority on competitive
strategy and head of the Institute for Strategy and Competitiveness at Harvard
Business School; and Mark R. Kramer, Senior Fellow at the Kennedy School at Harvard
University and co-founder of FSG Social Impact Advisors. The article provides
insights and relevant examples of companies that have developed deep linkages
between their business strategies and corporate social responsibility. Many
approaches to CSR pit businesses against society, emphasizing the costs and
limitations of compliance with externally imposed social and environmental
standards. CSV acknowledges trade-offs between short-term profitability and social
or environmental goals, but focuses more on the opportunities for competitive
advantage from building a social value proposition into corporate strategy.
Many companies use the strategy of benchmarking to compete within their respective
industries in CSR policy, implementation, and effectiveness. Benchmarking involves
reviewing competitor CSR initiatives, as well as measuring and evaluating the
impact that those policies have on society and the environment, and how customers
perceive competitor CSR strategy. After a comprehensive study of competitor
strategy and an internal policy review performed, a comparison can be drawn and a
strategy developed for competition with CSR initiatives.

[edit] Social accounting, auditing, and reporting

Main article: Social accounting
For a business to take responsibility for its actions, that business must be fully
accountable. Social accounting, a concept describing the communication of social
and environmental effects of a company's economic actions to particular interest
groups within society and to society at large, is thus an important element of CSR.
[6]
Social accounting emphasizes the notion of corporate accountability. D. Crowther
defines social accounting in this sense as "an approach to reporting a firm�s
activities which stresses the need for the identification of socially relevant
behavior, the determination of those to whom the company is accountable for its
social performance and the development of appropriate measures and reporting
techniques."[7] An example of social accounting, to a limited extent, is found in
an annual Director's Report, under the requirements of UK company law.[8]
A number of reporting guidelines or standards have been developed to serve as
frameworks for social accounting, auditing and reporting including:
* AccountAbility's AA1000 standard, based on John Elkington's triple bottom line
(3BL) reporting
* The Prince's Accounting for Sustainability Project's Connected Reporting
Framework
* The Fair Labor Association conducts audits based on its Workplace Code of Conduct
and posts audit results on the FLA website.
* The Fair Wear Foundation takes a unique approach to verifying labour conditions
in companies' supply chains, using interdisciplinary auditing teams.
* Global Reporting Initiative's Sustainability Reporting Guidelines
* GoodCorporation's Standard developed in association with the Institute of
Business Ethics
* Earthcheck www.earthcheck.org Certification / Standard
* Social Accountability International's SA8000 standard
* Standard Ethics Aei guidelines
* The ISO 14000 environmental management standard
* The United Nations Global Compact requires companies to communicate on their
progress (or to produce a Communication on Progress, COP), and to describe the
company's implementation of the Compact's ten universal principles. This
information should be fully integrated in the participant�s main medium of
stakeholder communications, for example a corporate responsibility or
sustainability report and/or an integrated financial and sustainability report. If
a company does not publish formal reports, a COP can be created as a stand-alone
document.[9]
* The United Nations Intergovernmental Working Group of Experts on International
Standards of Accounting and Reporting (ISAR) provides voluntary technical guidance
on eco-efficiency indicators, corporate responsibility reporting, and corporate
governance disclosure.
* Verite's Monitoring Guidelines
The FTSE Group publishes the FTSE4Good Index, an evaluation of CSR performance of
companies.
In some nations, legal requirements for social accounting, auditing and reporting
exist (e.g. in the French bilan social), though international or national agreement
on meaningful measurements of social and environmental performance is difficult.
Many companies now produce externally audited annual reports that cover Sustainable
Development and CSR issues ("Triple Bottom Line Reports"), but the reports vary
widely in format, style, and evaluation methodology (even within the same
industry). Critics dismiss these reports as lip service, citing examples such as
Enron's yearly "Corporate Responsibility Annual Report" and tobacco corporations'
social reports.
In South Africa, as of June 2010, all companies listed on the Johannesburg Stock
Exchange (JSE) were required to produce an integrated report in place of an annual
financial report and sustainability report.[10] An integrated report includes
environmental, social and economic performance alongside financial performance
information and is expected to provide users with a more holistic overview of a
company. However, this requirement was implemented in the absence of any formal or
legal standards for an integrated report. An Integrated Reporting Committee (IRC)
was established to issue guidelines for good practice in this field.
[edit] Potential business benefits
The scale and nature of the benefits of CSR for an organization can vary depending
on the nature of the enterprise, and are difficult to quantify, though there is a
large body of literature exhorting business to adopt measures beyond financial ones
(e.g., Deming's Fourteen Points, balanced scorecards). Orlitzky, Schmidt, and
Rynes[11] found a correlation between social/environmental performance and
financial performance. However, businesses may not be looking at short-run
financial returns when developing their CSR strategy.
The definition of CSR used within an organization can vary from the strict
"stakeholder impacts" definition used by many CSR advocates and will often include
charitable efforts and volunteering. CSR may be based within the human resources,
business development or public relations departments of an organisation,[12] or may
be given a separate unit reporting to the CEO or in some cases directly to the
board. Some companies may implement CSR-type values without a clearly defined team
or programme.
The business case for CSR[13] within a company will likely rest on one or more of
these arguments:
[edit] Human resources
A CSR program can be an aid to recruitment and retention,[14] particularly within
the competitive graduate student market. Potential recruits often ask about a
firm's CSR policy during an interview, and having a comprehensive policy can give
an advantage. CSR can also help improve the perception of a company among its
staff, particularly when staff can become involved through payroll giving,
fundraising activities or community volunteering. CSR has been found to encourage
customer orientation among frontline employees.[15]
[edit] Risk management
Managing risk is a central part of many corporate strategies. Reputations that take
decades to build up can be ruined in hours through incidents such as corruption
scandals or environmental accidents.[16] These can also draw unwanted attention
from regulators, courts, governments and media. Building a genuine culture of
'doing the right thing' within a corporation can offset these risks.[17]
[edit] Brand differentiation
In crowded marketplaces, companies strive for a unique selling proposition that can
separate them from the competition in the minds of consumers. CSR can play a role
in building customer loyalty based on distinctive ethical values.[18] Several major
brands, such as The Co-operative Group, The Body Shop and American Apparel[19] are
built on ethical values. Business service organizations can benefit too from
building a reputation for integrity and best practice.
[edit] License to operate
Corporations are keen to avoid interference in their business through taxation or
regulations. By taking substantive voluntary steps, they can persuade governments
and the wider public that they are taking issues such as health and safety,
diversity, or the environment seriously as good corporate citizens with respect to
labour standards and impacts on the environment.
[edit] Criticisms and concerns
Critics of CSR as well as proponents debate a number of concerns related to it.
These include CSR's relationship to the fundamental purpose and nature of business
and questionable motives for engaging in CSR, including concerns about insincerity
and hypocrisy.
[edit] Nature of business
Milton Friedman and others have argued that a corporation's purpose is to maximize
returns to its shareholders, and that since only people can have social
responsibilities, corporations are only responsible to their shareholders and not
to society as a whole. Although they accept that corporations should obey the laws
of the countries within which they work, they assert that corporations have no
other obligation to society. Some people perceive CSR as in-congruent with the very
nature and purpose of business, and indeed a hindrance to free trade. Those who
assert that CSR is contrasting with capitalism and are in favor of the free market
argue that improvements in health, longevity and/or infant mortality have been
created by economic growth attributed to free enterprise.[20]
Critics of this argument perceive the free market as opposed to the well-being of
society and a hindrance to human freedom. They claim that the type of capitalism
practiced in many developing countries is a form of economic and cultural
imperialism, noting that these countries usually have fewer labour protections, and
thus their citizens are at a higher risk of exploitation by multinational
corporations.[21]
A wide variety of individuals and organizations operate in between these poles. For
example, the REALeadership Alliance asserts that the business of leadership (be it
corporate or otherwise) is to change the world for the better.[22] Many religious
and cultural traditions hold that the economy exists to serve human beings, so all
economic entities have an obligation to society (see for example Economic Justice
for All). Moreover, as discussed above, many CSR proponents point out that CSR can
significantly improve long-term corporate profitability because it reduces risks
and inefficiencies while offering a host of potential benefits such as enhanced
brand reputation and employee engagement.
[edit] Motives
Some critics believe that CSR programs are undertaken by companies such as British
American Tobacco (BAT),[23] the petroleum giant BP (well known for its high-profile
advertising campaigns on environmental aspects of its operations), and McDonald's
(see below) to distract the public from ethical questions posed by their core
operations. They argue that some corporations start CSR programs for the commercial
benefit they enjoy through raising their reputation with the public or with
government. They suggest that corporations which exist solely to maximize profits
are unable to advance the interests of society as a whole.[24]
Another concern is that sometimes companies claim to promote CSR and be committed
to sustainable development but simultaneously engage in harmful business practices.
For example, since the 1970s, the McDonald's Corporation's association with Ronald
McDonald House has been viewed as CSR and relationship marketing. More recently, as
CSR has become mainstream, the company has beefed up its CSR programs related to
its labor, environmental and other practices[25] All the same, in McDonald's
Restaurants v Morris & Steel, Lord Justices Pill, May and Keane ruled that it was
fair comment to say that McDonald's employees worldwide 'do badly in terms of pay
and conditions'[26] and true that 'if one eats enough McDonald's food, one's diet
may well become high in fat etc., with the very real risk of heart disease.'[27]
Royal Dutch Shell has a much-publicized CSR policy and was a pioneer in triple
bottom line reporting, but this did not prevent the 2004 scandal concerning its
misreporting of oil reserves, which seriously damaged its reputation and led to
charges of hypocrisy. Since then, the Shell Foundation has become involved in many
projects across the world, including a partnership with Marks and Spencer (UK) in
three flower and fruit growing communities across Africa.
Critics concerned with corporate hypocrisy and insincerity generally suggest that
better governmental and international regulation and enforcement, rather than
voluntary measures, are necessary to ensure that companies behave in a socially
responsible manner. A major area of necessary international regulation is the
reduction of the capacity of corporations to sue states under investor state
dispute settlement provisions in trade or investment treaties if otherwise
necessary public health or environment protection legislation has impeded corporate
investments.[28] Others, such as Patricia Werhane, argue that CSR should be
considered more as a corporate moral responsibility, and limit the reach of CSR by
focusing more on direct impacts of the organization as viewed through a systems
perspective to identify stakeholders. For a commonly overlooked motive for CSR, see
also Corporate Social Entrepreneurship, whereby CSR can also be driven by
employees' personal values, in addition to the more obvious economic and
governmental drivers.
[edit] Ethical consumerism
The rise in popularity of ethical consumerism over the last two decades can be
linked to the rise of CSR. As global population increases, so does the pressure on
limited natural resources required to meet rising consumer demand (Grace and Cohen
2005, 147). Industrialization, in many developing countries, is booming as a result
of both technology and globalization. Consumers are becoming more aware of the
environmental and social implications of their day-to-day consumer decisions and
are therefore beginning to make purchasing decisions related to their environmental
and ethical concerns.[29] However, this practice is far from consistent or
universal.
[edit] Globalization and market forces
As corporations pursue growth through globalization, they have encountered new
challenges that impose limits to their growth and potential profits. Government
regulations, tariffs, environmental restrictions and varying standards of what
constitutes "labor exploitation" are problems that can cost organizations millions
of dollars. Some view ethical issues as simply a costly hindrance, while some
companies use CSR methodologies as a strategic tactic to gain public support for
their presence in global markets, helping them sustain a competitive advantage by
using their social contributions to provide a subconscious level of advertising.
(Fry, Keim, Meiners 1986, 105) Global competition places a particular pressure on
multinational corporations to examine not only their own labor practices, but those
of their entire supply chain, from a CSR perspective.
[edit] Social awareness and education
The role among corporate stakeholders is to work collectively to pressure
corporations that are changing. Shareholders and investors themselves, through
socially responsible investing are exerting pressure on corporations to behave
responsibly. Non-governmental organizations are also taking an increasing role,
leveraging the power of the media and the Internet to increase their scrutiny and
collective activism around corporate behavior. Through education and dialogue, the
development of community awareness in holding businesses responsible for their
actions is growing.[30] In recent years, the traditional conception of CSR is being
challenged by the more community-conscious Creating Shared Value concept (CSV), and
several companies are refining their collaboration with stakeholders accordingly.
[edit] Ethics training
The rise of ethics training inside corporations, some of it required by government
regulation, is another driver credited with changing the behavior and culture of
corporations. The aim of such training is to help employees make ethical decisions
when the answers are unclear. Tullberg believes that humans are built with the
capacity to cheat and manipulate, a view taken from (Trivers 1971, 1985), hence the
need for learning normative values and rules in human behavior.[31] The most direct
benefit is reducing the likelihood of "dirty hands" (Grace and Cohen 2005), fines
and damaged reputations for breaching laws or moral norms. Organizations also see
secondary benefit in increasing employee loyalty and pride in the organization.
Caterpillar and Best Buy are examples of organizations that have taken such steps.
[32]
Increasingly, companies are becoming interested in processes that can add
visibility to their CSR policies and activities. One method that is gaining
increasing popularity is the use of well-grounded training programs, where CSR is a
major issue, and business simulations can play a part in this.[citation needed]
One relevant documentary is The Corporation, the history of organizations and their
growth in power is discussed. Corporate social responsibility, what a company does
in trying to benefit society, versus corporate moral responsibility (CMR), what a
company should morally do, are both important topics to consider when looking at
ethics in CSR. For example, Ray Anderson, in The Corporation, takes a CMR
perspective in order to do what is moral and he begins to shift his company's focus
towards the biosphere by utilizing carpets in sections so that they will sustain
for longer periods. This is Anderson thinking in terms of Garret Hardin's "The
Tragedy of the Commons," where if people do not pay attention to the private ways
in which we use public resources, people will eventually lose those public
resources.
[edit] Laws and regulation
Another driver of CSR is the role of independent mediators, particularly the
government, in ensuring that corporations are prevented from harming the broader
social good, including people and the environment. CSR critics such as Robert Reich
argue that governments should set the agenda for social responsibility by the way
of laws and regulation that will allow a business to conduct themselves
responsibly.
The issues surrounding government regulation pose several problems. Regulation in
itself is unable to cover every aspect in detail of a corporation's operations.
This leads to burdensome legal processes bogged down in interpretations of the law
and debatable grey areas (Sacconi 2004). For example, General Electric failed to
clean up the Hudson River after contaminating it with organic pollutants. The
company continues to argue via the legal process on assignment of liability, while
the cleanup remains stagnant. (Sullivan & Schiafo 2005).
The second issue is the financial burden that regulation can place on a nation's
economy. This view shared by Bulkeley, who cites the Australian federal
government's actions to avoid compliance with the Kyoto Protocol in 1997, on the
concerns of economic loss and national interest. The Australian government took the
position that signing the Kyoto Pact would have caused more significant economic
losses for Australia than for any other OECD nation (Bulkeley 2001, pg 436). On the
change of government following the election in November 2007, Prime Minister Kevin
Rudd signed the ratification immediately after assuming office on 3 December 2007,
just before the meeting of the UN Framework Convention on Climate Change. Critics
of CSR also point out that organisations pay taxes to government to ensure that
society and the environment are not adversely affected by business activities.
Denmark has a law on CSR. On 16 December 2008, the Danish parliament adopted a bill
making it mandatory for the 1100 largest Danish companies, investors and state-
owned companies to include information on corporate social responsibility (CSR) in
their annual financial reports. The reporting requirements became effective on 1
January 2009.[33] The required information includes:
* information on the companies� policies for CSR or socially responsible
investments (SRI)
* information on how such policies are implemented in practice, and
* information on what results have been obtained so far and managements
expectations for the future with regard to CSR/SRI.
CSR/SRI is still voluntary in Denmark, but if a company has no policy on this it
must state its positioning on CSR in their annual financial report. More on the
Danish law can be found at CSRgov.dk
[edit] Crises and their consequences
Often it takes a crisis to precipitate attention to CSR. One of the most active
stands against environmental management is the CERES Principles that resulted after
the Exxon Valdez incident in Alaska in 1989 (Grace and Cohen 2006). Other examples
include the lead poisoning paint used by toy giant Mattel, which required a recall
of millions of toys globally and caused the company to initiate new risk management
and quality control processes. In another example, Magellan Metals in the West
Australian town of Esperance was responsible for lead contamination killing
thousands of birds in the area. The company had to cease business immediately and
work with independent regulatory bodies to execute a cleanup. Odwalla also
experienced a crisis with sales dropping 90%, and the company's stock price
dropping 34% due to several cases of E. coli spread through Odwalla apple juice.
The company ordered a recall of all apple or carrot juice products and introduced a
new process called "flash pasteurization" as well as maintaining lines of
communication constantly open with customers.
[edit] Stakeholder priorities
Increasingly, corporations are motivated to become more socially responsible
because their most important stakeholders expect them to understand and address the
social and community issues that are relevant to them. Understanding what causes
are important to employees is usually the first priority because of the many
interrelated business benefits that can be derived from increased employee
engagement (i.e. more loyalty, improved recruitment, increased retention, higher
productivity, and so on). Key external stakeholders include customers, consumers,
investors (particularly institutional investors), communities in the areas where
the corporation operates its facilities, regulators, academics, and the media.
Branco and Rodrigues (2007) describe the stakeholder perspective of CSR as the
inclusion of all groups or constituents (rather than just shareholders) in
managerial decision making related to the organization�s portfolio of socially
responsible activities.[34] This normative model implies that the CSR
collaborations are positively accepted when they are in the interests of
stakeholders and may have no effect or be detrimental to the organization if they
are not directly related to stakeholder interests. The stakeholder perspective
suffers from a wheel and spoke network metaphor that does not acknowledge the
complexity of network interactions that can occur in cross sector partnerships. It
also relegates communication to a maintenance function, similar to the exchange
perspective.[35]
[edit] Arguments for Including Disability in CSR
In recent years CSR is increasingly becoming a part of a large number of companies.
It is becoming an important activity for businesses throughout the globe.
Basically, CSR means that a company's business model should be socially responsible
and environmentally sustainable. By socially responsible, it means that the
company's activities should benefit the society and by environmentally sustainable
it means that the activities of the company should not harm the environment.
But nowadays what we can see is that there is an outburst of enthusiasm for
environmental causes only. For eg. controlling pollution,global warming,
deforestation, mitigate carbon emissions etc. Whereas it can be said that the same
enthusiasm is not seen for social welfare. This is because most of the social
welfare activities of the companies contribute to the welfare of us able bodied
people but do not take into account the disabled people who are also a part of the
society in which the company exists and who amount to at least 10% of the
population. Therefore, disability must be made a part of CSR policies of the
companies and people with disabilities must be allowed to become stakeholders.
There should be non-discrimination or diversity management awareness-raising and
training for employees in the companies, that include disability treatment. They
should include the disability factor in employment/HR indicators (age distribution,
gender, contract type, professional categories and/or activity areas, rotation) so
that the situation of people with disabilities can be compared with that of other
employees. The companies should take into account the characteristics of people
with disabilities when managing human resources (recruitment, selection,
contracting and induction, promotion, training, prevention of risks at work).
Customer care staff training should be carried out by the companies aimed at
guaranteeing appropriate treatment of people with disabilities. They should have a
policy or directive aimed at considering or favouring suppliers and subcontractors
that employ people with disabilities, including Sheltered Workshops.
Thus, carrying out business practice which includes disabled people will help
improve the company's reputation and image in an increasingly competitive
environment.
Finally, disability is one of the factors that can contribute to "Diversity" and
Diversity is a rising value within companies� management. However, disability is
often pushed behind in favour of other diversity criteria, thus disability needs to
be specifically included within the CSR. [36]
Corporate transparency
From Wikipedia, the free encyclopedia
Corporate transparency is set of information, privacy, and business policies to
improve corporate decisionmaking and operations openness to employees,
stakeholders, shareholders and the general public. Standard & Poor's has included a
definition of corporate transparency in its GAMMA Methodology aimed at analysis and
assessment of corporate governance. As a part of this work, Standard & Poor's
Governance Services publishes the Transparency Index calculated as the average
score for the largest public companies in various countries.
Corporate transparency has also been used to refer to radical transparency in
corporate governance.[citation needed]
Golden parachute
From Wikipedia, the free encyclopedia
��(Redirected from Golden Parachute)
For the CSI: Miami episode, see Golden Parachute (CSI episode).
This article has multiple issues. Please help improve it or discuss these issues on
the talk page.
* It needs additional citations for verification. Tagged since September 2009.
* Its tone or style may not reflect the formal tone used on Wikipedia. Tagged since
September 2009.A golden parachute is an agreement between a company and an employee
(usually upper executive) specifying that the employee will receive certain
significant benefits if employment is terminated. Sometimes, certain conditions,
typically a change in company ownership, must be met, but often the cause of
termination is unspecified. These benefits may include severance pay, cash bonuses,
stock options, or other benefits. They are designed to reduce perverse incentives �
paradoxically (and ironically) they may create them.
Proponents of golden parachutes argue that they provide three main benefits:
* Make it easier to hire and retain executives, especially in industries more prone
to mergers.
* Help an executive to remain objective about the company during the takeover
process.
* Dissuade takeover attempts by increasing the cost of a takeover, often part of a
Poison Pill strategy, although tin parachutes (giving every employee takeover
benefits and/or job protection) are generally far more effective in this regard.
Critics have responded to the above by pointing out that:
1. Dismissal is a risk in any occupation, and executives are already well
compensated.
2. Executives already have a fiduciary responsibility to the company, and should
not need additional incentives to stay objective.
3. Golden parachute costs are a very small percentage of a takeover's costs and do
not affect the outcome.
The use of golden parachutes have caused some investors[who?][citation needed]
concern since they don't specify that the executive has to perform successfully to
any degree.
The first known use of the term "golden parachute" dates back to when creditors
sought to oust Howard Hughes from control of TWA airlines. The creditors provided
Charles C. Tillinghast Jr. an employment contract�dubbed a golden parachute in
likely[original research?] reference to the protection a parachute offered�with
protection against the almost definite[according to whom?] job loss Tillinghast
would have faced if famed aviator Howard Hughes had successfully maintained control
of TWA.[citation needed]
The use of the term "golden parachute" has significantly increased in 2008 because
of the global economic recession, especially being used by news media and in the
2008 Presidential Debates.[1]
The use of golden parachutes expanded greatly in the early 1980s in response to the
large increase in the number of takeovers and mergers.
According to a 2006 study by the Hay Group human resource management firm, the
French executives' golden parachutes are the highest in Europe, and equivalent to
the funds received by 50% of the American executives. In contrast, the French
standard revenues for executives located themselves in the European average. French
executives receive roughly the double of their salary and bonus in their golden
parachute.
Business ethics
From Wikipedia, the free encyclopedia
For the American TV Series, The Office go to Business Ethics (The Office)
Business ethics (also corporate ethics) is a form of applied ethics or professional
ethics that examines ethical principles and moral or ethical problems that arise in
a business environment. It applies to all aspects of business conduct and is
relevant to the conduct of individuals and entire organizations.
Business ethics has both normative and descriptive dimensions. As a corporate
practice and a career specialization, the field is primarily normative. Academics
attempting to understand business behavior employ descriptive methods. The range
and quantity of business ethical issues reflects the interaction of profit-
maximizing behavior with non-economic concerns. Interest in business ethics
accelerated dramatically during the 1980s and 1990s, both within major corporations
and within academia. For example, today most major corporations promote their
commitment to non-economic values under headings such as ethics codes and social
responsibility charters. Adam Smith said, "People of the same trade seldom meet
together, even for merriment and diversion, but the conversation ends in a
conspiracy against the public, or in some contrivance to raise prices."[1]
Governments use laws and regulations to point business behavior in what they
perceive to be beneficial directions. Ethics implicitly regulates areas and details
of behavior that lie beyond governmental control.[2] The emergence of large
corporations with limited relationships and sensitivity to the communities in which
they operate accelerated the development of formal ethics regimes.[3]
Contents
�[hide]�
* 1 History
* 2 Overview
* 3 Functional business areas
o 3.1 Finance
o 3.2 Other issues
o 3.3 Human resource management
o 3.4 Sales and marketing
o 3.5 Production
o 3.6 Property
o 3.7 Intellectual property
* 4 International issues
* 5 Economic systems
* 6 Law and regulation
* 7 Implementation
o 7.1 Corporate policies
o 7.2 Ethics officers
* 8 Academic discipline
* 9 Religious views
* 10 Related disciplines
* 11 See also
* 12 References
* 13 Further reading
* 14 External links[edit] History
Business ethical norms reflect the norms of each historical period. As time passes
norms evolve, causing accepted behaviors to become objectionable. Business ethics
and the resulting behavior evolved as well. Business was involved in slavery,[4][5]
[6] colonialism,[7][8] and the cold war.[9][10]
The term 'business ethics' came into common use in the United States in the early
1970s. By the mid-1980s at least 500 courses in business ethics reached 40,000
students, using some twenty textbooks and at least ten casebooks along supported by
professional societies, centers and journals of business ethics. The Society for
Business Ethics was started in 1980. European business schools adopted business
ethics after 1987 commencing with the European Business Ethics Network (EBEN).[11]
[12][13][14] In 1982 the first single-authored books in the field appeared.[15][16]
Firms started highlighting their ethical stature in the late 1980s and early 1990s,
possibly trying to distance themselves from the business scandals of the day, such
as the savings and loan crisis. The idea of business ethics caught the attention of
academics, media and business firms by the end of the Cold War.[12][17][18]
However, legitimate criticism of business practices was attacked for infringing the
"freedom" of entrepreneurs and critics were accused of supporting communists.[19]
[20] This scuttled the discourse of business ethics both in media and academia.[21]
[edit] Overview
Business ethics reflects the philosophy of business, one of whose aims is to
determine the fundamental purposes of a company. If a company's purpose is to
maximize shareholder returns, then sacrificing profits to other concerns is a
violation of its fiduciary responsibility. Corporate entities are legally
considered as persons in USA and in most nations. The 'corporate persons' are
legally entitled to the rights and liabilities due to citizens as persons.
Economist Milton Friedman writes that corporate executives' "responsibility...
generally will be to make as much money as possible while conforming to their basic
rules of the society, both those embodied in law and those embodied in ethical
custom".[22] Friedman also said, "the only entities who can have responsibilities
are individuals ... A business cannot have responsibilities. So the question is, do
corporate executives, provided they stay within the law, have responsibilities in
their business activities other than to make as much money for their stockholders
as possible? And my answer to that is, no, they do not."[22][23][24] A multi-
country 2011 survey found support for this view among the "informed public" ranging
from 30-80%.[25] Duska views Friedman's argument as consequentialist rather than
pragmatic, implying that unrestrained corporate freedom would benefit the most in
long term.[26][27] Similarly author business consultant Peter Drucker observed,
"There is neither a separate ethics of business nor is one needed", implying that
standards of personal ethics cover all business situations.[28] However, Peter
Drucker in another instance observed that the ultimate responsibility of company
directors is not to harm�primum non nocere.[29] Another view of business is that it
must exhibit corporate social responsibility (CSR): an umbrella term indicating
that an ethical business must act as a responsible citizen of the communities in
which it operates even at the cost of profits or other goals.[30][31][32][33][34]
In the US and most other nations corporate entities are legally treated as persons
in some respects. For example, they can hold title to property, sue and be sued and
are subject to taxation, although their free speech rights are limited. This can be
interpreted to imply that they have independent ethical responsibilities.[citation
needed] Duska argues that stakeholders have the right to expect a business to be
ethical; if business has no ethical obligations, other institutions could make the
same claim which would be counterproductive to the corporation.[26]
Ethical issues include the rights and duties between a company and its employees,
suppliers, customers and neighbors, its fiduciary responsibility to its
shareholders. Issues concerning relations between different companies include
hostile take-overs and industrial espionage. Related issues include corporate
governance;corporate social entrepreneurship; political contributions; legal issues
such as the ethical debate over introducing a crime of corporate manslaughter; and
the marketing of corporations' ethics policies.[citation needed]
[edit] Functional business areas
[edit] Finance
Fundamentally, finance is a social science discipline.[35] The discipline borders
behavioral economics, sociology,[36] economics, accounting and management. It
concerns technical issues such as the mix of debt and equity, dividend policy, the
evaluation of alternative investment projects, options, futures, swaps, and other
derivatives, portfolio diversification and many others. It is often mistaken[who?]
to be a discipline free from ethical burdens.[35] The 2008 financial crisis caused
critics to challenge the ethics of the executives in charge of U.S. and European
financial institutions and financial regulatory bodies.[37] Finance ethics is
overlooked for another reason�issues in finance are often addressed as matters of
law rather than ethics.[38]
[edit] Finance paradigm
Aristotle said, "the end and purpose of the polis is the good life".[39] Adam Smith
characterized the good life in terms of material goods and intellectual and moral
excellences of character.[40] Smith in his The Wealth of Nations commented, "All
for ourselves, and nothing for other people, seems, in every age of the world, to
have been the vile maxim of the masters of mankind."[41]
Wikiquote has a collection of quotations related to: Adam SmithHowever, a section
of economists influenced by the ideology of neoliberalism, interpreted the
objective of economics to be maximization of economic growth through accelerated
consumption and production of goods and services.[42] Neoliberal ideology promoted
finance from its position as a component of economics to its core.[citation needed]
Proponents of the ideology hold that unrestricted financial flows, if redeemed from
the shackles of "financial repressions",[43] best help impoverished nations to
grow.[citation needed] The theory holds that open financial systems accelerate
economic growth by encouraging foreign capital in?ows, thereby enabling higher
levels of savings, investment, employment, productivity and "welfare",[44][45][46]
[47] along with containing corruption.[48] Neoliberals recommended that governments
open their financial systems to the global market with minimal regulation over
capital flows.[49][50][51][52][53] The recommendations however, met with criticisms
from various schools of ethical philosophy. Some pragmatic ethicists, found these
claims to unfalsifiable and a priori, although neither of these makes the
recommendations false or unethical per se.[54][55][56] Raising economic growth to
the highest value necessarily means that welfare is subordinate, although advocates
dispute this saying that economic growth provides more welfare than known
alternatives.[57] Since history shows that neither regulated nor unregulated firms
always behave ethically, neither regime offers an ethical panacea.[58][59][60]
Neoliberal recommendations to developing countries to unconditionally open up their
economies to transnational finance corporations was fiercely contested by some
ethicists.[61][62][63][64][65] The claim that deregulation and the opening up of
economies would reduce corruption was also contested.[66][67][68]
Dobson observes, "a rational agent is simply one who pursues personal material
advantage ad infinitum. In essence, to be rational in finance is to be
individualistic, materialistic, and competitive. Business is a game played by
individuals, as with all games the object is to win, and winning is measured in
terms solely of material wealth. Within the discipline this rationality concept is
never questioned, and has indeed become the theory-of-the-firm's sine qua non".[69]
[70] Financial ethics is in this view a mathematical function of shareholder
wealth. Such simplifying assumptions were once necessary for the construction of
mathematically robust models.[71] However signalling theory and agency theory
extended the paradigm to greater realism.[72]
[edit] Other issues
Fairness in trading practices, trading conditions, financial contracting, sales
practices, consultancy services, tax payments, internal audit, external audit and
executive compensation also fall under the umbrella of finance and accounting.[38]
[73] Particular corporate ethical/legal abuses include: creative accounting,
earnings management, misleading financial analysis insider trading, securities
fraud, bribery/kickbacks and facilitation payments. Outside of corporations, bucket
shops and forex scams are criminal manipulations of financial markets. Cases
include accounting scandals, Enron, WorldCom and Satyam.[citation needed]
[edit] Human resource management
Human resource management occupies the sphere of activity of recruitment selection,
orientation, performance appraisal, training and development, industrial relations
and health and safety issues.[74] Business Ethicists differ in their orientation
towards labour ethics. Some assess human resource policies according to whether
they support an egalitarian workplace and the dignity of labor.[75][76][77]
Issues including employment itself, privacy, compensation in accord with comparable
worth, collective bargaining (and/or its opposite) can be seen either as
inalienable rights[78][79] or as negotiable.[80][81][82][83][84] Discrimination by
age (preferring the young or the old), gender/sexual harassment, race, religion,
disability, weight and attractiveness. A common approach to remedying
discrimination is affirmative action.
Potential employees have ethical obligations to employers, involving intellectual
property protection and whistle-blowing.
Employers must consider workplace safety, which may involve modifying the
workplace, or providing appropriate training or hazard disclosure.
Larger economic issues such as immigration, trade policy, globalization and trade
unionism affect workplaces and have an ethical dimension, but are often beyond the
purview of individual companies.[78][85][86]
[edit] Trade unions
Unions for example, may push employers to establish due process for workers, but
may also cost jobs by demanding unsustainable compensation and work rules.[87][88]
[89][90][91][92][93][94][95][96]
Unionized workplaces may confront union busting and strike breaking and face the
ethical implications of work rules that advantage some workers over others.
[citation needed]
[edit] Management strategy
Among the many people management strategies that companies employ are a "soft"
approach that regards employees as a source of creative energy and participants in
workplace decision making, a "hard" version explicitly focused on control[97] and
Theory Z that emphasizes philosophy, culture and consensus.[98] None ensure ethical
behavior.[99] Some studies claim that sustainable success requires a humanely
treated and satisfied workforce.[100][101][102]
[edit] Sales and marketing
Main article: Marketing ethics
Marketing Ethics came of age only as late as 1990s.[103] Marketing ethics was
approached from ethical perspectives of virtue or virtue ethics, deontology,
consequentialism, pragmatism and relativism.[104][105]
Ethics in marketing deals with the principles, values and/or ideals by which
marketers (and marketing institutions) ought to act.[106] Marketing ethics is also
contested terrain, beyond the previously described issue of potential conflicts
between profitability and other concerns. Ethical marketing issues include
marketing redundant or dangerous products/services[107][108][109] transparency
about environmental risks, transparency about product ingredients such as
genetically modified organisms[110][111][112][113] possible health risks, financial
risks, security risks, etc.,[114] respect for consumer privacy and autonomy,[115]
advertising truthfulness and fairness in pricing & distribution.[116]
According to Borgerson, and Schroeder (2008), marketing can influence individuals'
perceptions of and interactions with other people, implying an ethical
responsibility to avoid distorting those perceptions and interactions.[117]
Marketing ethics involves pricing practices, including illegal actions such as
price fixing and legal actions including price discrimination and price skimming.
Certain promotional activities have drawn fire, including greenwashing, bait and
switch, shilling, viral marketing, spam (electronic), pyramid schemes and multi-
level marketing. Advertising has raised objections about attack ads, subliminal
messages, sex in advertising and marketing in schools.
[edit] Production
This area of business ethics usually deals with the duties of a company to ensure
that products and production processes do not needlessly cause harm. Since few
goods and services can be produced and consumed with zero risk, determining the
ethical course can be problematic. In some case consumers demand products that harm
them, such as tobacco products. Production may have environmental impacts,
including pollution, habitat destruction and urban sprawl. The downstream effects
of technologies nuclear power, genetically modified food and mobile phones may not
be well understood. While the precautionary principle may prohibit introducing new
technology whose consequences are not fully understood, that principle would have
prohibited most new technology introduced since the industrial revolution. Product
testing protocols have been attacked for violating the rights of both humans and
animals[citation needed]
[edit] Property
Main article: Private property, and Property rights
The etymological root of property is the Latin 'proprius'[118] which refers to
'nature', 'quality', 'one's own', 'special characteristic', 'proper', 'intrinsic',
'inherent', 'regular', 'normal', 'genuine', 'thorough, complete, perfect' etc. The
word property is value loaded and associated with the personal qualities of
propriety and respectability, also implies questions relating to ownership. A
'proper' person owns and is true to herself or himself, and is thus genuine,
perfect and pure.[119]
[edit] Modern history of property rights
Modern discourse on property emerged by the turn of 17th century within theological
discussions of that time. For instance, John Locke justified property rights saying
that God had made "the earth, and all inferior creatures, [in] common to all men".
[120][121][122][123]
In 1802 Utilitarian Jeremy Bentham stated, "property and law are born together and
die together".[124][125]
One argument for property ownership is that it enhances individual liberty by
extending the line of non-interference by the state or others around the person.
[126] Seen from this perspective, property right is absolute and property has a
special and distinctive character that precedes its legal protection. Blackstone
conceptualized property as the "sole and despotic dominion which one man claims and
exercises over the external things of the world, in total exclusion of the right of
any other individual in the universe".[127]
[edit] Slaves as property
During the seventeenth and eighteenth centuries, slavery spread to European
colonies including America, where colonial legislatures defined the legal status of
slaves as a form of property.[128] During this time settlers began the centuries-
long process of dispossessing the natives of America of millions of acres of land.
[129] Ironically, the natives lost about 200,000 square miles (520,000 km2) of land
in the Louisiana Territory under the leadership of Thomas Jefferson, who championed
property rights.[130][131][132]
Combined with theological justification, property was taken to be essentially
natural ordained by God.[133] Property, which later gained meaning as ownership and
appeared natural to Locke, Jefferson and to many of the 18th and 19th century
intellectuals[134] as land, labour or idea[135] and property right over slaves had
the same theological and essentialized justification[136][137][138][139][140][141]
It was even held that the property in slaves was a sacred right.[142][143] Wiecek
noted, "slavery was more clearly and explicitly established under the Constitution
as it had been under the Articles".[144] Accordingly, US Supreme Court Chief
Justice Roger B. Taney in his 1857 judgment stated, "The right of property in a
slave is distinctly and expressly affirmed in the Constitution".
[edit] Natural right vs social construct
Neoliberals hold that private property rights are a non-negotiable natural right.
[145][146] Davies counters with "property is no different from other legal
categories in that it is simply a consequence of the significance attached by law
to the relationships between legal persons."[147][148] Singer claims, "Property is
a form of power, and the distribution of power is a political problem of the
highest order".[149][150] Rose finds, "'Property' is only an effect, a
construction, of relationships between people, meaning that its objective character
is contestable. Persons and things, are 'constituted' or 'fabricated' by legal and
other normative techniques.".[151][152] Singer observes, "A private property regime
is not, after all, a Hobbesian state of nature; it requires a working legal system
that can define, allocate, and enforce property rights."[153] Davis claims that
common law theory generally favors the view that "property is not essentially a
'right to a thing', but rather a separable bundle of rights subsisting between
persons which may vary according to the context and the object which is at stake".
[147]
In common parlance property rights involve a 'bundle of rights'[154] including
occupancy, use and enjoyment, and the right to sell, devise, give, or lease all or
part of these rights.[155][156][157][158] Custodians of property have obligations
as well as rights.[159][160] Michelman writes, "A property regime thus depends on a
great deal of cooperation, trustworthiness, and self-restraint among the people who
enjoy it."[161][162]
Menon claims that the autonomous individual, responsible for his/her own existence
is a cultural construct moulded by Western culture rather than the truth about the
human condition.[163] Penner views property as an "illusion"�a "normative phantasm"
without substance.[164][165]
In the neoliberal literature, property is part of the private side of a
public/private dichotomy and acts a counterweight to state power. Davies counters
that "any space may be subject to plural meanings or appropriations which do not
necessarily come into conflict".[166]
Private property has never been a universal doctrine, although since the end of the
Cold War is it has become nearly so. Some societies, e.g., Native American bands,
held land, if not all property, in common. When groups came into conflict, the
victor often appropriated the loser's property.[167][168] The rights paradigm
tended to stabilize the distribution of property holdings on the presumption that
title had been lawfully acquired.[169]
Property does not exist in isolation, and so property rights too.[170] Bryan
claimed that property rights describe relations among people and not just relations
between people and things[171][172][173][174][175][176] Singer holds that the idea
that owners have no legal obligations to others wrongly supposes that property
rights hardly ever conflict with other legally protected interests.[177] Singer
continues implying that legal realists "did not take the character and structure of
social relations as an important independent factor in choosing the rules that
govern market life". Ethics of property rights begins with recognizing the vacuous
nature of the notion of property.[178]
[edit] Intellectual property
Main articles: Intellectual property and Intellectual property rights
Intellectual property (IP) encompasses expressions of ideas, thoughts, codes and
information. "Intellectual property rights" (IPR) treat IP as a kind of real
property, subject to analogous protections, rather than as a reproducible good or
service. Boldrin and Levine argue that "government does not ordinarily enforce
monopolies for producers of other goods. This is because it is widely recognized
that monopoly creates many social costs. Intellectual monopoly is no different in
this respect. The question we address is whether it also creates social benefits
commensurate with these social costs."[179]
International standards relating to Intellectual Property Rights are enforced
through Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).
[180] In the US, IP other than copyrights is regulated by the United States Patent
and Trademark Office.
The US Constitution included the power to protect intellectual property, empowering
the Federal government "to promote the progress of science and useful arts, by
securing for limited times to authors and inventors the exclusive right to their
respective writings and discoveries".[181] Boldrin and Levine see no value in such
state-enforced monopolies stating, "we ordinarily think of innovative monopoly as
an oxymoron.[182][183] Further they comment, 'intellectual property' "is not like
ordinary property at all, but constitutes a government grant of a costly and
dangerous private monopoly over ideas. We show through theory and example that
intellectual monopoly is not necessary for innovation and as a practical matter is
damaging to growth, prosperity, and liberty" .[181] Steelman defends patent
monopolies, writing, "Consider prescription drugs, for instance. Such drugs have
benefited millions of people, improving or extending their lives. Patent protection
enables drug companies to recoup their development costs because for a specific
period of time they have the sole right to manufacture and distribute the products
they have invented."[184] The court cases by 39 pharmaceutical companies against
South Africa's 1997 Medicines and Related Substances Control Amendment Act, which
intended to provide affordable HIV medicines has been cited as a harmful effect of
patents.[185][186][187]
One attack on IPR is moral rather than utilitarian, claiming that inventions are
mostly a collective, cumulative, path dependent, social creation and therefore, no
one person or ?rm should be able to monopolize them even for a limited period.[188]
The opposing argument is that the benefits of innovation arrive sooner when patents
encourage innovators and their investors to increase their commitments. Roderick
Long, a libertarian philosopher, observes, "Ethically, property rights of any kind
have to be justified as extensions of the right of individuals to control their own
lives. Thus any alleged property rights that conflict with this moral basis�like
the "right" to own slaves�are invalidated. In my judgment, intellectual property
rights also fail to pass this test. To enforce copyright laws and the like is to
prevent people from making peaceful use of the information they possess. If you
have acquired the information legitimately (say, by buying a book), then on what
grounds can you be prevented from using it, reproducing it, trading it? Is this not
a violation of the freedom of speech and press? It may be objected that the person
who originated the information deserves ownership rights over it. But information
is not a concrete thing an individual can control; it is a universal, existing in
other people's minds and other people's property, and over these the originator has
no legitimate sovereignty. You cannot own information without owning other people".
[189] Machlup concluded that patents do not have the intended effect of enhancing
innovation.[190] Self-declared anarchist Proudhon, in his 1847 seminal work noted,
"Monopoly is the natural opposite of competition," and continued, "Competition is
the vital force which animates the collective being: to destroy it, if such a
supposition were possible, would be to kill society"[191][192]
Mindeli and Pipiya hold that the knowledge economy is an economy of abundance[193]
because it relies on the "infinite potential" of knowledge and ideas rather than on
the limited resources of natural resources, labor and capital. Allison envisioned
an egalitarian distribution of knowledge.[194] Kinsella claims that IPR create
artificial scarcity and reduce equality.[195][196][197] Bouckaert wrote, "Natural
scarcity is that which follows from the relationship between man and nature.
Scarcity is natural when it is possible to conceive of it before any human,
institutional, contractual arrangement. Artificial scarcity, on the other hand, is
the outcome of such arrangements. Artificial scarcity can hardly serve as a
justification for the legal framework that causes that scarcity. Such an argument
would be completely circular. On the contrary, artificial scarcity itself needs a
justification" [198][199] Corporations fund much IP creation and can acquire IP
they do not create,[200] to which Menon and others object.[201][202] Andersen
claims that IPR has increasingly become an instrument in eroding public domain.
[203]
Ethical and legal issues include: Patent infringement, copyright infringement,
trademark infringement, patent and copyright misuse, submarine patents, gene
patents, patent, copyright and trademark trolling, Employee raiding and
monopolizing talent, Bioprospecting, biopiracy and industrial espionage, digital
rights management.
Notable IP copyright cases include Napster, Eldred v. Ashcroft and Air Pirates.
[edit] International issues
While business ethics emerged as a field in the 1970s, international business
ethics did not emerge until the late 1990s, looking back on the international
developments of that decade.[204] Many new practical issues arose out of the
international context of business. Theoretical issues such as cultural relativity
of ethical values receive more emphasis in this field. Other, older issues can be
grouped here as well. Issues and subfields include:
* The search for universal values as a basis for international commercial
behaviour.
* Comparison of business ethical traditions in different countries. Also on the
basis of their respective GDP and [Corruption rankings].
* Comparison of business ethical traditions from various religious perspectives.
* Ethical issues arising out of international business transactions; e.g.,
bioprospecting and biopiracy in the pharmaceutical industry; the fair trade
movement; transfer pricing.
* Issues such as globalization and cultural imperialism.
* Varying global standards�e.g., the use of child labor.
* The way in which multinationals take advantage of international differences, such
as outsourcing production (e.g. clothes) and services (e.g. call centres) to low-
wage countries.
* The permissibility of international commerce with pariah states.
The success of any business depends on its financial performance. Financial
accounting helps the management to report and also control the business
performance.
The information regarding the financial performance of the company plays an
important role in enabling people to take right decision about the company.
Therefore, it becomes necessary to understand how to record based on accounting
conventions and concepts ensure unambling and accurate records.
Foreign countries often use dumping as a competitive threat, selling products at
prices lower than their normal value. This can lead to problems in domestic
markets. It becomes difficult for these markets to compete with the pricing set by
foreign markets. In 2009, the International Trade Commission has been researching
anti-dumping laws. Dumping is often seen as an ethical issue, as larger companies
are taking advantage of other less economically advanced companies.
[edit] Economic systems
Political economy and political philosophy have ethical implications, particularly
regarding the distribution of economic benefits.[205] John Rawls and Robert Nozick
are both notable contributors. For example, Rawls has been interpreted as offering
a critique of offshore outsourcing on social contract grounds, whereas Nozick's
libertarian philosophy rejects the notion of any positive corporate social
obligation.
[edit] Law and regulation
Very often it is held that business is not bound by any ethics other than abiding
by the law. Milton Friedman is the pioneer of the view. He held that corporations
have the obligation to make a profit within the framework of the legal system,
nothing more.[206] Friedman made it explicit that the duty of the business leaders
is, "to make as much money as possible while conforming to the basic rules of the
society, both those embodied in the law and those embodied in ethical custom".[207]
Ethics for Friedman is nothing more than abiding by 'customs' and 'laws'. The
reduction of ethics to abidance to laws and customs however have drawn serious
criticisms.
Counter to Friedman's logic it is observed that legal procedures are technocratic,
bureaucratic, rigid and obligatory where as ethical act is conscientious, voluntary
choice beyond normativity.[208] Law is retroactive. Crime precedes law. Law against
a crime, to be passed, the crime must have happened. Laws are blind to the crimes
undefined in it.[209] Further, as per law, "conduct is not criminal unless
forbidden by law which gives advance warning that such conduct is criminal.[210]
Also, law presumes the accused is innocent until proven guilty and that the state
must establish the guilt of the accused beyond reasonable doubt. As per liberal
laws followed in most of the democracies, until the government prosecutor proves
the firm guilty with the limited resources available to her, the accused is
considered to be innocent. Though the liberal premises of law is necessary to
protect individuals from being persecuted by Government, it is not a sufficient
mechanism to make firms morally accountable.[211][212][213][214]
[edit] Implementation
[edit] Corporate policies
This section needs additional citations for verification. Please help improve this
article by adding citations to reliable sources. Unsourced material may be
challenged and removed. (March 2011)As part of more comprehensive compliance and
ethics programs, many companies have formulated internal policies pertaining to the
ethical conduct of employees. These policies can be simple exhortations in broad,
highly generalized language (typically called a corporate ethics statement), or
they can be more detailed policies, containing specific behavioural requirements
(typically called corporate ethics codes). They are generally meant to identify the
company's expectations of workers and to offer guidance on handling some of the
more common ethical problems that might arise in the course of doing business. It
is hoped that having such a policy will lead to greater ethical awareness,
consistency in application, and the avoidance of ethical disasters.
An increasing number of companies also require employees to attend seminars
regarding business conduct, which often include discussion of the company's
policies, specific case studies, and legal requirements. Some companies even
require their employees to sign agreements stating that they will abide by the
company's rules of conduct.
Many companies are assessing the environmental factors that can lead employees to
engage in unethical conduct. A competitive business environment may call for
unethical behaviour. Lying has become expected in fields such as trading. An
example of this are the issues surrounding the unethical actions of the Saloman
Brothers.
Not everyone supports corporate policies that govern ethical conduct. Some claim
that ethical problems are better dealt with by depending upon employees to use
their own judgment.
Others believe that corporate ethics policies are primarily rooted in utilitarian
concerns, and that they are mainly to limit the company's legal liability, or to
curry public favour by giving the appearance of being a good corporate citizen.
Ideally, the company will avoid a lawsuit because its employees will follow the
rules. Should a lawsuit occur, the company can claim that the problem would not
have arisen if the employee had only followed the code properly.
Sometimes there is disconnection between the company's code of ethics and the
company's actual practices. Thus, whether or not such conduct is explicitly
sanctioned by management, at worst, this makes the policy duplicitous, and, at
best, it is merely a marketing tool.
Jones and Parker write, "Most of what we read under the name business ethics is
either sentimental common sense, or a set of excuses for being unpleasant."[215]
Many manuals are procedural form filling exercises unconcerned about the real
ethical dilemmas. For instance, US Department of Commerce ethics program treats
business ethics as a set of instructions and procedures to be followed by 'ethics
officers'.,[31] some others claim being ethical is just for the sake of being
ethical.[216] Business ethicists may trivialize the subject, offering standard
answers that do not reflect the situation's complexity.[208]
[edit] Ethics officers
This section needs additional citations for verification. Please help improve this
article by adding citations to reliable sources. Unsourced material may be
challenged and removed. (March 2011)Ethics officers (sometimes called "compliance"
or "business conduct officers") have been appointed formally by organizations since
the mid-1980s. One of the catalysts for the creation of this new role was a series
of fraud, corruption, and abuse scandals that afflicted the U.S. defense industry
at that time. This led to the creation of the Defense Industry Initiative (DII), a
pan-industry initiative to promote and ensure ethical business practices. The DII
set an early benchmark for ethics management in corporations. In 1991, the Ethics &
Compliance Officer Association (ECOA)�originally the Ethics Officer Association
(EOA)�was founded at the Center for Business Ethics (at Bentley College, Waltham,
MA) as a professional association for those responsible for managing organizations'
efforts to achieve ethical best practices. The membership grew rapidly (the ECOA
now has over 1,200 members) and was soon established as an independent
organization.
Another critical factor in the decisions of companies to appoint ethics/compliance
officers was the passing of the Federal Sentencing Guidelines for Organizations in
1991, which set standards that organizations (large or small, commercial and non-
commercial) had to follow to obtain a reduction in sentence if they should be
convicted of a federal offense. Although intended to assist judges with sentencing,
the influence in helping to establish best practices has been far-reaching.
In the wake of numerous corporate scandals between 2001�04 (affecting large
corporations like Enron, WorldCom and Tyco), even small and medium-sized companies
have begun to appoint ethics officers. They often report to the Chief Executive
Officer and are responsible for assessing the ethical implications of the company's
activities, making recommendations regarding the company's ethical policies, and
disseminating information to employees. They are particularly interested in
uncovering or preventing unethical and illegal actions. This trend is partly due to
the Sarbanes�Oxley Act in the United States, which was enacted in reaction to the
above scandals. A related trend is the introduction of risk assessment officers
that monitor how shareholders' investments might be affected by the company's
decisions.
The effectiveness of ethics officers is not clear. If the appointment is made
primarily as a reaction to legislative requirements, one might expect little
impact, at least over the short term. In part, this is because ethical business
practices result from a corporate culture that consistently places value on ethical
behaviour, a culture and climate that usually emanates from the top of the
organization. The mere establishment of a position to oversee ethics will most
likely be insufficient to inculcate ethical behaviour: a more systemic programme
with consistent support from general management will be necessary.
The foundation for ethical behaviour goes well beyond corporate culture and the
policies of any given company, for it also depends greatly upon an individual's
early moral training, the other institutions that affect an individual, the
competitive business environment the company is in and, indeed, society as a whole.
[edit] Academic discipline
As an academic discipline, business ethics emerged in the 1970s. Since no academic
business ethics journals or conferences existed, researchers published in general
management journals, and attended general conferences. Over time, specialized peer-
reviewed journals appeared, and more researchers entered the field. Corporate
scandals in the earlier 2000s increased the field's popularity. As of 2009, sixteen
academic journals devoted to various business ethics issues existed, with Journal
of Business Ethics and Business Ethics Quarterly considered the leaders.[217]
The International Business Development Institute[218] is a global non-profit
organization that represents 217 nations and all 50 United States. It offers a
Charter in Business Development (CBD) that focuses on ethical business practices
and standards. The Charter is directed by Harvard, MIT, and Fulbright Scholars, and
it includes graduate-level coursework in economics, politics, marketing,
management, technology, and legal aspects of business development as it pertains to
business ethics. IBDI also oversees the International Business Development
Institute of Asia[219] which provides individuals living in 20 Asian nations the
opportunity to earn the Charter.
[edit] Religious views
Main article: Religious views on business ethics
In Sharia law, followed by many Muslims, banking specifically prohibits charging
interest on loans.[citation needed] Traditional Confucian thought discourages
profit-seeking.[220] Christianity offers the Golden Rule command, "Therefore all
things whatsoever ye would that men should do to you, do ye even so to them: for
this is the law and the prophets."[221] according to the article "Theory of the
real economy", there is a more narrow point of view from the Christianity faith
towards the relationship between ethics and religious traditions. This article
stresses about how capable is Christianity of establishing reliable boundaries for
financial institutions. one criticism comes from pope Benedict by describing the
"damaging effects of the real economy of badly managed and largely speculative
financial dealing." it is mentioned that Christianity has the potential to
transform the nature of finance and investment but only if theologians and ethicist
provide more evidence of what is real in the economic life.[222]
[edit] Related disciplines
Business ethics is part of the philosophy of business, the branch of philosophy
that deals with the philosophical, political, and ethical underpinnings of business
and economics. Business ethics operates on the premise, for example, that the
ethical operation of a private business is possible�those who dispute that premise,
such as libertarian socialists, (who contend that "business ethics" is an oxymoron)
do so by definition outside of the domain of business ethics proper.[citation
needed]
The philosophy of business also deals with questions such as what, if any, are the
social responsibilities of a business; business management theory; theories of
individualism vs. collectivism; free will among participants in the marketplace;
the role of self interest; invisible hand theories; the requirements of social
justice; and natural rights, especially property rights, in relation to the
business enterprise.[citation needed]
Business ethics is also related to political economy, which is economic analysis
from political and historical perspectives. Political economy deals with the
distributive consequences of economic actions. It asks who gains and who loses from
economic activity, and is the resultant distribution fair or just, which are
central ethical issues.[citation needed]
Sarbanes�Oxley Act
From Wikipedia, the free encyclopedia
��(Redirected from Sarbanes-Oxley Act)

Sen. Paul Sarbanes (D�MD) and Rep. Michael G. Oxley (R�OH-4), the co-sponsors of
the Sarbanes�Oxley Act.
AccountancyKey conceptsAccountant�� Accounting period�� Bookkeeping�� Cash and
accrual basis�� Cash flow forecasting�� Chart of accounts�� Journal�� Special
journals�� Constant item purchasing power accounting�� Cost of goods sold�� Credit
terms�� Debits and credits�� Double-entry system�� Mark-to-market accounting�� FIFO
and LIFO�� GAAP / IFRS�� General ledger�� Goodwill�� Historical cost�� Matching
principle�� Revenue recognition�� Trial balanceFields of accountingCost��
Financial�� Forensic�� Fund�� Management�� Tax (U.S.)Financial statementsBalance
sheet�� Cash flow statement�� Statement of retained earnings�� Income statement��
Notes�� Management discussion and analysis�� XBRLAuditingAuditor's report��
Financial audit�� GAAS / ISA�� Internal audit�� Sarbanes�Oxley ActAccounting
qualificationsCA�� CPA�� CCA�� CGA�� CMA�� CAT�� CFA�� CIIA�� IIA�� CTPThis box:
* view
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* editThe Sarbanes�Oxley Act of 2002 (Pub.L. 107-204, 116�Stat.�745, enacted
July�30, 2002), also known as the 'Public Company Accounting Reform and Investor
Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and
Responsibility Act' (in the House) and commonly called Sarbanes�Oxley, Sarbox or
SOX, is a United States federal law which set new or enhanced standards for all
U.S. public company boards, management and public accounting firms. It is named
after sponsors U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G.
Oxley (R-OH).
The bill was enacted as a reaction to a number of major corporate and accounting
scandals including those affecting Enron, Tyco International, Adelphia, Peregrine
Systems and WorldCom. These scandals, which cost investors billions of dollars when
the share prices of affected companies collapsed, shook public confidence in the
nation's securities markets.
The act contains 11 titles, or sections, ranging from additional corporate board
responsibilities to criminal penalties, and requires the Securities and Exchange
Commission (SEC) to implement rulings on requirements to comply with the law.
Harvey Pitt, the 26th chairman of the SEC, led the SEC in the adoption of dozens of
rules to implement the Sarbanes�Oxley Act. It created a new, quasi-public agency,
the Public Company Accounting Oversight Board, or PCAOB, charged with overseeing,
regulating, inspecting and disciplining accounting firms in their roles as auditors
of public companies. The act also covers issues such as auditor independence,
corporate governance, internal control assessment, and enhanced financial
disclosure.
The act was approved by the House by a vote of��423 in favor, 3 opposed, and 8
abstaining and by the Senate with a vote of��99 in favor, 1 abstaining. President
George W. Bush signed it into law, stating it included "the most far-reaching
reforms of American business practices since the time of Franklin D. Roosevelt. The
era of low standards and false profits is over; no boardroom in America is above or
beyond the law. "[1]
As a testament to the need for stricter financial governance SOX-type laws have
been subsequently enacted in Japan, Germany, France, Italy, Australia, India, South
Africa, and Turkey.
Debate continues over the perceived benefits and costs of SOX. Opponents of the
bill claim it has reduced America's international competitive edge against foreign
financial service providers, saying SOX has introduced an overly complex regulatory
environment into U.S. financial markets.[2] Proponents of the measure say that SOX
has been a "godsend" for improving the confidence of fund managers and other
investors with regard to the veracity of corporate financial statements.[3]
Contents
�[hide]�
* 1 Outlines
* 2 History and context: events contributing to the adoption of Sarbanes�Oxley
o 2.1 Timeline and passage of Sarbanes�Oxley
* 3 Analyzing the cost-benefits of Sarbanes�Oxley
o 3.1 Compliance costs
o 3.2 Benefits to firms and investors
o 3.3 Effects on exchange listing choice of non-U.S. companies
* 4 Implementation of key provisions
o 4.1 Sarbanes�Oxley Section 302: Disclosure controls
o 4.2 Sarbanes�Oxley Section 303: Improper Influence on Conduct of Audits
o 4.3 Sarbanes-Oxley Section 401: Disclosures in periodic reports (Off-balance
sheet items)
o 4.4 Sarbanes�Oxley Section 404: Assessment of internal control
o 4.5 Sarbanes�Oxley 404 and smaller public companies
o 4.6 Sarbanes�Oxley Section 802: Criminal penalties for influencing US Agency
investigation/proper administration
o 4.7 Sarbanes�Oxley Section 906: Criminal Penalties for CEO/CFO financial
statement certification
o 4.8 Sarbanes�Oxley Section 1107: Criminal penalties for retaliation against
whistleblowers
* 5 Criticism
* 6 Praise
* 7 Legal challenges
* 8 Legislative information
* 9 See also
o 9.1 Similar laws in other countries
* 10 References
* 11 External links[edit] Outlines
Sarbanes�Oxley contains 11 titles that describe specific mandates and requirements
for financial reporting. Each title consists of several sections, summarized below.
1. Public Company Accounting Oversight Board (PCAOB)
Title I consists of nine sections and establishes the Public Company Accounting
Oversight Board, to provide independent oversight of public accounting firms
providing audit services ("auditors").It also creates a central oversight board
tasked with registering auditors, defining the specific processes and procedures
for compliance audits, inspecting and policing conduct and quality control, and
enforcing compliance with the specific mandates of SOX.
2. Auditor Independence
Title II consists of nine sections and establishes standards for external auditor
independence, to limit conflicts of interest. It also addresses new auditor
approval requirements, audit partner rotation, and auditor reporting requirements.
It restricts auditing companies from providing non-audit services (e.g.,
consulting) for the same clients.
3. Corporate Responsibility
Title III consists of eight sections and mandates that senior executives take
individual responsibility for the accuracy and completeness of corporate financial
reports. It defines the interaction of external auditors and corporate audit
committees, and specifies the responsibility of corporate officers for the accuracy
and validity of corporate financial reports. It enumerates specific limits on the
behaviors of corporate officers and describes specific forfeitures of benefits and
civil penalties for non-compliance. For example, Section 302 requires that the
company's "principal officers" (typically the Chief Executive Officer and Chief
Financial Officer) certify and approve the integrity of their company financial
reports quarterly.[4]
4. Enhanced Financial Disclosures
Title IV consists of nine sections. It describes enhanced reporting requirements
for financial transactions, including off-balance-sheet transactions, pro-forma
figures and stock transactions of corporate officers. It requires internal controls
for assuring the accuracy of financial reports and disclosures, and mandates both
audits and reports on those controls. It also requires timely reporting of material
changes in financial condition and specific enhanced reviews by the SEC or its
agents of corporate reports.
5. Analyst Conflicts of Interest
Title V consists of only one section, which includes measures designed to help
restore investor confidence in the reporting of securities analysts. It defines the
codes of conduct for securities analysts and requires disclosure of knowable
conflicts of interest.
6. Commission Resources and Authority
Title VI consists of four sections and defines practices to restore investor
confidence in securities analysts. It also defines the SEC�s authority to censure
or bar securities professionals from practice and defines conditions under which a
person can be barred from practicing as a broker, advisor, or dealer.
7. Studies and Reports
Title VII consists of five sections and requires the Comptroller General and the
SEC to perform various studies and report their findings. Studies and reports
include the effects of consolidation of public accounting firms, the role of credit
rating agencies in the operation of securities markets, securities violations and
enforcement actions, and whether investment banks assisted Enron, Global Crossing
and others to manipulate earnings and obfuscate true financial conditions.
8. Corporate and Criminal Fraud Accountability
Title VIII consists of seven sections and is also referred to as the �Corporate and
Criminal Fraud Accountability Act of 2002�. It describes specific criminal
penalties for manipulation, destruction or alteration of financial records or other
interference with investigations, while providing certain protections for whistle-
blowers.
9. White Collar Crime Penalty Enhancement
Title IX consists of six sections. This section is also called the �White Collar
Crime Penalty Enhancement Act of 2002.� This section increases the criminal
penalties associated with white-collar crimes and conspiracies. It recommends
stronger sentencing guidelines and specifically adds failure to certify corporate
financial reports as a criminal offense.
10. Corporate Tax Returns
Title X consists of one section. Section 1001 states that the Chief Executive
Officer should sign the company tax return.
11. Corporate Fraud Accountability
Title XI consists of seven sections. Section 1101 recommends a name for this title
as �Corporate Fraud Accountability Act of 2002�. It identifies corporate fraud and
records tampering as criminal offenses and joins those offenses to specific
penalties. It also revises sentencing guidelines and strengthens their penalties.
This enables the SEC to resort to temporarily freezing transactions or payments
that have been deemed "large" or "unusual".
[edit] History and context: events contributing to the adoption of Sarbanes�Oxley
A variety of complex factors created the conditions and culture in which a series
of large corporate frauds occurred between 2000�2002. The spectacular, highly-
publicized frauds at Enron, WorldCom, and Tyco exposed significant problems with
conflicts of interest and incentive compensation practices. The analysis of their
complex and contentious root causes contributed to the passage of SOX in 2002.[5]
In a 2004 interview, Senator Paul Sarbanes stated:
"The Senate Banking Committee undertook a series of hearings on the problems in the
markets that had led to a loss of hundreds and hundreds of billions, indeed
trillions of dollars in market value. The hearings set out to lay the foundation
for legislation. We scheduled 10 hearings over a six-week period, during which we
brought in some of the best people in the country to testify...The hearings
produced remarkable consensus on the nature of the problems: inadequate oversight
of accountants, lack of auditor independence, weak corporate governance procedures,
stock analysts' conflict of interests, inadequate disclosure provisions, and
grossly inadequate funding of the Securities and Exchange Commission."[6]
* Auditor conflicts of interest: Prior to SOX, auditing firms, the primary
financial "watchdogs" for investors, were self-regulated. They also performed
significant non-audit or consulting work for the companies they audited. Many of
these consulting agreements were far more lucrative than the auditing engagement.
This presented at least the appearance of a conflict of interest. For example,
challenging the company's accounting approach might damage a client relationship,
conceivably placing a significant consulting arrangement at risk, damaging the
auditing firm's bottom line.
* Boardroom failures: Boards of Directors, specifically Audit Committees, are
charged with establishing oversight mechanisms for financial reporting in U.S.
corporations on the behalf of investors. These scandals identified Board members
who either did not exercise their responsibilities or did not have the expertise to
understand the complexities of the businesses. In many cases, Audit Committee
members were not truly independent of management.
* Securities analysts' conflicts of interest: The roles of securities analysts, who
make buy and sell recommendations on company stocks and bonds, and investment
bankers, who help provide companies loans or handle mergers and acquisitions,
provide opportunities for conflicts. Similar to the auditor conflict, issuing a buy
or sell recommendation on a stock while providing lucrative investment banking
services creates at least the appearance of a conflict of interest.
* Inadequate funding of the SEC: The SEC budget has steadily increased to nearly
double the pre-SOX level.[7] In the interview cited above, Sarbanes indicated that
enforcement and rule-making are more effective post-SOX.
* Banking practices: Lending to a firm sends signals to investors regarding the
firm's risk. In the case of Enron, several major banks provided large loans to the
company without understanding, or while ignoring, the risks of the company.
Investors of these banks and their clients were hurt by such bad loans, resulting
in large settlement payments by the banks. Others interpreted the willingness of
banks to lend money to the company as an indication of its health and integrity,
and were led to invest in Enron as a result. These investors were hurt as well.
* Internet bubble: Investors had been stung in 2000 by the sharp declines in
technology stocks and to a lesser extent, by declines in the overall market.
Certain mutual fund managers were alleged to have advocated the purchasing of
particular technology stocks, while quietly selling them. The losses sustained also
helped create a general anger among investors.
* Executive compensation: Stock option and bonus practices, combined with
volatility in stock prices for even small earnings "misses," resulted in pressures
to manage earnings.[8] Stock options were not treated as compensation expense by
companies, encouraging this form of compensation. With a large stock-based bonus at
risk, managers were pressured to meet their targets.
[edit] Timeline and passage of Sarbanes�Oxley

Before the signing ceremony of the Sarbanes�Oxley Act, President George W. Bush met
with Senator Paul Sarbanes, Secretary of Labor Elaine Chao and other dignitaries in
the Blue Room at the White House on July 30, 2002
The House passed Rep. Oxley's bill (H.R. 3763) on April 24, 2002, by a vote of 334
to 90. The House then referred the "Corporate and Auditing Accountability,
Responsibility, and Transparency Act" or "CAARTA" to the Senate Banking Committee
with the support of President George W. Bush and the SEC. At the time, however, the
Chairman of that Committee, Senator Paul Sarbanes (D-MD), was preparing his own
proposal, Senate Bill 2673.
Senator Sarbanes� bill passed the Senate Banking Committee on June 18, 2002, by a
vote of 17 to 4. On June 25, 2002, WorldCom revealed it had overstated its earnings
by more than $3.8 billion during the past five quarters (15 months), primarily by
improperly accounting for its operating costs. Sen. Sarbanes introduced Senate Bill
2673 to the full Senate that same day, and it passed 97�0 less than three weeks
later on July 15, 2002.
The House and the Senate formed a Conference Committee to reconcile the differences
between Sen. Sarbanes's bill (S. 2673) and Rep. Oxley's bill (H.R. 3763). The
conference committee relied heavily on S. 2673 and �most changes made by the
conference committee strengthened the prescriptions of S. 2673 or added new
prescriptions.� (John T. Bostelman, The Sarbanes�Oxley Deskbook � 2�31.)
The Committee approved the final conference bill on July 24, 2002, and gave it the
name "the Sarbanes�Oxley Act of 2002." The next day, both houses of Congress voted
on it without change, producing an overwhelming margin of victory: 423 to 3 in the
House and 99 to 0 in the Senate. On July 30, 2002, President George W. Bush signed
it into law, stating it included "the most far-reaching reforms of American
business practices since the time of Franklin D. Roosevelt." [1]
[edit] Analyzing the cost-benefits of Sarbanes�Oxley
A significant body of academic research and opinion exists regarding the costs and
benefits of SOX, with significant differences in conclusions. This is due in part
to the difficulty of isolating the impact of SOX from other variables affecting the
stock market and corporate earnings.[9][10] Conclusions from several of these
studies and related criticism are summarized below:
[edit] Compliance costs
* FEI Survey (Annual): Finance Executives International (FEI) provides an annual
survey on SOX Section 404 costs. These costs have continued to decline relative to
revenues since 2004. The 2007 study indicated that, for 168 companies with average
revenues of $4.7 billion, the average compliance costs were $1.7 million (0.036% of
revenue).[11] The 2006 study indicated that, for 200 companies with average
revenues of $6.8 billion, the average compliance costs were $2.9 million (0.043% of
revenue), down 23% from 2005. Cost for decentralized companies (i.e., those with
multiple segments or divisions) were considerably more than centralized companies.
Survey scores related to the positive effect of SOX on investor confidence,
reliability of financial statements, and fraud prevention continue to rise.
However, when asked in 2006 whether the benefits of compliance with Section 404
have exceeded costs in 2006, only 22 percent agreed.[12]
* Foley & Lardner Survey (2007): This annual study focused on changes in the total
costs of being a U.S. public company, which were significantly affected by SOX.
Such costs include external auditor fees, directors and officers (D&O) insurance,
board compensation, lost productivity, and legal costs. Each of these cost
categories increased significantly between FY2001 and FY2006. Nearly 70% of survey
respondents indicated public companies with revenues under $251 million should be
exempt from SOX Section 404.[13]
* Zhang (2005): This research paper estimated SOX compliance costs as high as $1.4
trillion, by measuring changes in market value around key SOX legislative "events."
This number is based on the assumption that SOX was the cause of related short-
duration market value changes, which the author acknowledges as a drawback of the
study.[14]
* Butler/Ribstein (2006): Their book proposed a comprehensive overhaul or repeal of
SOX and a variety of other reforms. For example, they indicate that investors could
diversify their stock investments, efficiently managing the risk of a few
catastrophic corporate failures, whether due to fraud or competition. However, if
each company is required to spend a significant amount of money and resources on
SOX compliance, this cost is borne across all publicly traded companies and
therefore cannot be diversified away by the investor.[15]
* A 2011 SEC study found that Section 404(b) compliance costs have continued to
decline, especially after 2007 accounting guidance.[16]
[edit] Benefits to firms and investors
* Arping/Sautner (2010): This research paper analyzes whether SOX enhanced
corporate transparency.[17] Looking at foreign firms that are cross-listed in the
US, the paper indicates that, relative to a control sample of comparable firms that
are not subject to SOX, cross-listed firms became significantly more transparent
following SOX. Corporate transparency is measured based on the dispersion and
accuracy of analyst earnings forecasts.
* Iliev (2007): This research paper indicated that SOX 404 indeed led to
conservative reported earnings, but also reduced�rightly or wrongly�stock
valuations of small firms.[18] Lower earnings often cause the share price to
decrease.
* Skaife/Collins/Kinney/LaFond (2006): This research paper indicates that borrowing
costs are lower for companies that improved their internal control, by between 50
and 150 basis points (.5 to 1.5 percentage points).[19]
* Lord & Benoit Report (2006): Do the Benefits of 404 Exceed the Cost? A study of a
population of nearly 2,500 companies indicated that those with no material
weaknesses in their internal controls, or companies that corrected them in a timely
manner, experienced much greater increases in share prices than companies that did
not.[20][21] The report indicated that the benefits to a compliant company in share
price (10% above Russell 3000 index) were greater than their SOX Section 404 costs.
* Institute of Internal Auditors (2005): The research paper indicates that
corporations have improved their internal controls and that financial statements
are perceived to be more reliable.[22]
[edit] Effects on exchange listing choice of non-U.S. companies
Some have asserted that Sarbanes�Oxley legislation has helped displace business
from New York to London, where the Financial Services Authority regulates the
financial sector with a lighter touch. In the UK, the non-statutory Combined Code
of Corporate Governance plays a somewhat similar role to SOX. See Howell E. Jackson
& Mark J. Roe, �Public Enforcement of Securities Laws: Preliminary Evidence�
(Working Paper January 16, 2007). The Alternative Investment Market claims that its
spectacular growth in listings almost entirely coincided with the Sarbanes Oxley
legislation. In December 2006 Michael Bloomberg, New York's mayor, and Charles
Schumer, a U.S. senator from New York, expressed their concern.[23]
The Sarbanes�Oxley Act's effect on non-U.S. companies cross-listed in the U.S. is
different on firms from developed and well regulated countries than on firms from
less developed countries according to Kate Litvak.[24] Companies from badly
regulated countries see benefits that are higher than the costs from better credit
ratings by complying to regulations in a highly regulated country (USA), but
companies from developed countries only incur the costs, since transparency is
adequate in their home countries as well. On the other hand, the benefit of better
credit rating also comes with listing on other stock exchanges such as the London
Stock Exchange.
Piotroski and Srinivasan (2008) examine a comprehensive sample of international
companies that list onto U.S. and U.K. stock exchanges before and after the
enactment of the Act in 2002. Using a sample of all listing events onto U.S. and
U.K. exchanges from 1995�2006, they find that the listing preferences of large
foreign firms choosing between U.S. exchanges and the LSE's Main Market did not
change following SOX. In contrast, they find that the likelihood of a U.S. listing
among small foreign firms choosing between the Nasdaq and LSE's Alternative
Investment Market decreased following SOX. The negative effect among small firms is
consistent with these companies being less able to absorb the incremental costs
associated with SOX compliance. The screening of smaller firms with weaker
governance attributes from U.S. exchanges is consistent with the heightened
governance costs imposed by the Act increasing the bonding-related benefits of a
U.S. listing.[25]
[edit] Implementation of key provisions
[edit] Sarbanes�Oxley Section 302: Disclosure controls
Under Sarbanes�Oxley, two separate sections came into effect�one civil and the
other criminal. 15 U.S.C.���7241 (Section 302) (civil provision); 18 U.S.C.���1350
(Section 906) (criminal provision).
Section 302 of the Act mandates a set of internal procedures designed to ensure
accurate financial disclosure. The signing officers must certify that they are
�responsible for establishing and maintaining internal controls� and �have designed
such internal controls to ensure that material information relating to the company
and its consolidated subsidiaries is made known to such officers by others within
those entities, particularly during the period in which the periodic reports are
being prepared.� 15 U.S.C.���7241(a)(4). The officers must �have evaluated the
effectiveness of the company�s internal controls as of a date within 90 days prior
to the report� and �have presented in the report their conclusions about the
effectiveness of their internal controls based on their evaluation as of that
date.� Id..
The SEC interpreted the intention of Sec. 302 in Final Rule 33�8124. In it, the SEC
defines the new term "disclosure controls and procedures", which are distinct from
"internal controls over financial reporting".[26] Under both Section 302 and
Section 404, Congress directed the SEC to promulgate regulations enforcing these
provisions.[27]
External auditors are required to issue an opinion on whether effective internal
control over financial reporting was maintained in all material respects by
management. This is in addition to the financial statement opinion regarding the
accuracy of the financial statements. The requirement to issue a third opinion
regarding management's assessment was removed in 2007.
[edit] Sarbanes�Oxley Section 303: Improper Influence on Conduct of Audits
a.Rules To Prohibit. It shall be unlawful, in contravention of such rules or
regulations as the Commission shall prescribe as necessary and appropriate in the
public interest or for the protection of investors, for any officer or director of
an issuer, or any other person acting under the direction thereof, to take any
action to fraudulently influence, coerce, manipulate, or mislead any independent
public or certified accountant engaged in the performance of an audit of the
financial statements of that issuer for the purpose of rendering such financial
statements materially misleading. [2]
[edit] Sarbanes-Oxley Section 401: Disclosures in periodic reports (Off-balance
sheet items)
The bankruptcy of Enron drew attention to off-balance sheet instruments that were
used fraudulently. During 2010, the court examiner's review of the Lehman Brothers
bankruptcy also brought these instruments back into focus, as Lehman had used an
instrument called "Repo 105" to allegedly move assets and debt off-balance sheet to
make its financial position look more favorable to investors. Sarbanes-Oxley
required the disclosure of all material off-balance sheet items. It also required
an SEC study and report to better understand the extent of usage of such
instruments and whether accounting principles adequately addressed these
instruments; the SEC report was issued June 15, 2005.[28][29] Interim guidance was
issued in May 2006, which was later finalized.[30] Critics argued the SEC did not
take adequate steps to regulate and monitor this activity.[31]
[edit] Sarbanes�Oxley Section 404: Assessment of internal control
Further information: SOX 404 top-down risk assessment
The most contentious aspect of SOX is Section 404, which requires management and
the external auditor to report on the adequacy of the company's internal control on
financial reporting (ICFR). This is the most costly aspect of the legislation for
companies to implement, as documenting and testing important financial manual and
automated controls requires enormous effort.[32]
Under Section 404 of the Act, management is required to produce an �internal
control report� as part of each annual Exchange Act report. See 15 U.S.C.���7262.
The report must affirm �the responsibility of management for establishing and
maintaining an adequate internal control structure and procedures for financial
reporting.� 15 U.S.C.���7262(a). The report must also �contain an assessment, as of
the end of the most recent fiscal year of the Company, of the effectiveness of the
internal control structure and procedures of the issuer for financial reporting.�
To do this, managers are generally adopting an internal control framework such as
that described in COSO.
To help alleviate the high costs of compliance, guidance and practice have
continued to evolve. The Public Company Accounting Oversight Board (PCAOB) approved
Auditing Standard No. 5 for public accounting firms on July 25, 2007.[33] This
standard superseded Auditing Standard No. 2, the initial guidance provided in 2004.
The SEC also released its interpretive guidance [34] on June 27, 2007. It is
generally consistent with the PCAOB's guidance, but intended to provide guidance
for management. Both management and the external auditor are responsible for
performing their assessment in the context of a top-down risk assessment, which
requires management to base both the scope of its assessment and evidence gathered
on risk. This gives management wider discretion in its assessment approach. These
two standards together require management to:
* Assess both the design and operating effectiveness of selected internal controls
related to significant accounts and relevant assertions, in the context of material
misstatement risks;
* Understand the flow of transactions, including IT aspects, in sufficient detail
to identify points at which a misstatement could arise;
* Evaluate company-level (entity-level) controls, which correspond to the
components of the COSO framework;
* Perform a fraud risk assessment;
* Evaluate controls designed to prevent or detect fraud, including management
override of controls;
* Evaluate controls over the period-end financial reporting process;
* Scale the assessment based on the size and complexity of the company;
* Rely on management's work based on factors such as competency, objectivity, and
risk;
* Conclude on the adequacy of internal control over financial reporting.
SOX 404 compliance costs represent a tax on inefficiency, encouraging companies to
centralize and automate their financial reporting systems. This is apparent in the
comparative costs of companies with decentralized operations and systems, versus
those with centralized, more efficient systems. For example, the 2007 FEI survey
indicated average compliance costs for decentralized companies were $1.9 million,
while centralized company costs were $1.3 million.[35] Costs of evaluating manual
control procedures are dramatically reduced through automation.
[edit] Sarbanes�Oxley 404 and smaller public companies
The cost of complying with SOX 404 impacts smaller companies disproportionately, as
there is a significant fixed cost involved in completing the assessment. For
example, during 2004 U.S. companies with revenues exceeding $5 billion spent 0.06%
of revenue on SOX compliance, while companies with less than $100 million in
revenue spent 2.55%.[36]
This disparity is a focal point of 2007 SEC and U.S. Senate action.[37] The PCAOB
intends to issue further guidance to help companies scale their assessment based on
company size and complexity during 2007. The SEC issued their guidance to
management in June, 2007.[34]
After the SEC and PCAOB issued their guidance, the SEC required smaller public
companies (non-accelerated filers) with fiscal years ending after December 15, 2007
to document a Management Assessment of their Internal Controls over Financial
Reporting (ICFR). Outside auditors of non-accelerated filers however opine or test
internal controls under PCAOB (Public Company Accounting Oversight Board) Auditing
Standards for years ending after December 15, 2008. Another extension was granted
by the SEC for the outside auditor assessment until years ending after December 15,
2009. The reason for the timing disparity was to address the House Committee on
Small Business concern that the cost of complying with Section 404 of the
Sarbanes�Oxley Act of 2002 was still unknown and could therefore be
disproportionately high for smaller publicly held companies.[38] On October 2,
2009, the SEC granted another extension for the outside auditor assessment until
fiscal years ending after June 15, 2010. The SEC stated in their release that the
extension was granted so that the SEC�s Office of Economic Analysis could complete
a study of whether additional guidance provided to company managers and auditors in
2007 was effective in reducing the costs of compliance. They also stated that there
will be no further extensions in the future.[39]
On September 15, 2010 the SEC issued final rule 33-9142 the permanently exempts
registrants that are neither accelerated nor large accelerated filers as defined by
Rule 12b-2 of the Securities and Exchange Act of 1934 from Section 404(b) internal
control audit requirement.[40]
[edit] Sarbanes�Oxley Section 802: Criminal penalties for influencing US Agency
investigation/proper administration
Section 802(a) of the SOX, 18 U.S.C.���1519 states:
�Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or
makes a false entry in any record, document, or tangible object with the intent to
impede, obstruct, or influence the investigation or proper administration of any
matter within the jurisdiction of any department or agency of the United States or
any case filed under title 11, or in relation to or contemplation of any such
matter or case, shall be fined under this title, imprisoned not more than 20 years,
or both.�
[edit] Sarbanes�Oxley Section 906: Criminal Penalties for CEO/CFO financial
statement certification
� 1350. Section 906 states: Failure of corporate officers to certify financial
reports
(a) Certification of Periodic Financial Reports.� Each periodic report containing
financial statements filed by an issuer with the Securities Exchange Commission
pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15
U.S.C. 78m (a) or 78o (d)) shall be accompanied bySection 802(a) of the SOX a
written statement by the chief executive officer and chief financial officer (or
equivalent thereof) of the issuer.
(b) Content.� The statement required under subsection (a) shall certify that the
periodic report containing the financial statements fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of [1] 1934
(15 U.S.C. 78m or 78o (d)) and that information contained in the periodic report
fairly presents, in all material respects, the financial condition and results of
operations of the issuer.
(c) Criminal Penalties.� Whoever� (1) certifies any statement as set forth in
subsections (a) and (b) of this section knowing that the periodic report
accompanying the statement does not comport with all the requirements set forth in
this section shall be fined not more than $1,000,000 or imprisoned not more than 10
years, or both; or
(2) willfully certifies any statement as set forth in subsections (a) and (b) of
this section knowing that the periodic report accompanying the statement does not
comport with all the requirements set forth in this section shall be fined not more
than $5,000,000, or imprisoned not more than 20 years, or both. [3]
[edit] Sarbanes�Oxley Section 1107: Criminal penalties for retaliation against
whistleblowers
Section 1107 of the SOX 18 U.S.C.���1513(e) states:[41]
�Whoever knowingly, with the intent to retaliate, takes any action harmful to any
person, including interference with the lawful employment or livelihood of any
person, for providing to a law enforcement officer any truthful information
relating to the commission or possible commission of any federal offense, shall be
fined under this title, imprisoned not more than 10 years, or both.�
[edit] Criticism
Congressman Ron Paul and others such as former Arkansas governor Mike Huckabee have
contended that SOX was an unnecessary and costly government intrusion into
corporate management that places U.S. corporations at a competitive disadvantage
with foreign firms, driving businesses out of the United States. In an April 14,
2005 speech before the U.S. House of Representatives, Paul stated, "These
regulations are damaging American capital markets by providing an incentive for
small US firms and foreign firms to deregister from US stock exchanges. According
to a study by a researcher at the Wharton Business School, the number of American
companies deregistering from public stock exchanges nearly tripled during the year
after Sarbanes�Oxley became law, while the New York Stock Exchange had only 10 new
foreign listings in all of 2004. The reluctance of small businesses and foreign
firms to register on American stock exchanges is easily understood when one
considers the costs Sarbanes�Oxley imposes on businesses. According to a survey by
Korn/Ferry International, Sarbanes�Oxley cost Fortune 500 companies an average of
$5.1 million in compliance expenses in 2004, while a study by the law firm of Foley
and Lardner found the Act increased costs associated with being a publicly held
company by 130 percent." [42]
A research study published by Joseph Piotroski of Stanford University and Suraj
Srinivasan of Harvard Business School titled "Regulation and Bonding: Sarbanes
Oxley Act and the Flow of International Listings" in the Journal of Accounting
Research in 2008 found that following the act's passage, smaller international
companies were more likely to list in stock exchanges in the U.K. rather than U.S.
stock exchanges.[25]
During the financial crisis of 2007�2010, critics blamed Sarbanes�Oxley for the low
number of Initial Public Offerings (IPOs) on American stock exchanges during 2008.
In November 2008, Newt Gingrich and co-author David W. Kralik called on Congress to
repeal Sarbanes�Oxley.[43]
A December 21, 2008 Wall St. Journal editorial stated, "The new laws and
regulations have neither prevented frauds nor instituted fairness. But they have
managed to kill the creation of new public companies in the U.S., cripple the
venture capital business, and damage entrepreneurship. According to the National
Venture Capital Association, in all of 2008 there have been just six companies that
have gone public. Compare that with 269 IPOs in 1999, 272 in 1996, and 365 in
1986."
Hoover's IPO Scorecard notes 31 IPOs in 2008.[44]
The editorial concludes that: "For all of this, we can first thank Sarbanes�Oxley.
Cooked up in the wake of accounting scandals earlier this decade, it has
essentially killed the creation of new public companies in America, hamstrung the
NYSE and Nasdaq (while making the London Stock Exchange rich), and cost U.S.
industry more than $200 billion by some estimates." [45]
Previously the number of IPOs had declined to 87 in 2001, well down from the highs,
but before Sarbanes�Oxley was passed.[46] In 2004, IPOs were up 195% from the
previous year to 233.[47] There were 196 IPOs in 2005, 205 in 2006 (with a
sevenfold increase in deals over $1 billion) and 209 in 2007.[48][49]
A 2012 Wall St. Journal editorial stated, "One reason the U.S. economy isn't
creating enough jobs is that it's not creating enough employers... For the third
year in a row the world's leading exchange for new stock offerings was located not
in New York, but in Hong Kong... Given that the U.S. is still home to the world's
largest economy, there's no reason it shouldn't have the most vibrant equity
markets�unless regulation is holding back the creation of new public companies. On
that score it's getting harder for backers of the Sarbanes-Oxley accounting law to
explain away each disappointing year since its 2002 enactment as some kind of
temporary or unrelated setback."[50]
[edit] Praise
Former Federal Reserve Chairman Alan Greenspan praised the Sarbanes�Oxley Act: "I
am surprised that the Sarbanes�Oxley Act, so rapidly developed and enacted, has
functioned as well as it has...the act importantly reinforced the principle that
shareholders own our corporations and that corporate managers should be working on
behalf of shareholders to allocate business resources to their optimum use.�[51]
SOX has been praised by a cross-section of financial industry experts, citing
improved investor confidence and more accurate, reliable financial statements. The
CEO and CFO are now required to unequivocally take ownership for their financial
statements under Section 302, which was not the case prior to SOX. Further, auditor
conflicts of interest have been addressed, by prohibiting auditors from also having
lucrative consulting agreements with the firms they audit under Section 201. SEC
Chairman Christopher Cox stated in 2007: "Sarbanes�Oxley helped restore trust in
U.S. markets by increasing accountability, speeding up reporting, and making audits
more independent."[52]
The FEI 2007 study and research by the Institute of Internal Auditors (IIA) also
indicate SOX has improved investor confidence in financial reporting, a primary
objective of the legislation. The IIA study also indicated improvements in board,
audit committee, and senior management engagement in financial reporting and
improvements in financial controls.[53][54]
Financial restatements increased significantly in the wake of the SOX legislation,
as companies "cleaned up" their books. Glass, Lewis & Co. LLC is a San Francisco-
based firm that tracks the volume of do-overs by public companies. Its March 2006
report, "Getting It Wrong the First Time," shows 1,295 restatements of financial
earnings in 2005 for companies listed on U.S. securities markets, almost twice the
number for 2004. "That's about one restatement for every 12 public companies�up
from one for every 23 in 2004," says the report.[55]
One fraud uncovered by the Securities and Exchange Commission (SEC) in November
2009 [56] may be directly credited to Sarbanes-Oxley. The fraud which spanned
nearly 20 years and involved over $24 million was committed by Value Line
(NASDAQ:�VALU) against its mutual fund shareholders. The fraud was first reported
to the SEC in 2004 by the Value Line Fund (NASDAQ:�VLIFX) portfolio manager who was
asked to sign a Code of Business Ethics as part of SOX.[57][58][59] Restitution
totalling $34 million will be placed in a fair fund and returned to the affected
Value Line mutual fund investors.[60] No criminal charges have been filed.
Sarbanes Oxley Act has been praised for nurturing an ethical culture as it forces
top management be transparent and employees to be responsible for their acts and
also protects whistle blowers.[61]
[edit] Legal challenges
A lawsuit (Free Enterprise Fund v. Public Company Accounting Oversight Board) was
filed in 2006 challenging the constitutionality of the PCAOB. The complaint argues
that because the PCAOB has regulatory powers over the accounting industry, its
officers should be appointed by the President, rather than the SEC.[62] Further,
because the law lacks a "severability clause," if part of the law is judged
unconstitutional, so is the remainder. If the plaintiff prevails, the U.S. Congress
may have to devise a different method of officer appointment. Further, the other
parts of the law may be open to revision.[63][64] The lawsuit was dismissed from a
District Court; the decision was upheld by the Court of Appeals on August 22, 2008.
[65] Judge Kavanaugh, in his dissent, argued strongly against the constitutionality
of the law.[66] On May 18, 2009, the United States Supreme Court agreed to hear
this case.[67] On December 7, 2009, it heard the oral arguments.[68] On June 28,
2010, the United States Supreme Court unanimously turned away a broad challenge to
the law, but ruled 5�4 that a section related to appointments violates the
Constitution's separation of powers mandate. The act remains "fully operative as a
law" pending a process correction.[69]
Wikisource has original text related to this article:
Sarbanes-Oxley Act of 2002[edit] Legislative information
* House: H.R. 3763, H. Rept. 107�414, H. Rept. 107�610
* Senate: S. 2673, S. Rept. 107�205
* Law: Pub.L. 107-204, 117�Stat.�745
[edit] See also
* Glass�Steagall Act
* Information technology audit
* Information technology controls
* ISO 27001
* Richard M. Scrushy, CEO of HealthSouth, the first executive charged and to be
acquitted under Sarbanes�Oxley
* Fair Funds, established by Sarbanes�Oxley
* Basel Accord
* Reg FD
* Contract Management
* Agency cost
* Data Loss Prevention
* Data governance
[edit] Similar laws in other countries
* Bill 198 � Ontario, Canada, equivalent of Sarbanes�Oxley Act
* J-SOX � Japanese equivalent of Sarbanes�Oxley Act
* German Corporate Governance Code (at the German Wikipedia)
* nl:code-Tabaksblat � Dutch version, based on 'comply or explain' (at the Dutch
Wikipedia)
* CLERP9 � Australian corporate reporting and disclosure law
* Financial Security Law of France ("Loi sur la S�curit� Financi�re") � French
equivalent of Sarbanes�Oxley Act
* L262/2005 ("Disposizioni per la tutela del risparmio e la disciplina dei mercati
finanziari") � Italian equivalent of Sarbanes�Oxley Act for financial services
institutions
* King Report on Corporate Governance � South African corporate governance code
* Clause 49 � Indian equivalent of SOX
* TC-SOX 11 � Turkish equivalent of SOX
Basel II
From Wikipedia, the free encyclopedia
Basel II* Bank for International Settlements
* Basel Accords
* Basel I
* Basel IIBackground* Banking
* Monetary policy
* Central bank
* Risk
* Risk management
* Regulatory capital
* Tier 1
* Tier 2Pillar 1: Regulatory Capital* Credit risk
* Standardized
* IRB Approach
* F-IRB
* A-IRB
* PD
* LGD
* EAD
* Operational risk
* Basic
* Standardized
* AMA
* Market risk
* Duration
* Value at riskPillar 2: Supervisory Review* Economic capital
* Liquidity risk
* Legal riskPillar 3: Market Disclosure* DisclosureBusiness and Economics Portal* v
* t
* eBasel II is the second of the Basel Accords, (now extended and effectively
superseded by Basel III), which are recommendations on banking laws and regulations
issued by the Basel Committee on Banking Supervision.
Basel II, initially published in June 2004, was intended to create an international
standard for banking regulators to control how much capital banks need to put aside
to guard against the types of financial and operational risks banks (and the whole
economy) face. One focus was to maintain sufficient consistency of regulations so
that this does not become a source of competitive inequality amongst
internationally active banks. Advocates of Basel II believed that such an
international standard could help protect the international financial system from
the types of problems that might arise should a major bank or a series of banks
collapse. In theory, Basel II attempted to accomplish this by setting up risk and
capital management requirements designed to ensure that a bank has adequate capital
for the risk the bank exposes itself to through its lending and investment
practices. Generally speaking, these rules mean that the greater risk to which the
bank is exposed, the greater the amount of capital the bank needs to hold to
safeguard its solvency and overall economic stability.
Politically, it was difficult to implement Basel II in the regulatory environment
prior to 2008, and progress was generally slow until that year's major banking
crisis caused mostly by credit default swaps, mortgage-backed security markets and
similar derivatives. As Basel III was negotiated, this was top of mind, and
accordingly much more stringent standards were contemplated, and quickly adopted in
some key countries including the USA.
Contents
�[hide]�
* 1 Objective
* 2 The accord in operation
o 2.1 The first pillar
o 2.2 The second pillar
o 2.3 The third pillar
* 3 Recent chronological updates
o 3.1 September 2005 update
o 3.2 November 2005 update
o 3.3 July 2006 update
o 3.4 November 2007 update
o 3.5 July 16, 2008 update
o 3.6 January 16, 2009 update
o 3.7 July 8�9, 2009 update
* 4 Basel II and the regulators
o 4.1 Implementation progress
* 5 Basel II and the global financial crisis
* 6 See also
* 7 References
* 8 External links[edit] Objective
The final version aims at:
1. Ensuring that capital allocation is more risk sensitive;
2. Enhance disclosure requirements which will allow market participants to assess
the capital adequacy of an institution;
3. Ensuring that credit risk, operational risk and market risk are quantified based
on data and formal techniques;
4. Attempting to align economic and regulatory capital more closely to reduce the
scope for regulatory arbitrage.
While the final accord has largely addressed the regulatory arbitrage issue, there
are still areas where regulatory capital requirements will diverge from the
economic capital.
Basel II has largely left unchanged the question of how to actually define bank
capital, which diverges from accounting equity in important respects. The Basel I
definition, as modified up to the present, remains in place.
[edit] The accord in operation
Basel II uses a "three pillars" concept � (1) minimum capital requirements
(addressing risk), (2) supervisory review and (3) market discipline.
The Basel I accord dealt with only parts of each of these pillars. For example:
with respect to the first Basel II pillar, only one risk, credit risk, was dealt
with in a simple manner while market risk was an afterthought; operational risk was
not dealt with at all.
[edit] The first pillar
The first pillar deals with maintenance of regulatory capital calculated for three
major components of risk that a bank faces: credit risk, operational risk, and
market risk. Other risks are not considered fully quantifiable at this stage.
The credit risk component can be calculated in three different ways of varying
degree of sophistication, namely standardized approach, Foundation IRB and Advanced
IRB. IRB stands for "Internal Rating-Based Approach".
For operational risk, there are three different approaches - basic indicator
approach or BIA, standardized approach or STA, and the internal measurement
approach (an advanced form of which is the advanced measurement approach or AMA).
For market risk the preferred approach is VaR (value at risk).
As the Basel 2 recommendations are phased in by the banking industry it will move
from standardised requirements to more refined and specific requirements that have
been developed for each risk category by each individual bank. The upside for banks
that do develop their own bespoke risk measurement systems is that they will be
rewarded with potentially lower risk capital requirements. In future there will be
closer links between the concepts of economic profit and regulatory capital.
Credit Risk can be calculated by using one of three approaches:
1. Standardised Approach
2. Foundation IRB
3. Advanced IRB Approach
The standardized approach sets out specific risk weights for certain types of
credit risk. The standard risk weight categories used under Basel 1 were 0% for
government bonds, 20% for exposures to OECD Banks, 50% for first line residential
mortgages and 100% weighting on consumer loans and unsecured commercial loans.
Basel II introduced a new 150% weighting for borrowers with lower credit ratings.
The minimum capital required remained at 8% of risk weighted assets, with Tier 1
capital making up not less than half of this amount.
Banks that decide to adopt the standardised ratings approach must rely on the
ratings generated by external agencies. Certain banks used the IRB approach as a
result.
[edit] The second pillar
The second pillar deals with the regulatory response to the first pillar, giving
regulators much improved 'tools' over those available to them under Basel I. It
also provides a framework for dealing with all the other risks a bank may face,
such as systemic risk, pension risk, concentration risk, strategic risk,
reputational risk, liquidity risk and legal risk, which the accord combines under
the title of residual risk. It gives banks a power to review their risk management
system.
Internal Capital Adequacy Assessment Process (ICAAP) is the result of Pillar II of
Basel II accords
[edit] The third pillar
This pillar aims to complement the minimum capital requirements and supervisory
review process by developing a set of disclosure requirements which will allow the
market participants to gauge the capital adequacy of an institution.
Market discipline supplements regulation as sharing of information facilitates
assessment of the bank by others including investors, analysts, customers, other
banks and rating agencies which leads to good corporate governance. The aim of
pillar 3 is to allow market discipline to operate by requiring institutions to
disclose details on the scope of application, capital, risk exposures, risk
assessment processes and the capital adequacy of the institution. It must be
consistent with how the senior management including the board assess and manage the
risks of the institution.
When market participants have a sufficient understanding of a bank�s activities and
the controls it has in place to manage its exposures, they are better able to
distinguish between banking organisations so that they can reward those that manage
their risks prudently and penalise those that do not.
These disclosures are required to be made at least twice a year, except qualitative
disclosures providing a summary of the general risk management objectives and
policies which can be made annually. Institutions are also required to create a
formal policy on what will be disclosed, controls around them along with the
validation and frequency of these disclosures. In general, the disclosures under
Pillar 3 apply to the top consolidated level of the banking group to which the
Basel II framework applies.
[edit] Recent chronological updates
[edit] September 2005 update
On September 30, 2005, the four US Federal banking agencies (the Office of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve System,
the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision)
announced their revised plans for the U.S. implementation of the Basel II accord.
This delays implementation of the accord for US banks by 12 months.[1]
[edit] November 2005 update
On November 15, 2005, the committee released a revised version of the Accord,
incorporating changes to the calculations for market risk and the treatment of
double default effects. These changes had been flagged well in advance, as part of
a paper released in July 2005.[2]
[edit] July 2006 update
On July 4, 2006, the committee released a comprehensive version of the Accord,
incorporating the June 2004 Basel II Framework, the elements of the 1988 Accord
that were not revised during the Basel II process, the 1996 Amendment to the
Capital Accord to Incorporate Market Risks, and the November 2005 paper on Basel
II: International Convergence of Capital Measurement and Capital Standards: A
Revised Framework. No new elements have been introduced in this compilation. This
version is now the current version.[3]
[edit] November 2007 update
On November 1, 2007, the Office of the Comptroller of the Currency (U.S. Department
of the Treasury) approved a final rule implementing the advanced approaches of the
Basel II Capital Accord. This rule establishes regulatory and supervisory
expectations for credit risk, through the Internal Ratings Based Approach (IRB),
and operational risk, through the Advanced Measurement Approach (AMA), and
articulates enhanced standards for the supervisory review of capital adequacy and
public disclosures for the largest U.S. banks.[4]
[edit] July 16, 2008 update
On July 16, 2008 the federal banking and thrift agencies (the Board of Governors of
the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office
of the Comptroller of the Currency, and the Office of Thrift Supervision) issued a
final guidance outlining the supervisory review process for the banking
institutions that are implementing the new advanced capital adequacy framework
(known as Basel II). The final guidance, relating to the supervisory review, is
aimed at helping banking institutions meet certain qualification requirements in
the advanced approaches rule, which took effect on April 1, 2008.[5]
[edit] January 16, 2009 update
For public consultation, a series of proposals to enhance the Basel II framework
was announced by the Basel Committee. It releases a consultative package that
includes: the revisions to the Basel II market risk framework; the guidelines for
computing capital for incremental risk in the trading book; and the proposed
enhancements to the Basel II framework.[6]
[edit] July 8�9, 2009 update
A final package of measures to enhance the three pillars of the Basel II framework
and to strengthen the 1996 rules governing trading book capital was issued by the
newly expanded Basel Committee. These measures include the enhancements to the
Basel II framework, the revisions to the Basel II market-risk framework and the
guidelines for computing capital for incremental risk in the trading book.[7]
[edit] Basel II and the regulators
One of the most difficult aspects of implementing an international agreement is the
need to accommodate differing cultures, varying structural models, and the
complexities of public policy and existing regulation. Banks� senior management
will determine corporate strategy, as well as the country in which to base a
particular type of business, based in part on how Basel II is ultimately
interpreted by various countries' legislatures and regulators.
To assist banks operating with multiple reporting requirements for different
regulators according to geographic location, there are several software
applications available. These include capital calculation engines and extend to
automated reporting solutions which include the reports required under
COREP/FINREP.
For example, U.S. Federal Deposit Insurance Corporation Chair Sheila Bair explained
in June 2007 the purpose of capital adequacy requirements for banks, such as the
accord:
There are strong reasons for believing that banks left to their own devices would
maintain less capital�not more�than would be prudent. The fact is, banks do benefit
from implicit and explicit government safety nets. Investing in a bank is perceived
as a safe bet. Without proper capital regulation, banks can operate in the
marketplace with little or no capital. And governments and deposit insurers end up
holding the bag, bearing much of the risk and cost of failure. History shows this
problem is very real � as we saw with the U.S. banking and S & L crisis in the late
1980s and 1990s. The final bill for inadequate capital regulation can be very
heavy. In short, regulators can't leave capital decisions totally to the banks. We
wouldn't be doing our jobs or serving the public interest if we did.[8]
[edit] Implementation progress
Regulators in most jurisdictions around the world plan to implement the new accord,
but with widely varying timelines and use of the varying methodologies being
restricted. The United States' various regulators have agreed on a final approach.
[9] They have required the Internal Ratings-Based approach for the largest banks,
and the standardized approach will be available for smaller banks.[10]
In India, Reserve Bank of India has implemented the Basel II standardized norms on
31 March 2009 and is moving to internal ratings in credit and AMA(Advanced
Measurement Approach) norms for operational risks in banks.
Existing RBI norms for banks in India (as of September 2010): Common equity (incl
of buffer): 3.6%(Buffer Basel 2 requirement requirements are zero.); Tier 1
requirement: 6%. Total Capital�: 9�% of risk weighted assets.
According to the draft guidelines published by RBI the capital ratios are set to
become: Common Equity as 5% + 2.5% (Capital Conservation Buffer) + 0-2.5% (Counter
Cyclical Buffer), 7% of tier I capital and minimum capital adequacy ratio
(excluding Capital Conservation Buffer) 9% of Risk Weighted Assets.Thus the actual
capital requirement is between 11-13.5% (including Capital Conservation Buffer and
Counter Cyclical Buffer)[11]
In response to a questionnaire released by the Financial Stability Institute (FSI),
95 national regulators indicated they were to implement Basel II, in some form or
another, by 2015.[12]
The European Union has already implemented the Accord via the EU Capital
Requirements Directives and many European banks already report their capital
adequacy ratios according to the new system. All the credit institutions adopted it
by 2008.
Australia, through its Australian Prudential Regulation Authority, implemented the
Basel II Framework on 1 January 2008.[13]
[edit] Basel II and the global financial crisis
The role of Basel II, both before and after the global financial crisis, has been
discussed widely. While some argue that the crisis demonstrated weaknesses in the
framework[14], others have criticized it for actually increasing the effect of the
crisis[15]. In response to the financial crisis, the Basel Committee on Banking
Supervision published revised global standards, popularly known as Basel III[16].
The Committee claimed that the new standards would lead to a better quality of
capital, increased coverage of risk for capital market activities and better
liquidity standards among other benefits.
Nout Wellink, former Chairman of the BCBS, wrote an article in September 2009
outlining some of the strategic responses which the Committee should take as
response to the crisis[17]. He proposed a stronger regulatory framework which
comprises five key components: (a) better quality of regulatory capital, (b) better
liquidity management and supervision, (c) better risk management and supervision
including enhanced Pillar 2 guidelines, (d) enhanced Pillar 3 disclosures related
to securitization, off-balance sheet exposures and trading activities which would
promote transparency, and (e) cross-border supervisory cooperation. Given one of
the major factors which drove the crisis was the evaporation of liquidity in the
financial markets[18], the BCBS also published principles for better liquidity
management and supervision in September 2008[19].
A recent OECD study [20] suggest that bank regulation based on the Basel accords
encourage unconventional business practices and contributed to or even reinforced
adverse systemic shocks that materialised during the financial crisis. According to
the study, capital regulation based on risk-weighted assets encourages innovation
designed to circumvent regulatory requirements and shifts banks� focus away from
their core economic functions. Tighter capital requirements based on risk-weighted
assets, introduced in the Basel III, may further contribute to these skewed
incentives. New liquidity regulation, notwithstanding its good intentions, is
another likely candidate to increase bank incentives to exploit regulation.
Think-tanks such as the World Pensions Council have also argued that European
legislators have pushed dogmatically and naively for the adoption of the Basel II
recommendations, adopted in 2005, transposed in European Union law through the
Capital Requirements Directive (CRD), effective since 2008. In essence, they forced
private banks, central banks, and bank regulators to rely more on assessments of
credit risk by private rating agencies. Thus, part of the regulatory authority was
abdicated in favor of private rating agencies. [21]
Strategic planning
From Wikipedia, the free encyclopedia
It has been suggested that Strategic Technology Plan be merged into this article or
section. (Discuss) Proposed since March 2009.Strategic planning is an
organization's process of defining its strategy, or direction, and making decisions
on allocating its resources to pursue this strategy. In order to determine the
direction of the organization, it is necessary to understand its current position
and the possible avenues through which it can pursue a particular course of action.
Generally, strategic planning deals with at least one of three key questions[1]:
1. "What do we do?"
2. "For whom do we do it?"
3. "How do we excel?"
In many organizations, this is viewed as a process for determining where an
organization is going over the next year or�more typically�3 to 5 years (long
term), although some extend their vision to 20 years.
Contents
�[hide]�
* 1 Key components
* 2 Strategic planning process
* 3 Tools and approaches
o 3.1 Situational analysis
* 4 Goals, objectives and targets
* 5 Business analysis techniques
* 6 References
* 7 Further reading
* 8 See also[edit] Key components
The key components of 'strategic planning' include an understanding of the firm's
vision, mission, values and strategies. The vision and mission are often captured
in a Vision Statement and Mission Statement.
* Vision: outlines what the organization wants to be, or how it wants the world in
which it operates to be (an "idealised" view of the world). It is a long-term view
and concentrates on the future. It can be emotive and is a source of inspiration.
For example, a charity working with the poor might have a vision statement which
reads "A World without Poverty."
* Mission: Defines the fundamental purpose of an organization or an enterprise,
succinctly describing why it exists and what it does to achieve its vision. For
example, the charity above might have a mission statement as "providing jobs for
the homeless and unemployed".
* Values: Beliefs that are shared among the stakeholders of an organization. Values
drive an organization's culture and priorities and provide a framework in which
decisions are made. For example, "Knowledge and skills are the keys to success" or
"give a man bread and feed him for a day, but teach him to farm and feed him for
life". These example values may set the priorities of self sufficiency over
shelter.
* Strategy: Strategy, narrowly defined, means "the art of the general." A
combination of the ends (goals) for which the firm is striving and the means
(policies) by which it is seeking to get there. A strategy is sometimes called a
roadmap which is the path chosen to plow towards the end vision. The most important
part of implementing the strategy is ensuring the company is going in the right
direction which is towards the end vision.
Organizations sometimes summarize goals and objectives into a mission statement
and/or a vision statement. Others begin with a vision and mission and use them to
formulate goals and objectives.
Many people mistake the vision statement for the mission statement, and sometimes
one is simply used as a longer term version of the other. However they are meant to
be quite different, with the vision being a descriptive picture of future state,
and the mission being an action statement for bringing about what is envisioned
(ie. the vision is what will be achieved if the company is successful in achieving
its mission).
For an organisation's vision and mission to be effective, they must become
assimilated into the organization's culture. They should also be assessed
internally and externally. The internal assessment should focus on how members
inside the organization interpret their mission statement. The external assessment
� which includes all of the businesses stakeholders � is valuable since it offers a
different perspective. These discrepancies between these two assessments can
provide insight into their effectiveness.
[edit] Strategic planning process
There are many approaches to strategic planning but typically one of the following
approaches is used:
Situation-Target-Proposal
* Situation - evaluate the current situation and how it came about.
* Target - define goals and/or objectives (sometimes called ideal state)
* Path / Proposal - map a possible route to the goals/objectivesSee-Think-Draw
* See - what is today's situation?
* Think - define goals/objectives
* Draw - map a route to achieving the goals/objectivesDraw-See-Think-Plan
* Draw - what is the ideal image or the desired end state?
* See - what is today's situation? What is the gap from ideal and why?
* Think - what specific actions must be taken to close the gap between today's
situation and the ideal state?
* Plan - what resources are required to execute the activities?[edit] Tools and
approaches
Among the most useful tools for strategic planning is SWOT analysis (Strengths,
Weaknesses, Opportunities, and Threats). The main objective of this tool is to
analyze internal strategic factors, strengths and weaknesses attributed to the
organization, and external factors beyond control of the organization such as
opportunities and threats.
Other tools include:
* Balanced Scorecards, which creates a systematic framework for strategic planning;
* Scenario planning, which was originally used in the military and recently used by
large corporations to analyze future scenarios.
* PEST analysis (Political, Economic, Social, and Technological)
* STEER analysis (Socio-cultural, Technological, Economic, Ecological, and
Regulatory factors)
* EPISTEL (Environment, Political, Informatic, Social, Technological, Economic and
Legal).
[edit] Situational analysis
When developing strategies, analysis of the organization and its environment as it
is at the moment and how it may develop in the future, is important. The analysis
has to be executed at an internal level as well as an external level to identify
all opportunities and threats of the external environment as well as the strengths
and weaknesses of the organizations.
There are several factors to assess in the external situation analysis:
1. Markets (customers)
2. Competition
3. Technology
4. Supplier markets
5. Labor markets
6. The economy
7. The regulatory environment
It is rare to find all seven of these factors having critical importance. It is
also uncommon to find that the first two - markets and competition - are not of
critical importance. (Bradford "External Situation - What to Consider")
Analysis of the external environment normally focuses on the customer. Management
should be visionary in formulating customer strategy, and should do so by thinking
about market environment shifts, how these could impact customer sets, and whether
those customer sets are the ones the company wishes to serve.
Analysis of the competitive environment is also performed, many times based on the
framework suggested by Michael Porter.
With regard to market planning specifically, researchers have recommended a series
of action steps or guidelines in accordance to which market planners should plan.
[2]
[edit] Goals, objectives and targets
Strategic planning is a very important business activity. It is also important in
the public sector areas such as education. It is practiced widely informally and
formally. Strategic planning and decision processes should end with objectives and
a roadmap of ways to achieve them. The goal of strategic planning mechanisms like
formal planning is to increase specificity in business operation, especially when
long-term and high-stake activities are involved.
One of the core goals when drafting a strategic plan is to develop it in a way that
is easily translatable into action plans. Most strategic plans address high level
initiatives and over-arching goals, but don't get articulated (translated) into
day-to-day projects and tasks that will be required to achieve the plan.
Terminology or word choice, as well as the level a plan is written, are both
examples of easy ways to fail at translating your strategic plan in a way that
makes sense and is executable to others. Often, plans are filled with conceptual
terms which don't tie into day-to-day realities for the staff expected to carry out
the plan.
The following terms have been used in strategic planning: desired end states,
plans, policies, goals, objectives, strategies, tactics and actions. Definitions
vary, overlap and fail to achieve clarity. The most common of these concepts are
specific, time bound statements of intended future results and general and
continuing statements of intended future results, which most models refer to as
either goals or objectives (sometimes interchangeably).
One model of organizing objectives uses hierarchies. The items listed above may be
organized in a hierarchy of means and ends and numbered as follows: Top Rank
Objective (TRO), Second Rank Objective, Third Rank Objective, etc. From any rank,
the objective in a lower rank answers to the question "How?" and the objective in a
higher rank answers to the question "Why?" The exception is the Top Rank Objective
(TRO): there is no answer to the "Why?" question. That is how the TRO is defined.
People typically have several goals at the same time. "Goal congruency" refers to
how well the goals combine with each other. Does goal A appear compatible with goal
B? Do they fit together to form a unified strategy? "Goal hierarchy" consists of
the nesting of one or more goals within other goal(s).
One approach recommends having short-term goals, medium-term goals, and long-term
goals. In this model, one can expect to attain short-term goals fairly easily: they
stand just slightly above one's reach. At the other extreme, long-term goals appear
very difficult, almost impossible to attain. Strategic management jargon sometimes
refers to "Big Hairy Audacious Goals" (BHAGs) in this context. Using one goal as a
stepping-stone to the next involves goal sequencing. A person or group starts by
attaining the easy short-term goals, then steps up to the medium-term, then to the
long-term goals. Goal sequencing can create a "goal stairway". In an organizational
setting, the organization may co-ordinate goals so that they do not conflict with
each other. The goals of one part of the organization should mesh compatibly with
those of other parts of the organization.
[edit] Business analysis techniques
Various business analysis techniques can be used in strategic planning, including
SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats ), PEST analysis
(Political, Economic, Social, and Technological), STEER analysis (Socio-cultural,
Technological, Economic, Ecological, and Regulatory factors), and EPISTEL
(Environment, Political, Informatic, Social, Technological, Economic and Legal).
SYSTEM:

System Pyramid
Successful and sustainable transformation efforts require leaders who know how to
manage change. At the simplest level, managing change means:
* Knowing what you want to accomplish and creating a compelling vision that
motivates others
* Understand stakeholders and communicating with them early, consistently and often
* Managing the varying levels of support and resistance that will inevitably emerge
in response to any change
* Change Leadership is a skillset that is required throughout any deployment, from
planning and executing to sustaining improvements.
* Change Leadership are essential for both high level executives and program
leaders, who are responsible for setting the vision, communicate the vision and
make the changes happen
[edit] References
Corporate crime
From Wikipedia, the free encyclopedia
This article includes inline citations, but they are not properly formatted. Please
improve this article by correcting them. (December 2011)
Criminology and penologyTheoriesCauses and correlates of crimeAnomieDifferential
association theoryDevianceLabeling theoryPsychopathyRational choice theory
(criminology)Social control theorySocial disorganization theorySocial learning
theoryStrain theorySubcultural theorySymbolic interactionism���VictimologyTypes of
crimesBlue-collar crime���Corporate crimeJuvenile crimeOrganized crimePolitical
crime���Public order crimeState crime���State-corporate crimeVictimless
crime���White-collar crimePenologyDeterrence���PrisonPrison reform���Prisoner abuse
Prisoners' rights���RehabilitationRecidivism���RetributionUtilitarianismCriminal
justice portalSee also: Wikibooks:Social DevianceThis box:
* view
* talk
* editIn criminology, corporate crime refers to crimes committed either by a
corporation (i.e., a business entity having a separate legal personality from the
natural persons that manage its activities), or by individuals acting on behalf of
a corporation or other business entity (see vicarious liability and corporate
liability). Some negative behaviours by corporations may not actually be criminal;
laws vary between jurisdictions. For example, some jurisdictions allow insider
trading.
Corporate crime overlaps with:
* white-collar crime, because the majority of individuals who may act as or
represent the interests of the corporation are white-collar professionals;
* organized crime, because criminals may set up corporations either for the
purposes of crime or as vehicles for laundering the proceeds of crime. The world�s
gross criminal product has been estimated at 20 percent of world trade. (de Brie
2000); and
* state-corporate crime because, in many contexts, the opportunity to commit crime
emerges from the relationship between the corporation and the state.
Contents
�[hide]�
* 1 Definitional issues
o 1.1 Legal person
o 1.2 Enforcement policy
* 2 Discussion
o 2.1 Criminalization
* 3 See also
* 4 References
o 4.1 Footnotes
* 5 External links[edit] Definitional issues
[edit] Legal person
An 1886 decision of the United States Supreme Court, in Santa Clara County v.
Southern Pacific Railroad 118 U.S. 394 (1886), has been cited by various courts in
the US as precedent to maintain that a corporation can be defined legally as a
'person', as described in the Fourteenth Amendment to the U.S. Constitution. The
Fourteenth Amendment stipulates that,
"No State shall make or enforce any law which shall abridge the privileges or
immunities of citizens of the United States; nor shall any State deprive any person
of life, liberty, or property, without due process of law; nor deny to any person
within its jurisdiction the equal protection of the laws."
In English law, this was matched by the decision in Salomon v Salomon & Co [1897]
AC 22. In Australian law, under the Corporations Act 2001 (Cth), a corporation is
legally a 'person'.
[edit] Enforcement policy
See also: Police corruption
Corporate crime has become politically sensitive in some countries. In the United
Kingdom, for example, following wider publicity of fatal accidents on the rail
network and at sea, the term is commonly used in reference to corporate
manslaughter and to involve a more general discussion about the technological
hazards posed by business enterprises (see Wells: 2001).
The Law Reform Commission of New South Wales offers an explanation of such criminal
activities:
"Corporate crime poses a significant threat to the welfare of the community. Given
the pervasive presence of corporations in a wide range of activities in our
society, and the impact of their actions on a much wider group of people than are
affected by individual action, the potential for both economic and physical harm
caused by a corporation is great."[1]
Similarly, Russell Mokhiber and Robert Weissman (1999) assert:
"At one level, corporations develop new technologies and economies of scale. These
may serve the economic interests of mass consumers by introducing new products and
more efficient methods of mass production. On another level, given the absence of
political control today, corporations serve to destroy the foundations of the civic
community and the lives of people who reside in them."
[edit] Discussion
[edit] Criminalization
Behavior can be regulated by the civil law (including administrative law) or the
criminal law. In deciding to criminalize particular behavior, the legislature is
making the political judgment that this behavior is sufficiently culpable to
deserve the stigma of being labelled as a crime. In law, corporations can commit
the same offences as natural persons. Simpson (2002) avers that this process should
be straightforward because a state should simply engage in victimology to identify
which behavior causes the most loss and damage to its citizens, and then represent
the majority view that justice requires the intervention of the criminal law. But
states depend on the business sector to deliver a functioning economy, so the
politics of regulating the individuals and corporations which supply that stability
become more complex. For the views of Marxist criminology, see Snider (1993) and
Snider & Pearce (1995), for Left realism, see Pearce & Tombs (1992) and Schulte-
Bockholt (2001), and for Right Realism, see Reed & Yeager (1996). More
specifically, the historical tradition of sovereign state control of prisons is
ending through the process of privatisation. Corporate profitability in these areas
therefore depends on building more prison facilities, managing their operations,
and selling inmate labor. In turn, this requires a steady stream of prisoners able
to work. (Kicenski: 2002)
Bribery and corruption are problems in the developed world, and the corruption of
public officials is thought to be a serious problem in developing countries, and an
obstacle to development.
Edwin Sutherland's definition of white collar crime also is related to notions of
"corporate" crime. In his landmark definition of white collar crime he offered
these categories of crime:
* Misrepresentation in financial statements of corporations
* Manipulation in the stock market
* Commercial bribery
* Bribery of public officials directly or indirectly
* Misrepresentation in advertisement and salesmenship
* Embezzlement and misappropriation of funds
* Misapplication of funds in receiverships and bankruptcies[2]
[edit] See also
* Accounting scandals
* Anti-globalization movement
* Business ethics
* Corporate abuse
* Corporate Accountability International
* CorpWatch
o Enron
* Industrial espionage
* List of companies convicted of felony offenses in the United States
* Misleading financial analysis
* Multinational Monitor
* Mark Thomas and Billy Bragg - British campaigners for corporate accountability
and manslaughter laws
[edit] References
* Braithwaite, John. (1984). Corporate Crime in the Pharmaceutical Industry.
London: Routledge & Kegan Paul Books. ISBN 0-7102-0049-8
* Castells, Manuel. (1996). The Rise of the Network Society (The Information Age:
Economy Society and Culture. volume I.) Oxford: Blackwell. ISBN 0-631-22140-9
* Clinard, Marshall B. & Yeager, Peter Cleary. (2005). Corporate Crime. Somerset,
NJ: Transaction Publishers. ISBN 1-4128-0493-0
* de Brie, Christian (2000) �Thick as thieves� Le Monde Diplomatique (April)[1]
* Ermann, M. David & Lundman, Richard J. (eds.) (2002). Corporate and Governmental
Deviance: Problems of Organizational Behavior in Contemporary Society. (6th
edition). Oxford: Oxford University Press. ISBN 0-19-513529-6
* Friedrichs, David O. (2002). "Occupational crime, occupational deviance, and
workplace crime: Sorting out the difference". Criminal Justice, 2, pp243�256.
* Garland, David (1996), "The Limits of the Sovereign State: Strategies of Crime
Control in Contemporary Society", British Journal of Criminology Vol 36 pp445�471.
* Gobert, J & Punch, M. (2003). Rethinking Corporate Crime, London: Butterworths.
ISBN 0-406-95006-7
* Kicenski, Karyl K. (2002). The Corporate Prison: The Production of Crime & the
Sale of Discipline. [2]
* Law Reform Commission for New South Wales. Issues Paper 20 (2001) - Sentencing:
Corporate Offenders. [3]
* Lea, John. (2001). Crime as Governance: Reorienting Criminology. [4]
* Mokhiber, Russell & Weissmann, Robert. (1999). Corporate Predators�: The Hunt for
Mega-Profits and the Attack on Democracy. Common Courage Press. ISBN 1-56751-158-9
* Pearce, Frank & Tombs, Steven. (1992). "Realism and Corporate Crime", in Issues
in Realist Criminology. (R. Matthews & J. Young eds.). London: Sage.
* Pearce, Frank & Tombs, Steven. (1993). "US Capital versus the Third World: Union
Carbide and Bhopal" in Global Crime Connections: Dynamics and Control. (Frank
Pearce & Michael Woodiwiss eds.).
* Pe�ar, Janez (1996). "Corporate Wrongdoing Policing" College of Police and
Security Studies, Slovenia. [5]
* Reed, Gary E. & Yeager, Peter Cleary. (1996). "Organizational offending and
neoclassical criminology: Challenging the reach of a general theory of crime".
Criminology, 34, pp357�382.
* Schulte-Bockholt, A. (2001). "A Neo-Marxist Explanation of Organized Crime".
Critical Criminology, 10
* Simpson, Sally S. (2002). Corporate Crime, Law, and Social Control. Cambridge:
Cambridge University Press.
* Snider, Laureen. (1993). Bad Business: Corporate Crime in Canada, Toronto:
Nelson.
* Snider, Laureen & Pearce, Frank (eds.). (1995). Corporate Crime: Contemporary
Debates, Toronto: University of Toronto Press.
* Vaughan, Diane. (1998). "Rational choice, situated action, and the social control
of organizations". Law & Society Review, 32, pp23�61.
* Wells, Celia. (2001). Corporations and Criminal Responsibility (Second Edition).
Oxford: Oxford University Press. ISBN 0-19-826793-2
Ethics
From Wikipedia, the free encyclopedia
For other uses, see Ethics (disambiguation).
Philosophy
(Plato, Confucius, Avicenna)Philosophers[show]Traditions[show]Eras[show]
Literature[show]Branches[show]Lists[show]�Portal* v
* d
* eEthics, also known as moral philosophy, is a branch of philosophy that involves
systematizing, defending, and recommending concepts of right and wrong behavior.[1]
Major areas of study in ethics include:[2]
* Meta-ethics, about the theoretical meaning and reference of moral propositions
and how their truth values (if any) may be determined;
* Normative ethics, about the practical means of determining a moral course of
action;
* Applied ethics, about how moral outcomes can be achieved in specific situations;
Each of these areas include many further sub-fields of study.
Contents
�[hide]�
* 1 Meta-ethics
* 2 Normative ethics
o 2.1 Greek philosophy
* 2.1.1 Virtue ethics
* 2.1.1.1 Stoicism
* 2.1.1.2 Epicureanism
* 2.1.2 Hedonism
* 2.1.2.1 Cyrenaic hedonism
o 2.2 Chinese philosophy
* 2.2.1 State consequentialism
o 2.3 Modern ethics
* 2.3.1 Modern consequentialism
* 2.3.2 Deontology
* 2.3.3 Pragmatic ethics
o 2.4 Postmodern ethics
* 2.4.1 Machine ethics
* 3 Applied ethics
o 3.1 Specific questions
o 3.2 Particular fields of application
* 3.2.1 Relational ethics
* 3.2.2 Military ethics
* 3.2.3 Public service ethics
* 4 Moral psychology
o 4.1 Evolutionary ethics
* 5 Descriptive ethics
* 6 See also
* 7 Notes
* 8 References
* 9 Further reading
* 10 External links[edit] Meta-ethics
Main article: Meta-ethics
Meta-ethics is a field within ethics that seeks to understand the nature of
normative ethics. The focus of meta-ethics is on how we understand, know about, and
what we mean when we talk about what is right and what is wrong.
Meta-ethics came to the fore with G.E. Moore's famous work Principia Ethica from
1903. In it he first wrote about what he called the naturalistic fallacy. Moore was
seen to reject naturalism in ethics, in his Open Question Argument. This made
thinkers look again at second order questions about ethics. Earlier, the Scottish
philosopher David Hume had put forward a similar view on the difference between
facts and values.
Studies of how we know in ethics divide into cognitivism and non-cognitivism; this
is similar to the contrast between descriptivists and non-descriptivists. Non-
cognitivism is the claim that when we judge something as right or wrong, this is
neither true nor false. We may, e.g. be only expressing our emotional feelings
about these things.[3] Cognitivism can then be seen as the claim that when we talk
about right and wrong, we are talking about matters of fact.
The ontology of ethics is about value-bearing things or properties, i.e. the kind
of things or stuff referred to by ethical propositions. Non-descriptivists and non-
cognitivists believe that ethics does not need a specific ontology, since ethical
propositions do not refer. This is known as an anti-realist position. Realists on
the other hand must explain what kind of entities, properties or states are
relevant for ethics, how they have value, and why they guide and motivate our
actions.[4]
[edit] Normative ethics
Main article: Normative ethics
Traditionally, normative ethics (also known as moral theory) was the study of what
makes actions right and wrong. These theories offered an overarching moral
principle one could appeal to in resolving difficult moral decisions.
At the turn of the 20th century, moral theories became more complex and are no
longer concerned solely with rightness and wrongness, but are interested in many
different kinds of moral status. During the middle of the century, the study of
normative ethics declined as meta-ethics grew in prominence. This focus on meta-
ethics was in part caused by an intense linguistic focus in analytic philosophy and
by the popularity of logical positivism.
In 1971 John Rawls published A Theory of Justice, noteworthy in its pursuit of
moral arguments and eschewing of meta-ethics. This publication set the trend for
renewed interest in normative ethics.
[edit] Greek philosophy
[edit] Virtue ethics
Main article: Virtue ethics

Socrates
Virtue ethics describes the character of a moral agent as a driving force for
ethical behavior, and is used to describe the ethics of Socrates, Aristotle, and
other early Greek philosophers. Socrates (469�BC � 399�BC) was one of the first
Greek philosophers to encourage both scholars and the common citizen to turn their
attention from the outside world to the condition of humankind. In this view,
knowledge having a bearing on human life was placed highest, all other knowledge
being secondary. Self-knowledge was considered necessary for success and inherently
an essential good. A self-aware person will act completely within his capabilities
to his pinnacle, while an ignorant person will flounder and encounter difficulty.
To Socrates, a person must become aware of every fact (and its context) relevant to
his existence, if he wishes to attain self-knowledge. He posited that people will
naturally do what is good, if they know what is right. Evil or bad actions are the
result of ignorance. If a criminal were truly aware of the mental and spiritual
consequences of his actions, he would neither commit nor even consider committing
those actions. Any person who knows what is truly right will automatically do it,
according to Socrates. While he correlated knowledge with virtue, he similarly
equated virtue with happiness. The truly wise man will know what is right, do what
is good, and therefore be happy.[5]
Aristotle (384�BC � 322�BC) posited an ethical system that may be termed "self-
realizationism." In Aristotle's view, when a person acts in accordance with his
nature and realizes his full potential, he will do good and be content. At birth, a
baby is not a person, but a potential person. To become a "real" person, the
child's inherent potential must be realized. Unhappiness and frustration are caused
by the unrealized potential of a person, leading to failed goals and a poor life.
Aristotle said, "Nature does nothing in vain." Therefore, it is imperative for
persons to act in accordance with their nature and develop their latent talents in
order to be content and complete. Happiness was held to be the ultimate goal. All
other things, such as civic life or wealth, are merely means to the end. Self-
realization, the awareness of one's nature and the development of one's talents, is
the surest path to happiness.[6]
Aristotle asserted that man had three natures: vegetable (physical/metabolism),
animal (emotional/appetite) and rational (mental/conceptual). Physical nature can
be assuaged through exercise and care, emotional nature through indulgence of
instinct and urges, and mental through human reason and developed potential.
Rational development was considered the most important, as essential to
philosophical self-awareness and as uniquely human. Moderation was encouraged, with
the extremes seen as degraded and immoral. For example, courage is the moderate
virtue between the extremes of cowardice and recklessness. Man should not simply
live, but live well with conduct governed by moderate virtue. This is regarded as
difficult, as virtue denotes doing the right thing, to the right person, at the
right time, to the proper extent, in the correct fashion, for the right reason.[7]
[edit] Stoicism
The Stoic philosopher Epictetus posited that the greatest good was contentment and
serenity. Peace of mind, or Apatheia, was of the highest value; self-mastery over
one's desires and emotions leads to spiritual peace. The "unconquerable will" is
central to this philosophy. The individual's will should be independent and
inviolate. Allowing a person to disturb the mental equilibrium is in essence
offering yourself in slavery. If a person is free to anger you at will, you have no
control over your internal world, and therefore no freedom. Freedom from material
attachments is also necessary. If a thing breaks, the person should not be upset,
but realize it was a thing that could break. Similarly, if someone should die,
those close to them should hold to their serenity because the loved one was made of
flesh and blood destined to death. Stoic philosophy says to accept things that
cannot be changed, resigning oneself to existence and enduring in a rational
fashion. Death is not feared. People do not "lose" their life, but instead
"return", for they are returning to God (who initially gave what the person is as a
person). Epictetus said difficult problems in life should not be avoided, but
rather embraced. They are spiritual exercises needed for the health of the spirit,
just as physical exercise is required for the health of the body. He also stated
that sex and sexual desire are to be avoided as the greatest threat to the
integrity and equilibrium of a man's mind. Abstinence is highly desirable.
Epictetus said remaining abstinent in the face of temptation was a victory for
which a man could be proud.[8]
[edit] Epicureanism
Epicurean ethics is a hedonist form of virtue ethics. Epicurus "presented a
sustained argument that pleasure, correctly understood, will coincide with virtue".
[9] He rejected the extremism of the Cyrenaics, believing some pleasures and
indulgences to be detrimental to human beings. Epicureans observed that
indiscriminate indulgence sometimes resulted in negative consequences. Some
experiences were therefore rejected out of hand, and some unpleasant experiences
endured in the present to ensure a better life in the future. To Epicurus the
summum bonum, or greatest good, was prudence, exercised through moderation and
caution. Excessive indulgence can be destructive to pleasure and can even lead to
pain. For example, eating one food too often will cause a person to lose taste for
it. Eating too much food at once will lead to discomfort and ill-health. Pain and
fear were to be avoided. Living was essentially good, barring pain and illness.
Death was not to be feared. Fear was considered the source of most unhappiness.
Conquering the fear of death would naturally lead to a happier life. Epicurus
reasoned if there was an afterlife and immortality, the fear of death was
irrational. If there was no life after death, then the person would not be alive to
suffer, fear or worry; he would be non-existent in death. It is irrational to fret
over circumstances that do not exist, such as one's state in death in the absence
of an afterlife.[10]
[edit] Hedonism
Hedonism posits that the principle ethic is maximizing pleasure and minimizing
pain. There are several schools of Hedonist thought ranging from those advocating
the indulgence of even momentary desires to those teaching a pursuit of spiritual
bliss. In their consideration of consequences, they range from those advocating
self-gratification regardless of the pain and expense to others, to those stating
that the most ethical pursuit maximizes pleasure and happiness for the most people.
[11]
[edit] Cyrenaic hedonism
Founded by Aristippus of Cyrene, Cyrenaics supported immediate gratification or
pleasure. "Eat, drink and be merry, for tomorrow we die." Even fleeting desires
should be indulged, for fear the opportunity should be forever lost. There was
little to no concern with the future, the present dominating in the pursuit for
immediate pleasure. Cyrenaic hedonism encouraged the pursuit of enjoyment and
indulgence without hesitation, believing pleasure to be the only good.[11]
[edit] Chinese philosophy
[edit] State consequentialism
Main article: Mohist consequentialism
Mohist consequentialism, also known as state consequentialism,[12] is an ethical
theory which evaluates the moral worth of an action based on how much it
contributes to the social harmony of a state.[12] The Stanford Encyclopedia of
Philosophy describes Mohist consequentialism, dating back to the 5th century BC, as
"a remarkably sophisticated version based on a plurality of intrinsic goods taken
as constitutive of human welfare."[13] Unlike utilitarianism, which views pleasure
as a moral good, "the basic goods in Mohist consequentialist thinking are... order,
material wealth, and increase in population".[14] During Mozi's era, war and
famines were common, and population growth was seen as a moral necessity for a
harmonious society. The "material wealth" of Mohist consequentialism refers to
basic needs like shelter and clothing, and the "order" of Mohist consequentialism
refers to Mozi's stance against warfare and violence, which he viewed as pointless
and a threat to social stability.[15] Stanford sinologist David Shepherd Nivison,
in the The Cambridge History of Ancient China, writes that the moral goods of
Mohism "are interrelated: more basic wealth, then more reproduction; more people,
then more production and wealth... if people have plenty, they would be good,
filial, kind, and so on unproblematically."[14] In contrast to Bentham, Mozi did
not believe that individual happiness was important, the consequences of the state
outweigh the consequences of individual actions.[14]
What is the purpose of houses? It is to protect us from the wind and cold of
winter, the heat and rain of summer, and to keep out robbers and thieves. Once
these ends have been secured, that is all. Whatever does not contribute to these
ends should be eliminated.[15]
�Mozi,�Mozi (5th century BC) Ch 20
[edit] Modern ethics
In the modern era, ethical theories were generally divided between the
consequentialist theories of utilitarian philosophers such as Jeremy Bentham and
John Stuart Mill, and deontological ethics as epitomized by the work of Immanuel
Kant. This is also the era associated with the origin of pragmatic ethics,
especially in the work of John Dewey.
[edit] Modern consequentialism
Main articles: Utilitarianism and Ethical egoism
See also: Consequentialism
Consequentialism refers to moral theories that hold that the consequences of a
particular action form the basis for any valid moral judgment about that action (or
create a structure for judgment, see rule consequentialism). Thus, from a
consequentialist standpoint, a morally right action is one that produces a good
outcome, or consequence. This view is often expressed as the aphorism "The ends
justify the means".
The term "consequentialism" was coined by G.E.M. Anscombe in her essay "Modern
Moral Philosophy" in 1958, to describe what she saw as the central error of certain
moral theories, such as those propounded by Mill and Sidgwick.[16] Since then, the
term has become common in English-language ethical theory.
The defining feature of consequentialist moral theories is the weight given to the
consequences in evaluating the rightness and wrongness of actions.[17] In
consequentialist theories, the consequences of an action or rule generally outweigh
other considerations. Apart from this basic outline, there is little else that can
be unequivocally said about consequentialism as such. However, there are some
questions that many consequentialist theories address:
* What sort of consequences count as good consequences?
* Who is the primary beneficiary of moral action?
* How are the consequences judged and who judges them?
One way to divide various consequentialisms is by the types of consequences that
are taken to matter most, that is, which consequences count as good states of
affairs. According to hedonistic utilitarianism, a good action is one that results
in an increase in pleasure, and the best action is one that results in the most
pleasure for the greatest number. Closely related is eudaimonic consequentialism,
according to which a full, flourishing life, which may or may not be the same as
enjoying a great deal of pleasure, is the ultimate aim. Similarly, one might adopt
an aesthetic consequentialism, in which the ultimate aim is to produce beauty.
However, one might fix on non-psychological goods as the relevant effect. Thus, one
might pursue an increase in material equality or political liberty instead of
something like the more ephemeral "pleasure". Other theories adopt a package of
several goods, all to be promoted equally. Whether a particular consequentialist
theory focuses on a single good or many, conflicts and tensions between different
good states of affairs are to be expected and must be adjudicated.
[edit] Deontology
Main article: Deontological ethics
Deontological ethics or deontology (from Greek ????, deon, "obligation, duty"; and
-?????, -logia) is an approach to ethics that determines goodness or rightness from
examining acts, or the intentions of the person doing the act, as it adheres to
rules and duties.[18] This is contrast to consequentialism, in which rightness is
based on the consequences of an act, and not the act by itself. In deontology, an
act may be considered right even if the act produces a bad consequence,[19] if it
follows the rule that �one should do unto others as they would have done unto
them�,[18] and even if the person who does the act lacks virtue and had a bad
intention in doing the act[citation needed]. According to deontology, we have a
duty to act in a way that does those things that are inherently good as acts
("truth-telling" for example), or follow an objectively obligatory rule (as in rule
utilitarianism). For deontologists, the ends or consequences of our actions are not
important in and of themselves, and our intentions are not important in and of
themselves.
Immanuel Kant's theory of ethics is considered deontological for several different
reasons.[20][21] First, Kant argues that to act in the morally right way, people
must act from duty (deon).[22] Second, Kant argued that it was not the consequences
of actions that make them right or wrong but the motives of the person who carries
out the action.

Immanuel Kant
Kant's argument that to act in the morally right way, one must act from duty,
begins with an argument that the highest good must be both good in itself, and good
without qualification.[23] Something is 'good in itself' when it is intrinsically
good, and 'good without qualification' when the addition of that thing never makes
a situation ethically worse. Kant then argues that those things that are usually
thought to be good, such as intelligence, perseverance and pleasure, fail to be
either intrinsically good or good without qualification. Pleasure, for example,
appears to not be good without qualification, because when people take pleasure in
watching someone suffering, this seems to make the situation ethically worse. He
concludes that there is only one thing that is truly good:
Nothing in the world�indeed nothing even beyond the world�can possibly be conceived
which could be called good without qualification except a good will.[23]
[edit] Pragmatic ethics
Main article: Pragmatic ethics
Associated with the pragmatists, Charles Sanders Peirce, William James, and
especially John Dewey, pragmatic ethics holds that moral correctness evolves
similarly to scientific knowledge: socially over the course of many lifetimes.
Thus, we should prioritize social reform over attempts to account for consequences,
individual virtue or duty (although these may be worthwhile attempts, provided
social reform is provided for). [24]
[edit] Postmodern ethics
This article or section may contain previously unpublished synthesis of published
material that conveys ideas not attributable to the original sources. See the talk
page for details. (July 2009)The 20th century saw a remarkable expansion of
critical theory and its evolution. The earlier Marxist Theory created a paradigm
for understanding the individual, society and their interaction. The Renaissance
Enlightened Man had persisted up until the Industrial Revolution when the romantic
vision of noble action began to fade.
Modernism, exemplified in the literary works of Virginia Woolf and James Joyce,
questioned traditional religious views. Then antihumanists such as Louis Althusser
and Michel Foucault and structuralists such as Roland Barthes presided over the
death of the author and man himself.[clarification needed] As critical theory
developed in the later 20th century, post-structuralism problematized our
relationship to knowledge and 'objective' reality. Jacques Derrida argued that
access to meaning and the 'real' was always deferred, demonstrating via recourse to
the linguistic realm, that "There is nothing outside the text"; at the same time,
Jean Baudrillard theorised that signs and symbols or simulacra masked reality (and
eventually an absence of reality), particularly in the consumer world.
Post-structuralism and postmodernism also argue that the world is relational;
therefore, ethics must study the complex situation of actions. A simple alignment
of ideas of right and particular acts is not possible. There will always be a
remainder that is a part of the ethical issue and that cannot be taken into account
in a relational world. Such theorists find narrative (or, following Nietzsche and
Foucault, genealogy) to be a helpful tool for understanding ethics because
narrative is always about particular life stories in all their lived complexity
rather than consist of the assignment of an idea or norm to an action.
David Couzens Hoy says that Emmanuel Levinas's writings on the face of the Other
and Derrida's meditations on the relevance of death to ethics are signs of the
"ethical turn" in Continental philosophy that occurs in the 1980s and 1990s. Hoy
clarifies post-critique ethics as the "obligations that present themselves as
necessarily to be fulfilled but are neither forced on one or are enforceable"
(2004, p.�103).
This aligns with Australian philosopher Peter Singer's thoughts on what ethics is
not. He firstly claims it is not a moral code particular to a sectional group. For
example it has nothing to do with a set of prohibitions concerned with sex laid
down by a religious order. Neither is ethics a "system that is noble in theory but
no good in practice" (2000, p.�7). For him, a theory is good only if it is
practical. He agrees that ethics is in some sense universal but in a utilitarian
way it affords the "best consequences" and furthers the interests of those affected
(2000, p.�15).
Hoy's post-critique model uses the term ethical resistance. Examples of this would
be an individual's resistance to consumerism in a retreat to a simpler but perhaps
harder lifestyle, or an individual's resistance to a terminal illness. Hoy
describes these examples in his book Critical Resistance as an individual's
engagement in social or political resistance. He provides Levinas's account as "not
the attempt to use power against itself, or to mobilize sectors of the population
to exert their political power; the ethical resistance is instead the resistance of
the powerless"(2004, p.�8).
Hoy concludes that
The ethical resistance of the powerless others to our capacity to exert power over
them is therefore what imposes unenforceable obligations on us. The obligations are
unenforceable precisely because of the other's lack of power. That actions are at
once obligatory and at the same time unenforceable is what put them in the category
of the ethical. Obligations that were enforced would, by the virtue of the force
behind them, not be freely undertaken and would not be in the realm of the ethical.
(2004, p.184)
In present day terms the powerless may include the unborn, the terminally sick, the
aged, the insane, and non-human animals. It is in these areas that ethical action
will be evident. Until legislation or state apparatus enforces a moral order that
addresses the causes of resistance these issues will remain in the ethical realm.
For example, should animal experimentation become illegal in a society, it will no
longer be an ethical issue. Likewise one hundred and fifty years ago, not having a
black slave in America may have been an ethical choice. This later issue has been
absorbed into the fabric of a more utilitarian social order and is no longer an
ethical issue but does of course constitute a moral concern. Ethics are exercised
by those who possess no power and those who support them, through personal
resistance.
[edit] Machine ethics
Main article: Machine ethics
In Moral Machines: Teaching Robots Right from Wrong, Wendell Wallach and Colin
Allen conclude that issues in machine ethics will likely drive advancement in
understanding of human ethics by forcing us to address gaps in modern normative
theory and by providing a platform for experimental investigation.[25] The effort
to actually program a machine or artificial agent to behave as though instilled
with a sense of ethics requires new specificity in our normative theories,
especially regarding aspects customarily considered common-sense. For example,
machines, unlike humans, can support a wide selection of learning algorithms, and
controversy has arisen over the relative ethical merits of these options. This may
reopen classic debates of normative ethics framed in new (highly technical) terms.
[edit] Applied ethics
Main article: Applied ethics
Applied ethics is a discipline of philosophy that attempts to apply ethical theory
to real-life situations. The discipline has many specialized fields, such as
Engineering Ethics, bioethics, public service ethics and business ethics.
[edit] Specific questions
This section needs additional citations for verification. Please help improve this
article by adding citations to reliable sources. Unsourced material may be
challenged and removed. (May 2009)Applied ethics is used in some aspects of
determining public policy, as well as by individuals facing difficult decisions.
The sort of questions addressed by applied ethics include: "Is getting an abortion
immoral?" "Is euthanasia immoral?" "Is affirmative action right or wrong?" "What
are human rights, and how do we determine them?" "Do animals have rights as well?"
and "Do individuals have the right of self determination?"
A more specific question could be: "If someone else can make better out of his/her
life than I can, is it then moral to sacrifice myself for them if needed?" Without
these questions there is no clear fulcrum on which to balance law, politics, and
the practice of arbitration � in fact, no common assumptions of all participants�so
the ability to formulate the questions are prior to rights balancing. But not all
questions studied in applied ethics concern public policy. For example, making
ethical judgments regarding questions such as, "Is lying always wrong?" and, "If
not, when is it permissible?" is prior to any etiquette.
People in-general are more comfortable with dichotomies (two opposites). However,
in ethics the issues are most often multifaceted and the best proposed actions
address many different areas concurrently. In ethical decisions the answer is
almost never a "yes or no", "right or wrong" statement. Many buttons are pushed so
that the overall condition is improved and not to the benefit of any particular
faction.
[edit] Particular fields of application
[edit] Relational ethics
Relational ethics are related to an ethics of care.[26] They are used in
qualitative research, especially ethnography and authoethnography. Researchers who
employ relational ethics value and respect the connection between themselves and
the people they study, and "between researchers and the communities in which they
live and work" (Ellis, 2007, p.�4).[27] Relational ethics also help researchers
understand difficult issues such as conducting research on intimate others that
have died and developing friendships with their participants.[28][29]
[edit] Military ethics
This section does not cite any references or sources. Please help improve this
section by adding citations to reliable sources. Unsourced material may be
challenged and removed. (March 2009)See also: Nuremberg Principles�and Geneva
Conventions
Military ethics is a set of practices and philosophy to guide members of the armed
forces to act in a manner consistent with the values and standards as established
by military tradition, and to actively clarify and enforce these conditions
rigorously in its administrative structure. The Department of Defense 5500.7-R (DoD
5500.7-R), serves as the primary regulatory source of ethical standards and conduct
to members of the Armed Services (DoD, pg 1). Since this is the only order used,
all changes must be made by revision.[neutrality is disputed]
Military ethics is evolutionary and the administrative structure is modified as new
ethical perspectives consistent with national interests evolve.
Some ethical issues involving a country's military establishment, such as:
1. justification for using force
2. race (loss of capability due to race bias or abuse)
3. gender equality (loss of capability due to gender bias or abuse)
4. age discrimination (authority based upon age)
5. nepotism (unfair control by family members; also known as "empire building")
6. political influence (military members having a political position or political
influence)
And others.
[edit] Public service ethics
Public service ethics is a set of principles that guide public officials in their
service to their constituents, including their decision-making on behalf of their
constituents. Fundamental to the concept of public service ethics is the notion
that decisions and actions are based on what best serves the public's interests, as
opposed to the official's personal interests (including financial interests) or
self-serving political interests.[30]
[edit] Moral psychology
Main article: Moral psychology
Moral psychology is a field of study that began, like most things, as an issue in
philosophy and that is now properly considered part of the discipline of
psychology. Some use the term "moral psychology" relatively narrowly to refer to
the study of moral development.[31] However, others tend to use the term more
broadly to include any topics at the intersection of ethics and psychology (and
philosophy of mind).[32] Such topics are ones that involve the mind and are
relevant to moral issues. Some of the main topics of the field are moral
responsibility, moral development, moral character (especially as related to virtue
ethics), altruism, psychological egoism, moral luck, and moral disagreement.[33]
[edit] Evolutionary ethics
See also: Evolutionary ethics�and Evolution of morality
Evolutionary ethics concerns approaches to ethics (morality) based on the role of
evolution in shaping human psychology and behavior. Such approaches may be based in
scientific fields such as evolutionary psychology or sociobiology, with a focus on
understanding and explaining observed ethical preferences and choices.[34]
[edit] Descriptive ethics
Main article: Descriptive ethics
Descriptive ethics is a value-free approach to ethics, which defines it as a social
science (specifically sociology) rather than a humanity. It examines ethics not
from a top-down a priori perspective but rather observations of actual choices made
by moral agents in practice. Some philosophers rely on descriptive ethics and
choices made and unchallenged by a society or culture to derive categories, which
typically vary by context. This can lead to situational ethics and situated ethics.
These philosophers often view aesthetics, etiquette, and arbitration as more
fundamental, percolating "bottom up" to imply the existence of, rather than
explicitly prescribe, theories of value or of conduct. The study of descriptive
ethics may include examinations of the following:
* Ethical codes applied by various groups. Some consider aesthetics itself the
basis of ethics� and a personal moral core developed through art and storytelling
as very influential in one's later ethical choices.
* Informal theories of etiquette that tend to be less rigorous and more
situational. Some consider etiquette a simple negative ethics, i.e., where can one
evade an uncomfortable truth without doing wrong? One notable advocate of this view
is Judith Martin ("Miss Manners"). According to this view, ethics is more a summary
of common sense social decisions.
* Practices in arbitration and law, e.g., the claim that ethics itself is a matter
of balancing "right versus right," i.e., putting priorities on two things that are
both right, but that must be traded off carefully in each situation.
* Observed choices made by ordinary people, without expert aid or advice, who vote,
buy, and decide what is worth valuing. This is a major concern of sociology,
political science, and economics.
Commercial law
From Wikipedia, the free encyclopedia
��(Redirected from Business law)
The examples and perspective in this article may not represent a worldwide view of
the subject. Please improve this article and discuss the issue on the talk page.
(December 2010)
Companies lawCompany�� BusinessBusiness entitiesSole proprietorship
Partnership
(General�� Limited�� Limited liability)
Corporation
CooperativeEuropean Union�/ EEAEEIG�� SCE�� SE�� SPEUK�/ Ireland�/ Commonwealth
Community interest company
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(by guarantee�� by shares�� Proprietary�� Public)
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Delaware statutory trust
Massachusetts business trust
Nevada corporationAdditional entitiesAB�� AG�� ANS�� A/S�� AS�� GmbH
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corporation by estoppel
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* d
* eCommercial law (also known as business law, which covers also corporate law) is
the body of law that governs business and commercial transactions. It is often
considered to be a branch of civil law and deals with issues of both private law
and public law.
Commercial law includes within its compass such titles as principal and agent;
carriage by land and sea; merchant shipping; guarantee; marine, fire, life, and
accident insurance; bills of exchange and partnership. It can also be understood to
regulate corporate contracts, hiring practices, and the manufacture and sales of
consumer goods. Many countries have adopted civil codes that contain comprehensive
statements of their commercial law. In the United States, commercial law is the
province of both the United States Congress, under its power to regulate interstate
commerce, and the states, under their police power. Efforts have been made to
create a unified body of commercial law in the United States; the most successful
of these attempts has resulted in the general adoption of the Uniform Commercial
Code, which has been adopted in all 50 states (with some modification by state
legislatures), the District of Columbia, and the U.S. territories.
Various regulatory schemes control how commerce is conducted, particularly vis-a-
vis employees and customers. Privacy laws, safety laws (e.g., the Occupational
Safety and Health Act in the United States), and food and drug laws are some
examples.
Stakeholder theory
From Wikipedia, the free encyclopedia
The stakeholder theory is a theory of organizational management and business ethics
that addresses morals and values in managing an organization.[1] It was originally
detailed by R. Edward Freeman in the book Strategic Management: A Stakeholder
Approach, and identifies and models the groups which are stakeholders of a
corporation, and both describes and recommends methods by which management can give
due regard to the interests of those groups. In short, it attempts to address the
"Principle of Who or What Really Counts."[2]
Contents
�[hide]�
* 1 Overview
* 2 See also
* 3 References
* 4 External links[edit] Overview
In the traditional view of the firm, the shareholder MH (Majority Holder) view (the
only one recognized in business law in most countries), the shareholders or
stockholders are the owners of the company, and the firm has a binding fiduciary
duty to put their needs first, to increase value for them. In older input-output
models of the corporation, the firm converts the inputs of investors, employees,
and suppliers into usable (salable) outputs which customers buy, thereby returning
some capital benefit to the firm. By this model, firms only address the needs and
wishes of those four parties: investors, employees, suppliers, and customers.
However, stakeholder theory argues that there are other parties involved, including
governmental bodies, political groups, trade associations, trade unions,
communities, associated corporations, prospective employees, prospective customers,
and the public at large. Sometimes even competitors are counted as stakeholders.
The stakeholder view of strategy is an instrumental theory of the corporation,
integrating both the resource-based view as well as the market-based view, and
adding a socio-political level. This view of the firm is used to define the
specific stakeholders of a corporation (the normative theory (Donaldson) of
stakeholder identification) as well as examine the conditions under which these
parties should be treated as stakeholders (the descriptive theory of stakeholder
salience). These two questions make up the modern treatment of Stakeholder Theory.
There have been numerous articles and books written on stakeholder theory. Recent
scholarly works on the topic of stakeholder theory that exemplify research and
theorizing in this area include Donaldson and Preston and Mitchell, Agle, and Wood
(1997), Friedman and Miles (2002) and Phillips (2003).
Donaldson and Preston argue that the normative base of the theory, including the
"identification of moral or philosophical guidelines for the operation and
management of the corporation", is the core of the theory.[3] Mitchell, et al.
derive a typology of stakeholders based on the attributes of power (the extent a
party has means to impose its will in a relationship), legitimacy (socially
accepted and expected structures or behaviors), and urgency (time sensitivity or
criticality of the stakeholder's claims).[4] By examining the combination of these
attributes in a binary manner, 8 types of stakeholders are derived along with their
implications for the organization. Friedman and Miles explore the implications of
contentious relationships between stakeholders and organizations by introducing
compatible/incompatible interests and necessary/contingent connections as
additional attributes with which to examine the configuration of these
relationships.[5]
The political philosopher Charles Blattberg has criticized stakeholder theory for
assuming that the interests of the various stakeholders can be, at best,
compromised or balanced against each other. Blattberg argues that this is a product
of its emphasis on negotiation as the chief mode of dialogue for dealing with
conflicts between stakeholder interests. He recommends conversation instead and
this leads him to defend what he calls a 'patriotic' conception of the corporation
as an alternative to that associated with stakeholder theory.[6] Stakeholder theory
is defined by Rossouw et al. in Ethics for Accountants and Auditors and by Mintz et
al. in Ethical Obligations and Decision Making in Accounting.