Is Sarbanes-Oxley Actually Bad For Ethics?

Is Sarbanes-Oxley actually bad for ethics? The answer is, rather literally I’d say, a matter of definition.

When the law was written, it certainly pushed the development and documentation of organizations’ internal financial controls and overall accountability. Though one can certainly argue that the actual mandates of Sarbanes-Oxley are a bit over-the-top in places, it’s tough to argue with either its intentions or positive impact on accounting transparency.

So why would I question whether or not it is good – or even great – for ethics?

My experience is that Sarbanes-Oxley has had a number of extremely unfortunate side effects, however unintentional. Primary among these has been a pervasive, passive assumption than greater accountability, in itself, somehow solves ethics problems. The fact is that what it primarily solves are a variety of legal/compliance problems. Are those important problems to solve? Absolutely. But is that really about ethics? Nope. Certainly not in ethics’ broader sense.

To use a point I perhaps overuse, ethics must also help individuals and companies know what to do when there is no rule to follow. Ethics should be a matter of bringing organizations’ positive values to life as opposed to simply and blindly following the rules. Unfortunately, as attention to compliance increases, many companies’ attention to values-driven initiatives decreases. As much as anything, this seems to most often be attributable to:

1. A perception that ethics are strictly a matter of enforcement and so all relevant resources are put into that arena. The more that Sarbanes-Oxley places the focus on legal enforcement, the more this perception becomes ingrained. That often leaves both problem-prevention programs (as opposed to rule enforcement) and values-driven initiatives lacking for funds and attention.

2. A false sense that ‘if we’re following the rules, everything must be okay.’ In other words, compliance and ethics are so confused with each other that ethics – as distinct from compliance – get lost. Since Sarbanes-Oxley, and other laws in other countries, place compliance so much in the forefront, it has a nasty way of obscuring ethics in the rush to meet and maintain legal mandates.

Am I somehow ‘anti’ Sarbanes-Oxley? Absolutely not though I know it is the source of ceaseless headaches for many of you reading this. However, those who think that Sarbanes-Oxley has been a huge boon to ethics in U.S. businesses perhaps need to think twice.

1 Comment

  • Hi, Chris, and welcome to the blogosphere. I’ve been blogging on ethics–actually, the intersection of ethics, politics, sustainability, and marketing–for about two years now, at http://www.principledprofit.com/good-business-blog/ . It’s a lot of fun.
    On SarbOx: as you know, I agree that smart businesses don’t need it, because they understand that strong ethics is a key driver of profitability. But it definitely helps to put some teeth into what should be obvious and understood by every business executive, but seems to have been trampled underfoot in a misguided rush for the Almighty Dollar.
    Of course, in the long run, more of those dollars will accrue to ethical companies.
    Shel Horowitz, award-winning author of Principled Profit: Marketing That Puts People First and founder of the Business Ethics Pledge at http://www.business-ethics-pledge.org

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