Social Responsibility Implications Regarding Mandatory Publication of Corporate Ethics

The Sarbanes-Oxley Act requires that each company write a Code of Ethics for senior financial officers to follow (Orin, 2008, p.158). Corporate officers shall be socially responsible to employees, customers, stockholders, and other stakeholders. Prior actions by corrupt corporate officers harmed not only the reputations of their companies but also hurt investors and employees. SOX regulation was aimed at preventing management from harming society anymore in the future. Was SOX successful? Some evidence exists that shows that SOX has been effective, namely the fact that there has not been any major corporate scandal since 2002 (Orin, 2008, p.158). Senator Sarbanes among others debated the issue of whether or not SOX has been successful at a recent forum in New York called COMMIT!Forum. Senator Sarbanes said,

SOX was necessary to create ‘an indispensible safety mechanism’ that

has helped boost investors’ trust in the financial statements they reference

when investing in public companies. The law has unearthed systemic problems and nipped accounting problems in the bud,” he said (Clancy, 2012).


Zhang, Zhu & Ding found that SOX has been successful in establishing an independent Board of Directors. Their study of over 500 companies representing 64 different industries showed that a greater presence of outside director and women directors has led to better CSR performance (Zhang, Zhu & Ding, 2013). Cohen & Krishnamoorthy agree that SOX has been effective but say that SOX may have caused too much focus by Boards of Directors on accounting rules. With so much of their attention on the details and the specifics of following SOX rules, they may have missed important clues about the upcoming economic trouble ahead such as the Financial Crisis of 2008. Focusing so much on SOX requirements made them less like to focus on corporate strategy and such things as staying attune with technological advances and with the business environment

(Cohen & Krishnamoorthy, 2013, p.76). This leads one to question what the real motive for social responsibility should be. Perhaps the real motive for social responsibility should be to obtain profits because profits allows the company to pay its employees and distribute dividends to shareholders so they are not hurt by poor business decisions and in turn, will keep investing in our economy. So if the best way to help society is to obtain profits, then perhaps SOX has hindered corporate social responsibility.

            On the other hand, it is known that SOX has helped society in many ways. Cohen & Krishnamoorthy (2013) say it has created a team mentality between management, external auditors, and the audit committee (Cohen & Krishnamoorthy 2013, p.80). Boards are now more devoted to more compliance issues and less strategy but this has caused a reduction in risk-taking among CEO’s (Cohen & Krishnamoorthy & , 2013, p.81). However, according to Wang, Davidson & Wang (2010), evidence exists that SOX reduces investment expenditures and increases management risk aversion (Cohen, 2007). Risk aversion can stifle competitiveness. Small companies may wish to stay private and not go public in order to avoid an IPO which comes with the requirements to follow all of the regulations imposed by SOX.


Clancey (2012). How SOX has reshaped corporate responsibility. Retrieved from


Cohen, J. R., Hayes, C., Krishnamoorthy, G., Monroe, G. S., & Wright, A. M. (2013). The

            effectiveness of SOX regulation: An interview study of corporate directors. Behavioral    Research in Accounting, 25(1),   61-87.  doi:10.2308/bria-50245

Zhang, J., Zhu, H., & Ding, H. (2013). Board composition and corporate social responsibility:

            An empirical investigation in the Post Sarbanes-Oxley Era. Journal of Business Ethics,       114(3), 381-392. doi:10.1007/s10551-012-1352-0

Orin, R. M. (2008). Ethical guidance and constraint under the Sarbanes-Oxley Act of 2002. Journal of Accounting, Auditing & Finance, 23(1), 141-171.

Cohen, D., Dey, A., & Lys, T. (2007). The Sarbanes-Oxley Act of 2002: Implications for
compensation structure and risk-taking incentives of CEOs. Unpublished working paper, NewYork University.

Wang, H., Davidson, W. N., & Wang, X. (2010). The Sarbanes-Oxley Act and CEO tenure, turnover, and risk aversion. Quarterly Review of Economics & Finance, 50(3), 367-376.


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