The Legal and Ethical Environment of Business - Essay Example

The Legal and Ethical Environment of Business The corporate world has been rocked with a serious of scandals, starting off with the public revelations about Enron. The corporate leadership of this firm was indicted on several counts of financial fraud and money laundering. For example, Andrew Fastow, the former financial officer, cleverly disguised Enron debts and falsely inflated Enron revenues while Kevin Howard, Michael Kopper and Michael Krautz were found guilty of conspiracy, securities fraud and fraudulent trading practices.(www.marketwatch.com) This was also the case at several other organizations such as CFSB, Adelphia, Home Store and IM Clone systems, where CEOs and top officials in large corporations have been found guilty of fraud , improper accounting and insider trading.

Most of these officials have been convicted and face imprisonment for up to 25 years and tough fines payable to the Government for the personal profits that they have made (www.marketwatch.com). A large insurance Company, AIG was also accused of bid rigging, fraud and improper rigging practices and forced into making a large settlement (www.corporatenarc.com). The Company was able to settle in a civil suit and paid up $1.6 million, thereby avoiding the stiffer penalties that a criminal case could have brought upon the Company.

It is also paying settlement amounts to investors who have been defrauded, as well as $100 million to the SEC. Since DWI is involved in many of the industries where there has been a prevalence of such scandals, it needs to improve its regulatory practices within the organizations in order to be able to face up to the tough scrutiny of the public and Government agencies. Corporate leadership in DWI’s firms in particular, must be held accountable for any fraudulent dealings and there needs to be a periodic system of inspection and accounting introduced, in order to ensure that DWI is not rocked by any financial scandals like other corporations.

In order to address these problems of fraud AIG for example, has introduced new business practices and creating new levels of transparency in the market for the benefit of the customers. (www.corporatenarc.com). Delta Airlines that is facing difficulties in fulfilling the terms of pension plans for its pilots has dumped its pension plans and has filed for bankruptcy protection in order to cover its promised payments to its pilots.(www.money.cnn.com). Company law and the securities market have been regulated in the United States predominantly under the Investment Company Act of 1940 and the Securities Act of 1933.

However there has been an increase in the degree of regulation of the stock markets that has been introduced in the wake of corporate scandals, through the Sarbanes Oxley Act of 2002, which mandates internal controls in firms and management accountability and an enhanced role for auditors, all of which bring more costs upon a firm. (www.riskglossary.com). However, DWI must ensure that it strictly adheres to these requirements and introduces new management practices that will introduce transparency into its organizations.

In particular, the role of corporate officers and their activities needs to be strictly regulated and monitored. Therefore it is recommended that DWI take immediate action to introduce a more transparent system of accounting and make top management accountable for their activities. References:* AIG Scandal settled with $1.6 billion” [online] available at: http://www.corporatenarc.com/feb92005.php* “Delta to dump pension plans” [online] available at: http://money.cnn.com/2006/06/16/news/companies/delta_pensions/* “Scandal Sheet - CBS Market Watch.

” [online] available at: www.marketwatch.com/news/features/scandal_sheet.asp* United States Financial regulation” [online] available at: http://www.riskglossary.com/link/united_states_financial_regulation.htm