Business Ethical Decision Making
Ethical decision making for any business involves resolving and identifying issues within the business context. Sensitization and awareness of the possible ethical issues should be made known to the decision-makers inclusive of the appropriate measures that need to get taken to resolve the issues. In instances where an organization needs to decide on any alteration of a product line, leaving or entering a market, various questions need to get answered to determine the right decision. For instance, the decision-making team needs to ensure they have all the necessary information to come up with a solution. All options should be exhausted; the implications of the decision to the stakeholders’ should examine, among others. Due to the collapse of some of the top international companies such as Enron, the gatekeeper’s role in corporate governance has been evaluated keenly. The study gets focused on assessing the roles of the decision-maker team, such as the gatekeepers and the board of directors, studying the internal control concept as well as illustrating the Sarbanes-Oxley Act.
Gatekeepers and Conflict of Interest
Gatekeepers refer to someone who hinders one from the organization’s main decision-makers’. They ensure everyone in the marketplace follows the rules and that the market continues to operate as it should. Accountants in a company are an excellent example of gatekeepers. Attorneys, financial analysts, together with the auditors, are too an example of gatekeepers.
Since these professionals involve decision making, they are prone to suffering from ethical issues like conflict of interest. It is since their professionals demand them to make a critical decision on behave of others. Their interests may be contrary to the interest of others, which may end in conflict. The duties of the gatekeepers are supposed to better the responsibilities allocated to them by the employers. They should be willing to fulfill their obligations by keeping away their self-interest aside. When the self-interest leads the gatekeepers, the chances of preventing any upcoming harm becomes quite difficult, resulting from collapsing of the organizations.
Sarbanes-Oxley Act
After a lengthened span of corporate scandals that got witnessed in companies like Worldcom and Enron, an Act got enacted whose main aim was to restore the investors’ trust and mend any loopholes in which public organizations took advantage of to rob investors. The enacted Act got termed Sarbanes-Oxley. After it was passed in the United States by Congress, it got found to be most effective in corporate governance. Over 15,000 companies in the US began using the Act to win their investors’ confidence.
The main requirements of the Act are of the public companies to carry out tests for their internal audit, reinforce audit committees, strengthen disclosure as well as making the officers and directors liable for financial statements accuracy. The Act changes the operation of accounting firms and places strict penalties for any securities fraud. The new standards set by the Act aided in reducing conflicts of interest as well as the transfer of responsibilities to allow accurate and complete handling of accounting reports.
Concept of Internal Control
Internal control refers to the process of assuring the organization’s goals inefficient, attested financial reporting, laws, policies and regulations compliance, and effective operations. In general, the concept incorporates all to do with the organization’s risk controls. The control mechanisms get established internally to comply with the laws and regulations of financial reporting. COSO (Committee of Sponsoring Organizations) sets a framework of internal control integration that all organizations aiming at controlling their environment should utilize.
According to COSO, there are five components of internal control. The first component is the control environment. It sets the organization’s tone, which determines the consciousness control of its individuals. It is thus the primary component of all. Risk assessment is the second component that involves the analysis and identification of pertinent risks involved in achieving the goals. It gives options for what should get done to curb the risks. The third component is that of control activities. The activities include the procedures and policies that facilitate proper management directives. Information and communication is the other component that supports the capture, exchange, and identification of information in a time and form frame, which helps individuals proceed with their allocated responsibilities. Last but not least, we have ongoing monitoring, which assesses performance quality over time.
Duties of Board of Directors
Board of directors refers to a group of people who have gotten elected to be the spokesperson for the shareholders, support, and establish management execution. Members of the board of directors typically include the CEO (Chief Executive Officer), other organization’s executives like the CFO (Chief Financial Officer), or the vice president of the executive. Large shareholders also are part of the board who may be officers or employees or may not be. There are various duties allocated to these board members, which include; the care duty, which ensures that all executives comply with the laws and regulations as well as perform their responsibilities. Good faith duty involves obedience and requires them to remain faithful to the mission of the organization. Lastly, we have a loyalty duty, which demands all the board members to give allegiance while making any decision about the organization. It is their duty concerning the sentencing federal guidelines to practice reasonable oversight of the compliance or ethics program where it has to make sure resources are available and obtains authority levels.
“Earnings can be pliable as putty when a charlatan heads the company reporting them,” a quote by Warren Buffett (Hu, 1997). The quote implies that when the market sector is performing well, a lot of top executives become obsessed with knowing what the market believes about their organization’s performance. Quarterly when the analysts are determining the improved profit, many of the executives get the feeling that they are required to present them by all means. At times, it is preferable when the market is poorly performing since that kind of pressure does not become part of the meaning the managers can now focus on other vital things that will improve the organization’s status rather than having to come up with unknown things. In this case, the shareholders remain in the business since their trust gets not altered.
Conclusion
From the above discussion, it can get concluded that ethical decision-making is vital for any organization since it determines whether the business prospers or collapses. When there is an effective decision-making team, the company is likely to thrive. Some of the people that play a significant role in ethical decision making include the accountants who act as gatekeepers. Gatekeepers function as watchdogs who makes sure the market operates as it should, plus the individuals involved play their roles well. Care, good faith, and royalty are the duties allocated to the board of directors. To ensure there is trust with the investors, the Sarbanes Oxley Act got passed, which was then said to perform as expected. The internal control concept incorporates all of the organization’s risk controls, as explained above.
Reference
Hu, H. T. (1997). Buffett, Corporate Objectives, and the Nature of Sheep. Cardozo L. Rev., 19, 379. https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/cdozo19§ion=19