Laws for Corporate Ethics

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The primary mission for a corporation is to make a profit for its shareholders. While most corporations attempt to achieve this mission by using responsible behavior, some put their profit motives above their ethics. In recent years, firms such as Enron, WorldCom and Lehmann Brothers have pursued profits over ethics and collapsed under the weight of both shareholder scrutiny and legal investigations. The federal government has passed several laws to counter such behavior and established agencies to monitor unethical corporate behavior.

Sherman Antitrust Act of 1890

Since the passage of the Sherman Antitrust Act in 1890, U.S. antitrust laws have attempted to achieve the same goal: to ensure fair business competition for the good of consumers. The antitrust laws prohibit improper mergers and business processes that restrict competition and lead to unfair trade practices. These practices include agreements among competing businesses to set prices, divide markets or rig bids. Violations of the Sherman Act carry criminal penalties of up to $1 million for an individual, along with up to 10 years in prison, and up to $100 million for a corporation.

Securities Act of 1933

In the wake of the stock market crash of 1929, Congress passed the Securities Act of 1933. The Securities Act has two primary objectives. The first is to guarantee a higher degree of transparency in financial statements so that investors can reach educated conclusions about potential investments. The second is to establish laws against deception and fraud in the securities markets. A major part of the law requires companies to register with the Securities and Exchange Commission before issuing securities.

Corporate Income Tax Laws

A major area where corporations must encourage ethical and responsible behavior comes when reporting income to federal and state taxation agencies. When corporations attempt to hide income or use dubious tax deductions, such actions can prompt investigations and audits from the Internal Revenue Service. The investigations can slow down business processes and cost corporations in lost productivity. The criminal punishments can range from fines to tax penalties to prison time for federal tax evasion.

Sarbanes-Oxley Act of 2002

Just as the widespread speculation and the stock market crash prompted the passage of the Securities Act of 1933, the rampant accounting fraud found at Enron, Tyco and WorldCom in the early 2000s prompted the passage of the Sarbanes-Oxley Act of 2002. The goal of the Act is to protect investors from fraudulent accounting activities by corporations. The Act called for new procedures to increase financial transparency from corporations and prevent incidents of accounting fraud.


About the Author

Living in Houston, Gerald Hanks has been a writer since 2008. He has contributed to several special-interest national publications. Before starting his writing career, Gerald was a web programmer and database developer for 12 years.

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