INDIVIDUAL RESPONSIBILITY, SARBANESOXLEY STRIKE – BOATRIGHT
The resulting public outright reflects a deep sense of injustice at the possibility that top
executives could inflict such great losses on investors and employees without suffering
greater personal consequences
Sarbanes Oxley Act that addresses individual responsibility, in signing this legislation
George W Bush claimed that ti ushers in a new ethical of personal responsibility in
business communities
I argue that the American corporate system requires a certain separation of individual
responsibility from an executive’s corporate role and that for this reason, we should be
cautious about efforts to hold executives more accountable or liable personally for their
actions
The Sarbanes Oxley Act contains four provisions that bear on individual responsibility.
Section 302, the certification provision, requires that the CEO and CFO of companies
subject to Securities and Exchange commission
Specifically the signing officer is required to certify that he or she has reviewed the
report
S 304, the forfeiture provision, mandates that in the event the corporation is forced to
restate its earnings due to misconduct with regard for financial reporting requirements,
the CEO and CFO shall return to the company any bonus or incentive compensation and
any profits from the sale of securities in the 12 month period following the issuance or
filing of the report that contains misreported earnings
S 404, which requires management to assume responsibility for establishing and
maintaining an adequate system of internal control and assessing the effectiveness of
this system annually
White Collar Crime Penalty Enhancement Act of 2002 significantly increases the fines
and sentences of a number of offences including fraud and conspiracy
CEOs and CFOs are already liable under the Securities Exchange Act for documents filed
by their companies if they are aware of material discrepancies even if they do not sign
them
The forfeiture provision is innovative inasmuch as it allows a prosecutor to enforce
restitution to the corporation but such restitution can already be sought by the
corporation through suits for fraud
Prosecutors already have the power to force an executive to give up ill-gotten gains as
part of a legal settlement of criminal charges
The fact that maximum penalties have seldom been imposed in the past gives scant
assurance that the increased penalties will provide much deterrent effect For example, attempts to hold executives more liable as a matter of justice might make
corporations less efficient and productive and thus be undesirable as a matter of public
policy
Thus errant executives may suffer loss of compensation and reputation when they are
dismissed for misconduct
The law and the market represent, respectively the public and private realms in which
corporations operate
The modern corporation creates a number of different problems with holding
individuals responsible in the sense of being answerable or accountable
Although corporations can act only through persons, the fragmentation of decision
making and action and the diffusion of knowledge in organizations often makes it
difficult to place responsibility on any given individual or group of individuals
An enduring principle of law is that no one an evade responsibility for a crime merely by
acting as an agent or a member of a corporation
However, in cases of less serious conduct, such a reckless harm, the legal principle of
respondeat superior has been applied whereby the principle is responsible for the
actions of an agent provided that the agent is acting within the scope of his or her
authority
Three objectives may be summarized as deterrence, compensation and retribution –
these three together objectives of the law are often pursued together
Criminal prosecution is appropriate only for actions that are regarded as morally wrong
Second, we need to separate what justice requires from what is socia
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