The National Commission on Fraudulent Reporting concluded that written codes are important for communicating expectations and that more corporations should adopt a code of conduct (Rich, Smith, & Mihalek, 1990). However, Rich et al. conducted a study of selected respondents from the National Association of Accountants database. Rich et al. found that for the performance measure net income, there was pressure on the respondents to achieve a targeted net income, and the pressure was greater in companies with a formal code. For a second performance measure, return on investment (ROI), there was pressure to achieve a specific ROI in those companies with a formal code.
Since there was no evidence that a written code of conduct helps an individual resolve ethical dilemmas, the authors suggested companies focus on creating an ethical environment. The inability of a code of conduct to solve ethical behavior problems is evident in the investment profession, specifically regarding insider trading violations. In a study using members of the Financial Executives Institutes, it was found "ethics in the securities markets" is of the greatest concern (Veit & Murphy, 1996).
Verschoor (2004) reported that Enron and the scandals which followed were a failure of ethical behavior and not of inadequate laws and regulations. He emphasizes moral behavior cannot be legislated. Corporate leaders should have a record of building a culture for doing the right thing (Verschoor, 2004). Senior leadership set the ethical standards that management will follow. When there is no clear guideline, an individual judgment based on personal moral and personal ethical codes are used (Smith & Bain, 1990). The research of Sims and Keon (1999, 2000) support the conclusion that perceived organizational and managerial expectations must match in order to achieve optimal employee ethical decision making.
Their results show that the organizational environment is considerably related to the ethical decision of the employee. Is there financial incentive to continuously train employees to develop positive values in order to promote ethical behavior? According to Tanner, Lamberth, and Goselin (2005) reported settlements by “ investment banks in the WorldCom litigation have exceeded $6 billion collectively.
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