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Legality and Ethicality in Corporate Governance Essay


The legality of the activities according to federal, state, and local laws should follow the principle of good governance through honesty and good faith. Some of the management practices at the United Thermostatic Controls failed to comply with companies’ law.

It is clear that current legislation states that disclosure of financial information should be done in good faith, honesty and with total professionalism. However, the case study at thermostatic controls is different. The company flaunted the fundamental principle of governance that demands utmost good faith.

The top management at the company exerted too much pressure at the financial department as a way of assisting another department to achieve its goals much faster. The federal, state and local laws do not condone such practices at all.

The Sarbanes-Oxley Act of 2002 which is a United States federal law enacted on July 30, 2002 should apply certain criteria to this case. The purpose of this law is to set rules and guidelines of operation for public companies boards, public accounting firms and company management.

This Act takes care of issues such as auditor independence, corporate governance, finance disclosure and others. The case at Thermostatic Controls touches on disclosure of financial information and corporate governance.

A top management official is capable of influencing accounting process to fit personal agenda and as a result, disregard the side effects of such actions to the affected individuals.

Sarbanes Oxley can invoke section 302 and 404 of the Act. For instance, Section 302 sets out some of the internal procedures that should be followed when disclosing financial information. In this case, the section can assist in finding out who is responsible in the event of inaccurate disclosure.

Section 404 of the same Act is clear on internal control mechanisms of companies. In this section, management is supposed to produce credible and certified reports on internal controls as part of Exchange Act report. However, the case of thermostatic control is somehow different.

There are certain doubts on the adequacy of the internal controls. Therefore, using bylaws from this section, it is possible to assess whether there is compliance by companies as required by law. Section 807 of Sarbanes Oxley is also integral in adequately establishing the innocence or guilt of the accused persons.

There was lack of professionalism in ethicality of management activities at the company. Professions such as accounting, auditing and law among others demand professional ethics. The American Institute of Certified Public Accountants (AICPA) stipulates principles of professional conduct among accountants.

The latter should follow the principles of professional conduct that guide them in course of their accounting career. According to the underlying principles, accountants ought to be responsible, act on behalf of public interest, integrity, exercise objectivity and independence in course of their duties (Fernando, 2009).

These principles define the codes of ethics that govern accounting profession. The company in question has many issues concerning the ethicality of various officers.

It is highly unethical for the top management to pressurize junior employees in accounting division to maneuver the books are unethical. The actions put the integrity of the top management into doubts and question. The responsibility of good governance was also withdrawn since the top official went against the requirement of good corporate governance.

The vice president of sales and marketing on the other hand also acted in unethical way by complying with the director’s actions. The accounting department can be blamed because it did not act independently or objectively. Indeed, they flaunted the standards they had always strived to protect.

It was also noted that some of the activities of different individuals are questionable because work ethics demand integrity and have tarnished the image of the company. They should therefore be dealt with accordingly.

The different activities in this case have not been equitable to any of the stake holders. For example, the internal stakeholders who include the management and other staff members have a great burden to reconstruct the image of the company.

These actions which are not ethical in nature put into question the actions of other regions who may have acted lawfully and ethically. The management then has the task of convincing their partners and customers on how not worry. The unlawful and unethical activities also put questions on the leadership ability about proper management.

The external stakeholders were also provided with wrong information. This was not justified because the true performance of the company would not be known by those interested to buy the company’s shares. An ethical approach helps in avoiding such injustices and not to damage other peoples’ interests (Mandal, 2010).

Their investments could lead to loss if prices of these shares collapsed. For other players like the lenders and creditors, such wrong information could result into mistaken decision that would possibly end up in financial loss.

The best decision that can be put into action as a result of this mess to hire professional external auditors who cannot compromise their integrity and professional principle. This is one of the best ways that is logical to curb such unethical activities.

The professional external auditors should test the adequacy of internal controls. Additionally, participatory approach is necessary when setting goals in order to develop realistic and achievable goals. It is also important to practice business ethics at all times (Crane & Matten, 2007).

References

Crane, A & Matten, D. (2007). Business Ethics. New York: Oxford University Press. Fernando, A. (2009). Business Ethics: An Indian Perspective. New Delphi: Dorling Kindersley Private Limited.

Mandal, S. (2010). Ethical in Business & Corporate Governance. New Delphi: Tata McGraw Hill Education Private Limited.

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IvyPanda. (2019, March 30). Legality and Ethicality in Corporate Governance. Retrieved from https://ivypanda.com/essays/legality-and-ethicality-in-corporate-governance/

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1. IvyPanda. "Legality and Ethicality in Corporate Governance." March 30, 2019. https://ivypanda.com/essays/legality-and-ethicality-in-corporate-governance/.


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IvyPanda. "Legality and Ethicality in Corporate Governance." March 30, 2019. https://ivypanda.com/essays/legality-and-ethicality-in-corporate-governance/.

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IvyPanda. 2019. "Legality and Ethicality in Corporate Governance." March 30, 2019. https://ivypanda.com/essays/legality-and-ethicality-in-corporate-governance/.

References

IvyPanda. (2019) 'Legality and Ethicality in Corporate Governance'. 30 March.

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