Effect of Unethical Behavior Article Analysis
The effects of the Sarbanes-Oxley Act of 2002 on financial statements are general guidelines as to how the information is gathered, calculated and presented to clients while enforcing their accuracy and legitimacy. Companies such as Enron, Tyco, Global Crossing, and WorldCom are just a few examples of corrupt business cultures, practices, and greed that made the need for new laws to arise in order to prevent future business taking the same direction. These companies and companies like them manipulated, lied, embezzled, and sometimes flat out stole from their clients plummeted into financial hardship and in some cases the economy as well.
There will always be companies such as, The Brooke Corporation, who will purposefully manipulate financial data or find new loop holes through the SOX guidelines and laws to make a bigger profit. Corporations and businesses such as these do not look at the ethics behind their decisions, but their business’s financial well-being and their own pockets. In the article, Eight Years After The Fact Is SOX Working? A Look At Brooke Corporation, Brooke Corporation would sell insurance and related services through franchises.
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When an “Agent” would purchase a franchise Brooke Corporation would allow the use of their business model, registered trade name, access to the products of insurance company suppliers, advertising center, facility support and processing center, the use of the internet based information system, provide an office location, equipment and support staff, training and advanced funds for at least the first six months of operation, and agents with all necessary insurance company appointment and help the establish customers.
All this for $150,000 – $165,000 and a 10% broker fee included in the sale price, and they could elect to purchase a Start-Up Assistance program at no additional fee. The unethical decisions began right from the beginning when the agent would purchase the franchise Brooke Corp. would calculate the purchase price of the franchise based on a multiple of the target agency’s renewable commissions. These figures of course were always done in house and confidential and presented to the agent to justify the purchase price which would seem like a steal at the time.
It was always later after the purchase had been made and Brooke began to fail their earlier commitments by not paying the rent for the franchise owner, providing the equipment, or training that was promised under contract that the agents were starting to complain and file law suits. It was later discovered those in house calculations had been purposely falsified to receive the clients business and then turned around and accidentally paid the wrong person’s rent. Brooke began using tactics that were perfectly legal and almost impossible to prove intentional to dive the agents bringing up lawsuits to file bankruptcy and drop the suits.
For several years and unsuccessful lawsuits and wild discoveries the Brooke Corporation did go bankrupt and are no longer in business today, but corporations like this still exist. SOX did improve general guidelines as to how the income and balance sheet data is gathered, calculated and presented to clients while enforcing their accuracy and legitimacy, but not the ethics of business. “The only hope these laws have of becoming effective is if they are actively enforced against companies and their management. ” (Hazel, B. 2010)
Hazels, B. (2010). Eight years after the fact is SOX working? A look at the brooke corporation. Journal of Business Case Studies, 6(6), 19-29. Retrieved from http://search.proquest.com/docview/818384459?accountid=35812