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WE CAN READILY AGREE THAT LORD ACTON'S axiom, "Power corrupts those who wield it, and absolute power corrupts absolutely," certainly has been applicable to political dictators over the years. It also may be easy to agree that this axiom likely isn't true for all of society in general. But given the number, breadth, and industry dispersion of the many recent corporate scandals, the association between power and corruption is hard to overlook in the business world. Senior executives and financial managers, securities analysts, attorneys, bank lending officers, and auditing firms took the low road to financial gain for themselves and occasionally their organizations instead of the ethical high road that considered the rights of others. Also at fault are seemingly rubber-stamp insider boards of directors and those regulators who caved in to political pressure. Both groups are charged with oversight and failed in their responsibilities.
The resulting legislative solution, the Sarbanes-Oxley Act of 2002 (SOX), adds many requirements and has been described by some as too far-reaching and costly. It's perhaps well that the legalistic mind-set of former SEC Chairman Harvey L. Pitt, who resigned under fire along with the chief accountant he appointed, Bob Herdman, previously of Ernst & Young, is gone. Pitt and Herdman broke no laws when they failed to tell fellow SEC commissioners the full background of William Webster, their choice to be the chairman of the new accounting oversight panel mandated by SOX. Nonetheless, the commissioners felt betrayed.
Full disclosure involves ethics as well as laws-it's impossible to contemplate a law or regulation that could prevent every bad action. Without ethical concerns, creative minds will find a way to circumvent the spirit of any law. "You don't legislate morality," said David A. Nadler, the chairman of Mercer Delta Consulting in New York. "What we should be doing is expecting leaders...