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The Sarbanes-Oxley Act of 2002 fundamentally changed the landscape of auditing and reporting for publicly traded companies. The law has had far-reaching consequences for the financial reporting systems for corporations. For example, there are new regulations for retaining audit papers. A new oversight board for accounting firms auditing publicly traded companies has been created. Those who blow the whistle on unethical or illegal practices are given an added measure of protection. Those who interfere with investigations will receive additional penalties. And, in the interest of promoting transparency, there are new regulations regarding auditor independence, the reporting of conflicts of interest in financial analysis, and how publicly traded companies report their financial situations.

Compliance with such comprehensive regulation does not come cheap, however. According to a recent Wall Street Journal editorial, the estimated average cost of complying with Sarbanes-Oxley is approximately $2,000,000 a year for each company. The cost is high, but if corporate executives will not police themselves, goes conventional wisdom, legislators will have to step in and increase regulation. Without such intervention, investor confidence will lag and the market will not operate effectively.

But is such legislation a healthy development? Or will the result be more insidious? It isn't yet known, for instance, if the people who led Enron were criminals under the laws that existed at the time. Their impending trials will determine that. But they certainly were unethical.

The Sarbanes-Oxley laws, however, create a situation in which corporate executives and board of directors change their orientation to ethics. Instead of being responsible for doing what is right, their responsibility becomes determining the line of legality and then moving as close to it as possible without going over, while maximizing shareholders' return on investment.

I recently asked a few CEOs of publicly traded companies what they thought of the new legislation now that they have had an opportunity to live under them for a season or two. Two concerns emerged. First of all, they discussed the enormous cost. None of them would be surprised by the average cost figure mentioned by the Wall Street Journal. Secondly, they talked about corporate ethics becoming a matter of “box-checking” in which they don't have to wrestle with the ethical issues any longer. Under Sarbanes-Oxley, ethics has become only a matter of law – and no longer a matter of conscience or prudence.

This places legislators and corporate leaders in a dangerous ethical game of cat and mouse. Can those making the laws fully anticipate what the unethical few under them will do? Probably not. At best, legislation is only a portion of the answer.

Indeed, the proliferation of legislation is not going to solve the problem. As jurist Grant Gilmore once wrote, “The better the society, the less law there will be. In Heaven, there will be no law, and the lion will lie down with the lamb .In Hell, there will be nothing but law, and due process will be meticulously observed.”

The rest of the answer is a matter of the development of our culture and society. Perhaps a good place to begin the conversation is in the halls of the academies teaching our business leaders. The days of “value-less” ethics education are over. The all-too-common method of presenting case studies without examining the rightness or wrongness of possible solutions is no longer adequate.

Those teachings business ethics (and even business in general) must return to requiring their students to reflect on some of the core issue of human existence. Students would do well to consider their answers to questions like these:

    Who am I?What is my work?What is my responsibility to my community?Can I do well and good at the same time?What is the difference between being successful and beingsignificant?How do I balance the demands on my time?How much is enough?

Legality is important as it provides a context within which business must operate. It ensures that there are certain reasonable expectations that will be enforced by the rule of law. But questions of legality cannot be the end of the matter.

Those teaching business ethics will have to make choices about what is virtuous and what is not. They will have to be able to defend their choices to their students. They will have to provide guidance to students who are wrestling with some of these core issues of humanity.

But they will not have to enter this debate without resources. There is an enormous body of literature available that has been built up for thousands of years. This truly global material provides guidance as to what is ethical and what is not and leads to the kind of reflection that is necessary. It is found in the major teachings of world's religions. It is found in ancient and modern philosophers.

Rather than finding adamantly opposed answers to the kinds of questions listed above, my sense is that there will be a consistency that will surprise many. Think, for instance, of how ethical reflection on human dignity might begin to provide answers to these questions. Or how reference to traditional moral virtues such as justice and prudence might help to address them.

A relatively new book edited by Robert Kraynak and Glenn Tinder, In Defense of Human Dignityis a good place to begin. The author of the one of the chapters, John Witte, describes the project this way: “This volume of essays by scholars from various confessions and professions is precisely the kind of exercise that is currently needed. Happily, it is of a piece with a number of other important new studies that have appeared ... by Jewish, Muslim, Confucian, Buddhist, and Hindu scholars working on issues of human dignity and human rights with their own texts.” We could add to this a number of other materials, including The Universal Declaration of Human Rights of 1948.

Legislation will never have the effective power of ethically well-developed people. Sarbanes-Oxley might prevent some unethical acts by criminalizing certain activities at the corporate level, but it will not be able to morally form and shape human actors. Now is the time to return to the core questions of what it means to be responsible human beings.


Rev. Gerald Zandstra, an ordained pastor in the Christian Reformed Church in North America, is a senior fellow at the Acton Institute.