Ethics Article Review Paper

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Ethics Article Review Paper (Revised)
Shirley Smith
University of Phoenix
FIN 324
Walter P. Lambert
December 1, 2006

A study done between Motorola and Ericsson on the implementation of Corporate Ethics and the transformation within the corporations following the implementation of the Sarbanes-Oxley Act of 2002, looking at various ethic theories, such as stockholder theory, stakeholder theory, and legitimacy theory.

Since the Sarbanes-Oxley Act, which was enacted in response to the Enron and WorldCom collapses and designed to restore confidence and maintain integrity in businesses. Companies are to disclose if they have a code of ethics. Under the rules, a company must disclose whether it has adopted a code of ethics that applies to the company's principle executive officer, principle financial officer, principal accounting officer or controller, or person performing similar functions.

The stockholder theory suggests that organizations are responsible only to shareholders, and all of the employees' actions are directed towards maximizing shareholder wealth without breaking the law. Manager's act as agents to the stockholders, the business can have no social responsibility (Hasnas 1998).

The legitimacy theory is a generalized perception that the actions of the organization are proper or appropriate within a given social system (Lehtonen, 2003). Legitimacy theory holds that companies are continually attempting to ensure that their operations fall within the norms of their societies.

It also relies upon the notion of a social contract and on the maintained assumption that managers will adopt strategies that show society that the organization is attempting to comply with society's expectations. Action and presentation are the two dimensions in an organization's effort to gain legitimacy.

The Stakeholder theory suggests that organizations are not only responsible to shareholders, but also that they are responsible to all individuals, group, etc....
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