Business Sustainability, Corporate Governance, and Organizational Ethics

CHAPTER 16Compliance Function

1. Introduction

The wave of financial scandals at the turn of the twenty-first century and their persistence in recent years, coupled with the perceived inadequacy of market correction mechanisms, significantly eroded investor confidence. The Sarbanes-Oxley Act of 2002 (SOX) and the Dodd-Frank Act of 2010 (DOF) were enacted in efforts to rebuild investor confidence and improve corporate governance, and the safety, integrity, and efficiency of the capital markets. More than 15 years after the passage of SOX and eight years after the enactment of DOF, the efficacy and sustainability of both Acts have been challenged. The intent of regulation has been to restore public trust and investor confidence in corporate America, its financial reports, and capital markets pursuant to the occurrences of massive financial scandals. It is expected that this endless cycle of financial scandals and government regulation will continue as regulation is often compromised, which leads to another wave of scandals. Regulations can generate positive externalities for investors in terms of rebuilding their confidence in public financial information and the capital markets. Regulations create an environment under which public companies can operate effectively in achieving sustainable performance, being held accountable for their activities, and providing protection for their investors. This chapter examines the role of regulatory bodies and standard setters that influences ...