Since the second half of the 20th century, the government stepped up to encourage and even enforce ethical practices and prevent citizens from the effects of corporate fraud or immoral actions. One example of such a negative impact is financial – in the cases of Enron of WorldCom, misleading accounting practices of the firms led to their bankruptcy and losses for outside investors. In other cases, the outcome can be even more tragic – for instance, the faulty airbags supplied by Takata for Toyota cars resulted in numerous deaths and non-lethal accidents. Considering these examples and the significance of the potential outcomes, one cannot doubt the necessity of encouraging ethical practices in business – through government regulations, if necessary.
Specifically, the government’s regulatory practices to support ethical decision-making in business date back to the late 1970s and early 1980s. As early as 1977, the Securities and Exchange Commission investigated American companies that engaged in bribery to secure profitable foreign contracts. Following the corrupt business practices scandals of the 1980s, the government introduced the first version of the Federal Sentencing Guidelines in 1991 to define punishments for organizations guilty of unethical business practices. As of now, the main regulations regarding ethical practices in organizations are the 2004 version of the Federal Sentencing Guidelines for Organizations (FSGO) and the Sarbanes-Oxley Act of 2002. Each of these will be discussed in more detail in further questions.