The federal Sarbanes-Oxley Act of 2002 set a new baseline of accountability for CEOs and CFOs. Following the Enron scandal and other corporate scandals, the law placed constraints and punitive measures on CEOs and CFOs who knowingly and willingly committed fraud and other crimes.

Sarbanes-Oxley Act of 2002 as a Baseline for CEO and CFO Accountability

Widespread corporate scandals led the U.S. Congress to implement legal and compliance standards intended to curb and discourage illegal activities in corporations.

Corporate Scandals as Impetus for U.S. Compliance Legislation

Self-regulation continues to play a major role in corporations "doing the right thing," while compliance has proven necessary but not always sufficient for corporate governance.

Compliance as Necessary but Not Sufficient for Corporate Governance

Maintaining an ethical corporate culture requires both a values-based approach and a compliance approach. Studies show that ethical and compliance approaches are interrelated and work best together to motivate and sustain lawful and ethical behavior in organizations.

Dual Necessity of Ethics and Compliance for an Ethical Corporate Culture

Ethics complements compliance because the law cannot, does not, and will not cover every aspect of potentially harmful behavior.

Why Ethics Complements Compliance Beyond the Reach of Law

Compliance is related to influencing behavior so that people act in accordance with the law or face consequences, a "stick" approach to behavior.

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Corporate culture is an internal dimension of organizational effectiveness that acts as both the personality and the glue that binds an organization. Because culture is based on values, it influences employees' beliefs, behaviors, relationships, and ways of working, including how employees perceive coworkers' ethical priorities, organizational values, and willingness to share opinions.

Corporate Culture

OpenStax Principles of Management. Source pages used for organizational culture, corporate culture, and management topics. https://openstax.org/books/principles-management

Principles of Management - OpenStax

Organizational culture serves two crucial purposes. First, it helps an organization adapt to and integrate with its external environment by adopting values that respond to external threats and opportunities. Second, it creates internal unity by bringing members together so they work more cohesively toward common goals.

Functions of Organizational Culture

Peter Drucker's maxim that "culture eats strategy for breakfast" means that corporate culture is more influential than strategy in motivating employees' beliefs, behaviors, relationships, and ways of working because culture is based on values.

Culture Eats Strategy for Breakfast

Employees perceive the ethical priorities of their coworkers, the values of their organization, and willingness to share opinions.

Employee Perceptions of Ethics, Values, and Opinion Sharing

Ethics has been characterized as "doing the right thing" and as a motivational force that influences professionals' values, resembling a "carrot" approach to professional behavior.

Ethics as a Carrot Approach in Corporate Culture

Compliance as a Stick Approach in Corporate Culture

Social responsibility as a concept originated in 1953 when Howard R. Bowen, known as the "father of corporate social responsibility" (CSR), referred in a book to the "Social Responsibilities of the Businessman."

Origin of Corporate Social Responsibility

Whistleblowing, particularly when it damages a company's reputation, is considered a sign of a dysfunctional corporate culture, indicating that internal methods of addressing problems are inadequate.

Whistleblowing as a Sign of Dysfunctional Corporate Culture

In the United States, corporate culture can legally be found to be a cause of injuries and a reason for fining companies. After the Upper Big Branch Mine disaster in April 2010, the U.S. Department of Labor Mine Safety and Health Administration levied a fine of more than US$10.8 million on Performance Coal Co., described as the largest fine in the agency's history.

Legal Safety Consequences of Corporate Culture

Netflix says a strong workplace is not mainly defined by office perks such as meals or massages. It emphasizes working with highly capable colleagues who also collaborate well.

Workplace Quality Beyond Perks at Netflix

Netflix says it models itself on a professional sports team rather than a family. In that metaphor, the workplace emphasizes performance and fit for each position rather than unconditional loyalty.

Netflix's Professional Sports Team Culture Metaphor

Netflix says it cares about the Dream Team, putting people over process, and creating an environment where everyone feels responsible for making Netflix better. The memo says this approach is its surest path to excellence and long-term success.

Netflix People Over Process Principle

According to a survey reported by MIT Sloan Management Review, 85% of CEOs and CFOs believe that an unhealthy corporate culture leads to unethical behavior.

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