Sarbanes-Oxley act of 2002 (SOX)-- an act aimed at eliminating corporate disclosure and conflict of interest problems. Contains provisions about corporate financial disclosures in the relationships among corporations, analysts, auditors, attorneys, directors, officers, and shareholders. #SOX focus: *.establish an oversight board to monitor the accounting industry *.tightened audit regulations and controls *.toughened penalties against executives who commit corporate fraud *.strengthend the accounting disclosure requirements and ethical guidelines for corporate officers *.established corporate board structure and membership guidelines *.established guidelines with regard to analyst conflicts of interest *.mandated instant disclosure of stock sales by corporate executives *.increased securities regulation Authority and budgets for auditors and investigators. #Ethics-- standard of conduct or moral judgment. #Considering ethics -- *.is the action arbitrary or capricious? Does it unfairly single out one individual or group? *.Does the action violate the moral or legal rights of any individual or group? *.Does the action conform to accepted moral standards? *.are there alternative courses of action that are less likely to cause actual or potential harm? *.Are the rights of any stakeholder being violated? *.Does the firm have any overwriting duties to any stakeholder? *.Will the decision benefit any stakeholder to the detriment of another stakeholder? *.If there is detriment to any stakeholder, how should it be remedied, if at all? *.What is the relationship between stockholders and other stakeholders? An ethics program can produce a number of positive benefits: *.reduce potential litigation and judgment costs *.maintain a positive corporate image *.build shareholder confidence *.gain the loyalty, commitment in respect of the firm's stakeholders *.provide employment integrity. #Agency problem-- the likelihood that managers may place personal goals ahead of corporate goals. #Agency costs-- the costs borne by stockholders to maintain a governance structure that minimizes agency problems and contributes to the maximization of owner wealth. #Incentive plans-- management compensation plans that tend to time management compensation to share price; the most popular incentive plan involves the grant of stock options. #Stock options-- an incentive allowing managers to purchase stock at the market price at the time of the grant. #performance plans-- plans the time management compensation to measures such as EPS, growth in EPS, and other ratios of return. Performance shares and/or cash bonuses are used as compensation under these plans. #Cash bonuses-- Cash paid to management for achieving certain performance goals. #Financial institution– an intermediary that channels the savings of individuals, businesses, and governments into loans or investments.