The Sarbanes–Oxley Act and the FSGO institutionalized the need to discover and address ethical and legal risk. Top management and the board of directors of a corporation are accountable for discovering risk associated with ethical conduct. Such specific industries as the public sector, energy and chemicals, health care, insurance, and retail have to discover the unique risks associated with their operations and develop ethics programs to prevent ethical misconduct before it creates a crisis. Most firms are developing formal and informal mechanisms that affect interactive communication and transparency about issues associated with the risk of misconduct. Business leaders should consider the greatest danger to their organizations lies in not discovering any serious misconduct or illegal activities that may be lurking. Unfortunately, most managers do not view the risk of an ethical disaster as being as important as the risk associated with fires, natural disasters, or technology failure. In fact, ethical disasters can be significantly more damaging to a company’s reputation than risks managed through insurance and other methods. The great investor Warren Buffett stated it is impossible to eradicate all wrongdoing in a large organization and one can only hope the misconduct is small and is caught in time. Buffett’s fears were realized in 2008 when the

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14 Part 1: An Overview of Business Ethics

financial system collapsed because of pervasive, systemic use of instruments such as credit default swaps, risky debt such as subprime lending, and corruption in major corporations.

In 2009, Barack Obama became president in the middle of a great recession caused by a meltdown in the global financial industry. Many firms, such as AIG, Lehman Brothers, Merrill Lynch, and Countrywide Financial, engaged in ethical misconduct in developing and selling high-risk financial products. President Obama led the passage of legislation to provide a stimulus for recovery. His legislation to improve health care and provide more protection for consumers focused on social concerns. Congress passed legislation regarding credit card accountability, improper payments related to federal agencies, fraud and waste, and food safety. The Dodd–Frank Wall Street Reform and Consumer Protection Act addressed some of the issues related to the financial crisis and recession. The Dodd–Frank Act was the most sweeping financial legislation since the Sarbanes–Oxley Act and possibly since laws put into effect during the Great Depression. It was designed to make the finan- cial services industry more ethical and responsible. This complex law required regulators to create hundreds of rules to promote financial stability, improve accountability and trans- parency, and protect consumers from abusive financial practices.