When former Morgan Stanley employee Garth Peterson pled guilty to violating the Federal Corrupt Practices Act by conspiring with a Chinese official to circumvent his company’s internal controls, the company avoided being penalized because it could provide substantial documentation of a robust compliance system. Had Morgan Stanley not been so committed to the implementation of transparent and thorough internal controls, things might have turned out very differently.
All publicly traded companies are required under the Sarbanes-Oxley Act to have a code of conduct. While these codes are expected to convey clear guidelines to management and employees for ethical behavior, they also publicly convey a company’s culture and values—which can be important for investors, regulators, and other external stakeholders. Developing solid codes of conduct is a time-consuming and complicated process, but one that, as proven by the Morgan Stanley case, is well worth the effort.
