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Atlanta Fed President Discusses Costs of Unethical Behavior

Jack Guynn

Unethical behavior in business imposes a variety of economic costs, including weakened trust in the marketplace and a heavier burden of compliance carried by the vast majority of businesses that have always played by the rules, said Jack Guynn, Atlanta Fed president and chief executive officer.

Speaking in April to the Scott Symposium on Business Ethics at Bridgewater College in Bridgewater, Va., Guynn discussed the wide scope of ethical challenges that have surfaced since 2001. “The picture of business ethics that has emerged over the past few years isn’t very pretty,” he said, noting that between 2002 and 2004 the U.S. Securities and Exchange Commission brought some 1,300 civil cases against businesses and obtained orders for penalties in excess of $5 billion.

Ethical accountability central to free market
The increasing complexity of financial markets and the greater global competitive pressures in the economy have contributed to the recent spate of corporate scandals, Guynn said. “Creative accounting” and other ethically dubious business practices have eroded investor trust in financial markets and may have weakened stock values.

Jack Guynn’s speech

But the Sarbanes-Oxley Act—passed by Congress in 2002 in the wake of boardroom scandals—has helped restore trust and credibility in the marketplace. “I am optimistic that business leaders are becoming more accountable and are getting the message about ethics,” he said.

Accountability comes with costs
The new legislation comes with substantial costs, Guynn added, including extra paperwork and lost opportunities for the organizations that must comply with the law’s stringent rules. “The extraordinary attention devoted to the new corporate governance rules very likely delayed strategic business decisions and capital investment decisions [during the recovery] from the 2001 recession,” he said. “The money to pay for improved corporate governance comes out of corporate profits and represents another price we are all paying for corporate fraud and deception.”

Promoting good ethics
Fostering ethical behavior is business “requires responsibility and strong commitment from business leaders,” Guynn said. “Our first line of defense . . . should be a culture of ethics in all our organizations.”