Chapter 6: 1. SOX has introduced sweeping changes in the name of enforcing corporate ethnics. Is it really a “fair” piece of legislation? Explain your answer.
In my opinion, it is not a really a “fair” piece of legislation.
In 2002, the passage of Sarbanes-Oxley heralded sweeping reforms affecting the content and preparation of disclosure documents by public companies. As part of the reforms, the legislation requires companies to disclose the fundamental business values by which the senior management of companies operates.
SOX is widely credited for strengthening at least two major areas of investor protection:
(1) CEO and CFO responsibility and accountability for all financial disclosures and related controls; and
(2) increased professionalism and engagement on the part of corporate audit committees. Yet some continue to question its overall value, citing, as an example, its failure to prevent the situations that led to the financial crisis of 2008.
One of the most controversial aspects of SOX Act is Section 404, which requires company management to provide assertions of effective internal control over financial reporting and for the company's independent audit firm to attest to those assertions.
Congress has been repeatedly pressured to ease this requirement, which it did with the Jumpstart Our Business Startups Act (JOBS Act), passed by Congress and signed by President Obama April 5, 2012. The JOBS Act contained a provision that eliminated the SOX Section 404 requirements for organizations that meet the definition of an emerging growth company.
To be fair, a great deal of the effectiveness of SOX depends on the vigor to which it's enforced. Questions remain as to whether the SEC's and Department of Justices's enforcement of SOX has been sufficient. Although SOX has been successful in increasing corporate focus on a strong ethical culture in publicly owned companies, there's room for improvement in audit firm performance as well as the PCAOB's process for assessing and reporting on it.

2. Do US ethical problems give us the right to demand ethical controls from international companies based outside the United State?
No, because every act has their own limitation. The act who enforce is US can’t enforce in others area. Therefore, although ethical controls is enforcing in US now but it is only limited in US, we have no rights to enforce it outside US. However, for US companies who based overseas, the US government has the right to enforce the ethical act to them. Besides that, ethical issues happen in US do not means that it happens outside US as well. It is not fair to apply the same perception to country or companies that perform ethically. The same issue who happens between different countries may consider ethical in certain country due to its culture. For example, giving presents to higher official in US is a kind of bribery but in North America country, it a normal culture.
3. Is there any evidence of good corporate governance in this case?
Yes, the hero welcome received by John Thain as the CEO of Merrill Lynch is one of the evidence of good governance in this case at the very first place. John Thain had earned the title of “Mr. Fix it” as he had lead the company to a successful public offering in 2006 after the successful stints at both Goldman Sachs and the New York Stock Exchange.
Apart from that, the evidence of good corporate governance in this case shows in John Thain as he successfully made Merrill back on track. The tough decision he made to sell the bad or “toxic” assets at steep discount to get them off the balance sheet and marked down the good assets to more accurately reflect their true value. This help Merrill Lynch gain back the reputation after the heavy losses in the credit market.
Besides, the good governance in John Thain shows in Thain’s negotiation of the sale of Merrill Lynch to BofA for a price of $29 per share in BofA stock. This deal is had bring positive coverage for Thain. Before the deal closed, Thain made a pitch for bonuses to be paid for his senior leadership team earlier than usual.
4. If you were a shareholder of CIT, how would you feel about the appointment of John Thain as chairman and CEO?
If I am the shareholder of CIT, I will feel insecure about the appointment of John Thain as chairman and CEO. This is because the negative event of John Thain in d previous company, Merrill was facing the big loss in fourth quarter and BofA were seek an additional bailout while Thain was in vacation during the revelation of Merrill’s fourth quarter implosion. As a shareholder of CIT, I might feel nervous to the chairman that is high risk taking and with negative reputation.
In other way, I feel is ethical for the CIT board of director to appoint John Thain as chairman and CEO as John Thain had earn the good reputation as “Mr. Fix It” and this do apply in the critical time in CIT during the period of bankruptcy, investor seem to agree John Thain as a capable and proven leader.