How did the Sarbanes-Oxley Act result in "internal housecleaning" within firms?

Question

What will be an ideal response?

Answer 1

Following several financial scandals involving companies such as Enron, Martha Stewart Living, Inc., ImClone Systems, WorldCom, Inc. (now MCI), and Tyco International, Congress passed the Sarbanes-Oxley Act in 2002. This act required publicly traded companies to set up confidential internal systems by April 2003 so that employees and others could have a method of reporting possible illegal or unethical auditing and accounting practices, as well as other problems such as sexual harassment.
Web reporting systems such as Ethicspoint allow employees of companies to click an icon on their computers and be linked anonymously to the reporting services. Employees may report alleged unethical or illegal activity. The reporting system then alerts a management person or the audit committee of the board of directors to any possible problem. Other systems use a special hotline phone number (800 or 900). No system is perfect, but the key factor is that Sarbanes-Oxley has given legal impetus to "cleaning house" internally.
Whistleblowing protection under Section 806 of Sarbanes-Oxley prohibits any publicly traded company from "discharging, demoting, suspending, threatening or otherwise discriminating against an employee who provides information to the government or assists in a government investigation regarding conduct that an employee believes may be a violation of the securities laws." Penalties are both civil and criminal in nature.