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Barriers to Corporate Fraud

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There are two forms of controls in an organization: internal and external. Internal controls directly relate to corporate governance, business ethics, managerial structure, compensation, internal council and whistle blowers. 

External controls include government regulation, external auditors, accountants and the judicial process. A recurring theme in corporate governance is the limited efficacy of many safeguards in cases of “control fraud,” which is abetted or directed by top management and abusive practices become the organizational norm.

 Devastating organizational and personal consequences occur when fraud is determined within an organization, and many times it seems easier for the employees, directors, auditors, and even government regulators to go along with the internal/external cultural trends than to disrupt the functionality of the business.

 A corporate officer’s autonomy and power can be so great that once fraud is identified there is no effective force within the organization to counter their decisions. This article will discuss one of the reasons ethical behavior may be reduced in the corporate workplace regarding publicly traded companies.

Incentives need to be placed within the realm of an organizations corporate governance to create a reward structure for ethical behavior. The division of management and ownership is diluted in publicly traded companies, whereas ownership is dispersed among thousands of shareholders.

CEO’s of large publicly traded companies have received hundreds of millions of dollars worth of stock options during their tenures, which often outweighs their salary and bonus compensation.  This is not directly tied to “ethical” behavior, and has yet been determined if the CEO’s performance in most cases have increased anyone’s wealth including the shareholders with the exception of themselves.

Why is there a failure of pay practices to improve ethical standards in corporate America?

1. CEO’s are able to exercise an enormous amount of bargaining power when negotiating employment contracts in which the only oversight is provided by the board of directors, who are normally disinclined to challenge top management.   

2. CEO’s have significant power influencing and determining the board membership through control of the nomination process and the ethical concerns of the organization may not be important to the CEO (especially if they are planning to conduct fraudulent activities).

3. Directors represent the shareholders, but the shareholders do not select the directors in any meaningful way. Directors primarily want to keep their good graces with the board to keep their respective positions. Rarely do the shareholders vote to the contrary of the board and management.

Future attempts must be taken to reduce deceptive business practices in taking the full range spectrum of the current and potential problems of unethical behavior in corporate America.

The first step in providing a barrier to unethical business practices was from the creation of the Sarbanes-Oxley Act.

Now it is the responsibility of the individual shareholders to demand more from the CEO’s of publicly traded companies in which they personally invest. Investors/shareholders need to research the companies in which they invest, and in many cases voting against management’s decisions may be beneficial. 



Dr. Melissa Luke is a practitioner in the financial and securities markets, specializing in maintaining positive economic conditions within domestic and international organizations for maximum profitability.

Dr. Luke has directly worked with top agency authorities such as the Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD), and the Public Company Accounting Oversight Board (PCAOB) to increase knowledge base for university students and business owners nationwide.

She assists leaders in maintaining corporate vitality and economic growth within an organizations strategic structure and shareholder realm.

Melissa was a professional guest speaker, conducting seminars nationwide and in Canada on market makers, electronic control networks, arbitrage, Level II systems, technical approaches, and crisis prevention methods for corporate securities and welfare, and the Sarbanes-Oxley Act of 2002.

She has published securities educational methods for global distribution, and has worked with several foreign governments on securities issues.

Dr. Luke beta tested the primary software systems used for many of the major brokerage houses and online trading entities prior to the inception and implementation to the general public. She also trains all levels of organizations and corporations on the identification process of corporate malfeasance and fraudulent activity, to protect the corporate executives and public shareholders.

She educates 21st Century organizations, investigates wrongdoing, conducts extensive research on the intricacies of the Sarbanes-Oxley Act, and recruits knowledgeable professionals on the requirements of compliance of corporate fraud utilizing her prior experience working for the United States Treasury.

Currently, Dr. Luke analyzes corporate legal entities, methods of operation, systems, internal controls, employee management, ownership, and corporate structure to maximize profitability and provide recommendations to improve ease of operation, productivity, and profitability of small to medium sized business in the United States.

She also teaches undergraduates at Boise State University as an adjunct professor in management and doctoral students at North Central University in finance.

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Growth in women's share of science, technology, engineering and mathematics (STEM) occupations declined to 27% in 2011from a high of 34% in 1990. While women make up nearly half of the workforce, they were 26% of the STEM workforce in 2011.

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