A Summary On Corporate Governance

“While corporate governance may not dictate the economic prospects of developing countries, it certainly plays an integral role in shaping them.”

Kluyver, C. (2013). A primer on corporate governance (2nd ed.). New York, NY: Business Expert Press.

The focus of the corporation soon changed direction once it was realized that investing in selling intangible assets on the market could provide easier and higher revenue returns. This type of trading on the open stock market, with little regulations is what allowed the infamous criminal acts to take place and led to one of the world’s worst bankruptcy cases in United States history. An investigation finally occurred when investors found suspicious stock prices increasing exponentially and a whistleblower raised concern that finally revealed the fraudulent operations of Enron’s top executives conspiring with multiple businesses.

Enron’s fraudulent financial practices lead to the Sarbanes Oxley Act of 2002. Mistakes made by the company and their leadership shocked the world and cost billions. Enron’s leadership could have taken steps to prevent or mitigate the repercussions of their actions. The act restored ethical and reliable financial practices to the market.The major provisions of the act made corporations responsibility for financial reports, and required internal and external audits. The Act changed the accounting regulatory environment. And although corporations incurred the additional expense of audit and new reporting standards, these changes restored consumer investing confidence, strengthening the corporations and the stock market overall. (Flanigan, 2002.)

Enron’s demise was led by the arrogance and greed of senior executives. The belief was they had to be the best business leaders in the United States. Many also believe that there was a conflict of interest with the auditing firm because not only did they serve as the auditing firm, they also served as a consulting firm to Enron. This enabled them to fabricate financial statements by building assets and hiding debt from investors. The loss of the recorded $1.2 billion shareholders equity meant that many victims of this fraud lost their jobs and their retirement funds.

This was a very interesting article, in my opinion it brings to mind the derived phrase, which came first the chicken or the egg. Meaning, is corporate governance an attempt to control the results of unethical practices of corporations or is it meant to deter them. In reading this article, it is clear that certain corporations practiced unethical business behaviors for self-interest, but the questions this author have are: 1. Should corporate governance be regulated by the legislature as well as the organization and to what degree, 2. Is corporate governance, there to protect the shareholder or the stakeholder, 3. How effective is corporate governance on a global level. The need for a governance system is based on the assumption that the separation between the owners of a company and its management provides self-interest executives the opportunity to take actions that benefit themselves, with the cost of these actions borne by the owners (Larcker & Tayan, 2008).

The Sarbanes-Oxley Act is meant to instill organization, clarity, and corporate accountable (Unknown, 2006). Well if there had to be an act created to ensure that corporations were held responsible for their actions and inactions, then there was no oversight or means of control. In this case Enron set the standard of oversight failures.

The entire downfall of the giant Enron was brought about due to various ethical lapses that, in the end, would muddy the reputation of anyone who had a connection with the company. Even according to Gibney (2005), it was widely known that Enron’s CFO Andy Fastow would tend to implement and use less than ethical financial practices. The unethical behavior, though, does not usually just occur with one person or one position. Gibney (2005), throughout the entire documentary, hints at the idea that all Enron management/leadership knew of and were complicit in the unethical practices. In the end, Enron had betrayed the trust of thousands of employees and investors. Both of these betrayed parties would try to seek some level of justice in what had become one of America’s worst economic blunders (Gibney, 2005).

Now, let’s switch to negative part of the Enron and see what led this company to ethical violations. Because of an increased tough competition Enron started using international investments and diversification in order to keep its position. Some faulty decisions in management

In 2000 Enron was the world’s leading corporation in selling natural gas with an estimated worth in sales of around one hundred billion dollars and the company showed only signs of progressing. Within one year the company went completely bankrupt and forty of their top employees were arrested or are in jail awaiting trials. How can a multinational corporation with steadily increasing revenue take such a drastic fall into bankruptcy and how did no one see this coming? In the end Enron knew exactly what was in their future and hid it from the public by allocating their debt and with a loophole in their accounting, it turned out to be one of the biggest cover ups in the stock markets history.

The story of Enron is one of a perfect storm--the right people in the right places with the right ideas, but the exact opposite. Moreover, it is a story about accounting fraud, deception, the ugly side of corporate culture and, most of all, greed. In entry level accounting classes, it is taught that publishing accurate financial statements and being honest in accounting practices are fundamental to maintaining a healthy business and achieving lasting success. Enron is a shining example of what happens when you choose to violate these principles. In order to fully understand what caused the collapse of the corporate "rock star" that was Enron we will discuss the people involved, the crimes they perpetrated, and the results of said

On the surface, the motives behind decisions and events leading to Enron’s downfall appear simple enough: individual and collective greed born in an atmosphere of market euphoria and corporate arrogance. Hardly anyone—the company, its employees, analysts or individual investors—wanted to believe the company was too good to be true. So, for a while, hardly anyone did. Many kept on buying the stock, the corporate mantra and the dream. In the meantime, the company made many high-risk deals, some of which were outside the company’s typical asset risk control process. Many went sour in the early months of 2001 as Enron’s stock price and debt rating imploded because of

There were some impediments to responsible actions to cause Enron failure and bankruptcy. First, Enron had a culture of egocentric to confuse people to believe that they were good in business management. Enron invested the projects with high risk. Some of the projects with high risk and failure development. This had led to Enron no profit and increased their debt. For example, Rebecca Mark failed to develop the project of Dabhol Power Plant in India. After that, Enron used the complex financial reports to confuse the shareholders, investors, analysts and customers. For example, Jeffrey Skilling used some criminal ways like to hide the debt of Enron.

Most of the world has heard of Enron, the American, mega-energy company that “cooked their books” ( ) and cost their investors billions of dollars in lost earnings and retirement funds. While much of the controversy surrounding the Enron scandal focused on the losses of investors, unethical practices of executives and questionable accounting tactics, there were many others within close proximity to the turmoil. It begs the question- who was really at fault and what has been done to prevent it from happening again?

Enron's entire scandal was based on a foundation of lies characterized by the most brazen and most unethical accounting and business practices that will forever have a place in the hall of scandals that have shamed American history. To the outside, Enron looked like a well run, innovative company. This was largely a result of self-created businesses or ventures that were made "off the balance sheet." These side businesses would sell stock, reporting profits, but not reporting losses. "Treating these businesses "off the balance sheet" meant that Enron pretended that these businesses were autonomous, separate firms. But, if the new business made money, Enron would report it as income. If the new business lost money or borrowed money, the losses and debt were not reported by Enron" (mgmtguru.com). As the Management Guru website explains, these tactics were alls designed to make Enron look like a more profitable company and to give it a higher stock price.