Enron Corporate Governance System
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Case Questions:
1. Which parts of the corporate governance system, internal and external, do you believe failed Enron the most?
2. How do you think each of the individual stake holders and components of the corporate governance system should have either prevented the problems an Enron or acted to resolve the problems before they reached crisis proportions?
3. If all publicly traded firms in the United States are operating within the same basic corporate governance system as Enron, why would some people believe this was a isolated incident, and not an example of many failure to come?
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Case Questions:
1. Which parts of the corporate governance system, internal and external, do you believe failed Enron the most?
The internal corporate governance system failed Enron the most. The reason for this is that executive compensation that was supposed to reward the most competent personnel of the company, actually rewarded short-term performance and led to malpractices. Further, the financial audit was ineffectual because there was a conflict of interest in case of Arthur Andersen. Moreover the corporate governance system that failed was internal Enron was supposed to manage its risk but it used derivatives and special purpose entities for hedging its risk and retained the risks itself. That apart these accounting practices were known to the board of directors and so they did not exercise control. The board knew the purpose of and the nature of transactions with the special purpose entities. This is a case of internal corporate governance failure. The audit committee met just a few times and the members of the committee did not have adequate knowledge about the questionable auditing practices. Further, when Skilling joined Enron he demanded that mark-to-market accounting be used, this was used give misleading reports to investors. This is a case of internal corporate governance failure. Further, Enron ...
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