Enron Case Study

1. Which parts of the corporate governance system, internal and external, do you believe failed Enron the most?

I do believe that Enron faced a complete failure of the whole system. On the internal side there were obvious unethical practices from the executives, starting from understating real liabilities, overstating equity and revenues, and finally hedging their risks using entities with special purposes owned by Enron and using its stock and financial guarantees which was unknown information to many investors.

When we know that the stock ticker was located everywhere in Enron buildings; in the lobby, in the elevators, on the company computers, it will be crystal clear for us the corporate culture the management team was trying to foster in the company. It was totally stock price oriented regardless real price or fair reporting for losses and earnings.

On the other hand the board of directors –from my own point of view- was definitely the main part of the failure as they never did their homework and questioned Lay, Jeffrey Skilling, or Andrew Fastow about their reports or illegal practices although they have not little financial knowledge and took their responsibility for protecting shareholders and employees.

But in a matter of fact, I do believe that the real shame is in Anderson’s failure to do their real job. Their real job is to be a neutral judge for Enron Financial and governance system, but on the contrary they fell in the trap of double interest by accepting large amount of money in return of providing consultancy services to Enron. This unethical agreement forced Anderson to accept hiding the real figures for Enron’s earnings due to Enron’s executives’ pressures.

2. Describe how you think each of the individual stake-holders and components of the corporate governance system should have either prevented the problems at Enron or acted to resolve the problems before they reached crisis proportions.

As mentioned in the past question every part of...