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ACC0806 杨阳 200834112

Challenge of Corporate Governance and the necessity of Ethic Reform

-Lessons learned from Enron Scandal

Summary:

In December 2001, the Enron Corporation bankrupted with total assets of 49.8 billion U.S dollars. Before Enron declared the bankruptcy, this company released the false financial report claimed the profit increased several times as the previous quarter, but no one knows there was $6.18 billion of debt actually. From that onwards, Enron became the biggest renowned bankruptcy in the American history.

The Enron event is not individual phenomenon in the United States. Multinational companies such as WorldCom and Xerox spread scandals of making the false account successively after the Enron event happened. These cases are not only exposed the credit crisis of U.S. accounting and intermediary agencies, but also revealed some American institutional problems in the 1990s, which is covered by rapid economic growth, such as the auditing system's crisis, the supervision system vulnerabilities, and the defects of corporate governance.

Lessons to Learn

1. The fiduciary obligations of corporate directors, namely the obedience, loyalty and due care, should be fulfilled actually. The directors are forbid to act beyond the scope of the powers of the corporation as defined by its charter or the law of the state. They must act in good faith and must not allow his personal interest to prevail over the interests of the corporation. In addition, they must be diligent and prudent in managing the corporation’s affairs.

2. Board members should be renewed from time to time so as to prevent the same members to serve too long and objectivity must be given due consideration in doing so. Judgment on the independence of board directors used to depend primarily on whether "family relations" exist or not. This measurement, however, has been deemed insufficient and it has been mandated to check the independence of...