Enron

Question 2

a) In the case of Enron, the external corporate governance bodies have been the focus of much criticism. Identify these external corporate governance bodies / parties and discuss the failure of each of these bodies in preventing the failure of Enron.

Enron was involved in the high profile scandals which received major attention in the field of corporate governance. As the internal bodies, the external corporate governance parties have been blamed for the unethical and illegal acts in the accounting practices of Enron’s financial reporting. There are a few external corporate governance bodies are been identified. For example, shareholders, independent external auditors, stock analyst, politicians and standard regulators are the external bodies who also plays important role in the corporate governance (Bierman, 2012). Enron is an example of the corporate governance failure case which the framework of governance unable to achieve accountability between internal and external bodies in protecting their different interests.

Shareholders

First of all, shareholders or stockholders are defined as owners who contributed funds to the corporation (Ross et al., 2008). In the Enron case, the company shareholders been injecting funds to the company based on its financial statements which been manipulated by the top managements. Normally, not all listed companies in the share exchange market are performing well. The shareholders should able to closely monitor the company performances. The Enron Company’s shareholders are failure to supervise Enron’s financial reporting. At the same time, they also fail to question the top management regarding the company positions and performance as it was their job to ask question as contributed funds (Bratton, 2002).

External Independent Auditors

Basically, there are conflicts of interests between shareholders and management bodies in maximizing shareholders wealth. The...