章 16: Enron
A fundamental and complex part of industry is corporate governance.
It is difficult to overstate the value of corporate governance for corporate growth as well as for social welfare. The need to strengthen and change corporate governance at the international level has been demonstrated by reports of major corporate collapses arising from inadequate corporate governance structures.
Enron became a household name in 2001, and possibly in most homes in most nations worldwide. Enron became one of the 10 biggest corporations in the USA on December 2nd, 2001. In the ensuing months, more and more facts arose regarding corporate governance's flaws and corrupt behaviour. Countries around the world, however have been unsettled and rattled by the shock of this case and are now questioning their own micro-detailed corporate governance structures.
They do so by searching at vulnerabilities and potential that are equivalent to Enrons. Like a deadly plague, Enronitis has spread across the world, infecting every business and every shareholding institution. Moreover, it has had a big influence on troubling even the smallest owners and annoying the capital markets.
Enron was an energy corporation based in Huston that was founded by Kenneth Lay, a genius entrepreneur. A merger between two American gas pipeline firms formed the corporation in 1985. The firm has been converted from a comparatively small enterprise engaged in gas pipelines and oil and gas production into the world's largest commodity trading company over a period of 16 years. Enron, the electricity deregulation pioneer that expanded into one of the 10 biggest corporations in the world, crashed yesterday. After a competitor pulled out of an agreement to purchase Enron, and after several major trade partners started doing business with the firm, this failure happened.
Houston-based Enron was generally expected to seek immunity from bankruptcy. As of September 30, with $62 billion in cash, it will be the largest American enterprise ever to go bankrupt. This business, therefore, dwarfs the 1987 Texaco filing. Late in the day, Jeff McMahon, Chief Financial Officer of Enron, confirmed that the firm was also dreaming about restructuring and exploring other alternatives with banks.
The role of the board of directors of a corporation is to manage corporate management in order to protect shareholders' rights. Enron's board, however, waived conflict of interest rules in 1999 to allow Chief Financial Officer Andrew Fastow to form private relationships to do business with the company. Such relationships seem to have hidden loans and obligations that may have had a huge effect on the recorded earnings of Enron. Subsequently, the fall of Enron raises the issue of how to improve the capacity of directors and the desire of senior administrators to criticise dubious dealings.
Owing to Enron's ruins, many corporate compliance concerns have arisen. An apparent concern is unfettered control in the possession of the chief executive, and it is one that marked the management of Enron. Inside the Enron company, there were also several illustrations of illegal behaviour that continued to come to light even after its collapse. In May 2002, for example, it became apparent from records published by the Federal Energy Regulatory Commission that the energy traders of Enron developed and used tactics or tricks to exploit the markets where power was purchased by California.
Overall, in almost every way, corporate governance at Enron was weak. The board of directors is thus comprised of a variety of persons with a lack of good character. They are also often likely to participate in fraudulent activities, too. This was the true source of the corporate governance failure of the company.
There has been a proliferation of books about Enron's collapse, attempting to understand why circumstances unfolded as they did. As we have seen, the intense response of the USA and the UK to the fall of Enron and corporate governance has been moved to the centre stage. This happens as a consequence of the flaws at the root of the corporate governance structure of Enron. Enron's long-term consequences will potentially be a safer and more responsible business climate across the world. In addition, constant updating of corporate governance controls and balances is important in order to prevent the potential use of such Enrons.
Clearly, testing and balancing corporate governance will only help to recognise, not remedy, corrupt activities. The subjective essence of deception is a complicating element in questions of fraud and ethical breakdown. In addition, in human actions, there is a grey field surrounding what is right or wrong, positive or evil. When talking about the Enron trial, several statements made by Sheldon Zenner, an American white-collar criminal and civil lawyer, helped to highlight this issue.
The bureaucratic structure under which a corporation represents and meets the needs of its owners is corporate governance. This covers everything from the boards of the corporation to employee pay plans to bankruptcy rules.
The system of monitors and balances to facilitate corporate governance needs to operate efficiently. Enron thus illustrates the critical roles of non-executive directors, auditing and transparency, as well as management ethics. Mechanisms in corporate governance by top management do not deter illegal behaviour. They should however, at least serve as a way for top management to spot such behaviour until it is too late. It does not have a solution when an apple is rotten. Nevertheless, before the fungus progresses and infects the entire barrel, the rotting apple should be discarded. An overview of the Enron case therefore reveals that the character of both the US and corporate governance structures are so distinct. In addition, they may be vulnerable to flaws in abuse and corporate governance that are similar in nature. This is what efficient corporate governance truly is all about. This research therefore attempts to examine the different checks and balances and processes by which effective corporate governance ensures efficient maximisation of market and social welfare.
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