Corporate Scandal

The Enron Corporate Scandal

Executive Summary

This report is provides information the Enron scandal which is revealed in 2001. The main reasons for scandal have been described. There are many individuals as well as companies involved in the scandal. The mechanisms in governance chain which could prevent the scandal and the required changes in the corporate governance to prevent from scandal have been explained in order to provide other companies to take into consideration to protect their companies from this kind of scandals.

Table of Contents

Executive Summary 2

1. Introduction 4

1.1 The Reasons for Scandal 4

2. The Mechanisms in the Governance Chain which Could Prevent the Scandal 5

3. The Required Changes in the Corporate Governance to Prevent from Scandal 5

4. Conclusion & Recommendations 6

References 7

Bibliography 7

1. Introduction

Enron was founded as a pipeline company in Houston in 1985. They decided to diversify the business and became an energy broker who traded electricity and other commodities. However at the end of 2001 it was revealed that its reported financial condition was sustained mostly by systematic and creative accounting fraud. Many of Enron's recorded assets and profits were inflated, fraudulent and non-existent. It was the biggest bankruptcy in US history and cost 4,000 employees their jobs.

1.1 The Reasons for Scandal

Figure 01: The Reasons for Scandal

2. The Mechanisms in the Governance Chain which Could Prevent the Scandal

First of all the CEO Kenneth should have developed a good organizational culture with honesty, integrity and ethics as its major building blocks. He should have told their shareholders and partners about exact earnings, figures and profits instead of inflated ones. They also hide some information in their financial statements. Therefore accountability and transparency could have prevented the problem.

They had complex partnerships with SPE's and other companies which are also should have been prevented. Enron also had conflicts of interest with Andersen Accounting. Enron should have hired Arthur Andersen to strictly work on either their books, or their financial audits; but not both. Their