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R The Enron scandal is the most significant
corporate collapse in the United States since the
failure of many savings and loan banks during the
1980s.

R This scandal demonstrates the need for significant

reforms in accounting and corporate governance
in the United States, as well as for a close look at
the ethical quality of the culture of business
generally and of business corporations in the
United States.
R There are many causes of the Enron collapse. Among
them are the conflict of interest between the two roles
played by Arthur Andersen, as auditor but also as
consultant to Enron
R the lack of attention shown by members of the Enron board
of directors to the off-books financial entities with which
Enron did business; and the lack of truthfulness by
management about the health of the company and its
business operations.
R The senior executives believed Enron had to be the best at
everything it did and that they had to protect their
reputations and their compensation as the most successful
executives in the U.S. When some of their business and
trading ventures began to perform poorly, they tried to
cover up their own failures.
R þf Enron file for bankruptcy protection there losses
would be enormous
R Credit rating agencies did not inform about the
downgrade of Enron bond to investors
R They even did not inform the risky of the stock
when it fell to $5
R The company will not pay the credit agency if they
don¶t rate them as they wanted
R þf the credit agency is earning lucrative consulting
fees, then it might not be able to provide unbiased
analysis of the firm financial position
R The board of directors was not attentive to the
nature of the off-books entities created by Enron,
nor to their own obligations to monitor those
entities once they were approved.
R The board did not pay attention to the employees
because most directors in the United States do not
consider this their responsibility. They consider
themselves representatives of the shareholders
only, and not of the employees.
R uoards of directors need to pay closer attention to
the behavior of management and the way the
company is making money.
R There is little chance the U.S. governance rules
will be changed to make boards responsible to the
employees as well as to the shareholders.
R uoard members would be foolish not to pay more
attention to how employees and customers and
business partners are treated. These greatly affect
the long-term value of the shareholders'
investment.
R Accounting regulations should be altered to
prohibit ownership of both auditing and consulting
services by the same accounting firm
R The SEC should probably adopt additional
disclosure requirements
R þn the final analysis, the solution to an Enron-type
scandal lies in the attentiveness of directors and in
the truthfulness and integrity of executives
R U.S. firms and foreign firms listed on U.S. stock
exchanges will need to demonstrate that they
have eliminated all off-books accounts which
distort the public's understanding of the financial
health of the organization.
R Every company will need to demonstrate that its
board of directors is vigorous, vigilant, and that its
procedures will enable it to uncover any
questionable behavior.
R Companies may need to adopt a set of
"governance best practices" to regain the trust of
the market.
R uy imposing strict government rules and
regulations

R Excessive compensation given to executives

should be minimized and if anything given should
be informed to investors

R Stock option should also be restricted as this lets

executive to manipulate the financial accounts and
stock prices