Enron as the marking point in the chronology of corporate governance regulation

Abstract

Of all the corporate collapses 'gracing' the past half a century, Enron is the most spectacular and the one receiving the most attention. So big was the concern that arose from this case, that some felt it would drastically revolutionise corporate governance as it stood at the time. In a pre-Enron environment, corporate governance development was primarily a reactive process. Crisis and scandals highlighted inefficiencies that were subsequently remedied. Debate over excessive compensation in the UK led to the Greenbury Report that amongst other things introduced the concept of performance related pay. Enron's collapse highlighted inefficiencies in the audit process, the possible dangers that can arise through conflicts of interest, abuse by top management and the lack of involvement of key independent directors. Primarily through legislation the US sought to place tighter controls on auditors. Top management figures were held accountable for the company's financial statements. Abuse and interference in investigations were properly sanctioned. Much of the rest of the world followed suit reforming areas that Enron's collapse highlighted as vulnerable. The case stands out because it 'forced' many countries to question their corporate governance systems while also pushing investors to become more watchful over their investments. On these grounds, Enron is a marking point. Different countries however, approach corporate governance differently, they have different priorities and their markets are not equally developed. Any change is therefore rooted in the local needs of the community. On these grounds Enron acquires a different meaning to different people. Enron is neither marking point, nor historical occurrence but rather a hybrid of the two.