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03 Worksheet 1

1) Enron managers misrepresented the company's assets to investors in order to gain investments and sell the company for profit, covering up the actual worth. Arthur Anderson, Enron's auditor, was criticized for concealing important data and preserving Enron's reported profits. 2) From a stakeholder perspective, Enron's corporate governance can be criticized for Kenneth Lay being unconcerned with shareholders and employees, concealing profits through the auditor for personal greed despite the company's downfall. 3) Yes, in Enron's case the relevant people, including the auditor, were "not up to the mark" by concealing data and preserving false profits, resulting in shareholder losses rather than agents

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495 views

03 Worksheet 1

1) Enron managers misrepresented the company's assets to investors in order to gain investments and sell the company for profit, covering up the actual worth. Arthur Anderson, Enron's auditor, was criticized for concealing important data and preserving Enron's reported profits. 2) From a stakeholder perspective, Enron's corporate governance can be criticized for Kenneth Lay being unconcerned with shareholders and employees, concealing profits through the auditor for personal greed despite the company's downfall. 3) Yes, in Enron's case the relevant people, including the auditor, were "not up to the mark" by concealing data and preserving false profits, resulting in shareholder losses rather than agents

Uploaded by

Maj Marticio
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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03 Worksheet 1

1. Discuss Enron's corporate governance from the perspective of agency theory. What is the
governance role of an auditor in a public company? Why might Arthur Anderson have been
criticized for their conduct at the time?
 The managers of Enron covered up the actual worth of the company in order to gain
investors and create a financial portfolio when it sold the company, but the managers
misrepresenting the assets of the company so the investors are affected since they expect
that their investment is in good hands even if they're already interpreted by the managers
as the investors know that Enron is a big company. Enron employs and compensates its
own auditing staff.

2. Enron's chairman Kenneth Lay claimed that Enron was "laser-focused on shareholder value"
and that no one had been hurt more by Enron's collapse than him. What criticisms might be made
of Enron's corporate governance from a stewardship and stakeholder perspective?
 The complaint thrown at Enron's corporate governance from stewardship would be that
Kenneth Lay is unconcerned for his shareholders or the individuals who work for him.
Being greedy and lacking in integrity by concealing the secret of his profit through his
hired auditor was having a bad influence on his business, which ended in the company's
downfall.

3. Charkham and Simpson (1999) claimed that shareholders are more likely to lose money
because the relevant people in the firm are not "up to the mark" than merely because they are
"agents" bent on pursuing their interests at the expense of others. Do you think that this might
have been the case at Enron?
 Yes, according to the stated example, Eron's employed an auditor who came from an
agency to monitor and conceal important data, particularly on profit concerns, which
resulted in preserving the correct amount of the company's profit, which is not suitable
for corporate governance. Eron's broke the law, resulting in the loss of shareholder funds
or investments.

4. What could be the root cause of the problem?


 The major cause for Erons' bankruptcy was that they decided not to follow corporate
governance laws. Being greedy for money and power is one of the reasons why the
organization failed.
5. If you are part of corporate governance, how would you solve the potential problems, such
as Enron's scandal, that would emerge? What steps could be in place to prevent potential
problems and may not cause a bigger issue?
 If I were in that position, I would pick the right manner for the organization to fulfill all
of the government's compliance measures in order to avoid this type of problem. I will
obey and will not break the rules. Every company has the right to keep crucial data
hidden, but that doesn't give you the right to deceive others.

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