Enron Case - Implication of Corporate Governance

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A.The Implications for corporate governance and financial institutions

In Enron’s case, we may see that the principle weakness of corporate governance today is the excessive concentration of power in the hands of top management. Enron involve allegations of massive accounting fraud and huge losses in shareholder value.

In May 2002, the Business Roundtable released its Principles of Corporate Governance. This is a set of principles intended to assist corporate management and boards of directors in their individual efforts to implement corporate governance best practices.

1) Role of CEO -

i) The CEO, with senior management, operates the corporation on a daily basis. In addition to having the requisite skills and experience, the CEO should be a person of integrity who takes responsibility for the corporation adhering to the highest ethical standards.

ii) CEO certification. CEO has to assess the adequacy of the procedures and the diligence of carrying out the procedures for verifying the accuracy and completeness of information provides to investors.

2) Role of board of directors –

i) Effective directors are monitors the business operations. The board’s most important function is the selection, compensation and evaluation of a well-qualified and ethical CEO.

ii) The non-management members of the board, under the oversight of a committee made up of independent directors, should annually review the performance of the CEO and participate with the CEO in evaluation of senior management.

iii) The board should have contingency plans to provide for traditional board leadership if questions arise concerning management’s conduct, competence, or integrity or if the CEO dies or is incapacitated.

3) The independence of outside, non-executive directors –

i) The board must have a majority of independent directors. The board must determine that the director has no material relationship with the listed company other than service as...
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