ENRON

CORPORATE
GOVERNANCE FAILURE
Name:
Himshikha 22
Kirti Patidar 26
Manvender Dagar 31
Tushar Pantawane 44
Vandita 45

ENRON'S RISE AND FALL

1985

Formed By Kenneth Lay in 1985 by merging Houston Natural Gas and Internorth

1990

Enron hired Jeff Skilling who had helped Enron develop its Gas Bank idea calling for the
firm to become an intermediary between suppliers and end-users in the natural gas market.

1999

By the close of the nineties it was clear that trading operations had become Enron's primary
focus and the firm began systematically shedding its physical assets following what it
referred to as an asset light strategy.

ENRON'S RISE AND FALL

2000

The company's annual revenue reached $100 billion US.

It ranked as the seventh-largest company on the Fortune 500 and the sixthlargest energy company in the world.

The company's stock price peaked at $90 US.

Much of this increase was attributable to the creation of EOL and Enron's method
of accounting for trading revenues

ENRON'S RISE AND FALL

2001

Cracks began to appear In August of that year, Jeffrey Skilling, announced his
departure, and Lay resumed the post of CEO.

In October 2001, Enron reported a loss of $618 million its first quarterly loss in
four years.

On Dec. 2, 2001, Enron filed for bankruptcy protection. Roughly 5,600 Enron
employees subsequently lost their jobs.

The next month, the U.S. Justice Department opened its investigation of the
company's dealings, and Ken Lay quit as chairman and CEO.

ENRON'S RISE AND FALL

2002

On Feb 14, 2002, Sherron Watkins, the Enron whistleblower, testifies before a
Congressional panel against Skilling and Lay. Sherron Watkins is an Enron vice
president. She wrote to Lay in the past expressing concerns about Enron's
accounting practices.

THE MASTER MINDS

CORPORATE GOVERNANCE:
WHAT IS CORPORATE GOVERNANCE?

The corporate governance is a set of systems , structures ,processes and mechanisms by

which a corporate entity is led, directed and controlled in the best interests of shareholders
and other stakeholders.

Corporate governance rules are primarily applied on listed joint stock companies and other
financial institutions taking the form of joint stock companies.

CORPORATE GOVERNANCE PRINCIPLES

Effective Corporate Governance Framework

The rights of shareholders

The equitable treatment of shareholders

The role of stakeholders in corporate governance

Disclosure and transparency

The responsibilities of the board

WHAT LED TO THIS?

Conflict of Interest

Lack of attention by Board of Directors

Lack of truthfulness by management about the health of the company

Information Asymmetry

The greed, dishonest, arrogance, selfishness, hypocrisy, disrespect and injustice of top
management

CORPORATE GOVERNANCE ISSUES

Lack of internal control

Neglect of integrity capacity by managers

Complex dubious energy trading schemes

Complex Dubious Accounting schemes

Use of SPEs to hide bad bets

LESSONS FROM ENRON SCANDAL

Demonstrated the importance of old economy questions: How does the company
actually make its money ?

Is it sustainable ? Is it legal

Demonstrated the need for significant reform in accounting and corporate governance

Importance of ethics in long run

Importance of proper controlling and reporting

AS A RESULT

Sarbanes-Oxleys Law 2002

Public Company Accounting oversight Board
Auditors Independence
Corporate Responsibility
Enhanced Financial Disclosures
Analyst Conflict of Interest
Commission Resources and Authority
Crime penalty and accountability Enhancement
Corporate tax returns

THANK YOU
Please Ask
WHY?