It was December 2001when Enron filed for Chapter 11 bankruptcy.
In just 15 years, Enron grew from nowhere to be America’s seventh largest company, employing 21,000 staff in more than 40 countries.
But the firm’s success turned out to have involved an elaborate scam.
Enron lied about its profits and was accused of a range of shady dealings, including concealing debts so they didn’t show up in the company’s accounts.
Enron was followed by scandals at Global Crossing and WorldCom, John ‘Bernie’ Ebbers co-founded WorldCom and made this statement in his defence
“I know what I don’t know. To this day, I don’t know technology, and I don’t know finance or accounting”
These companies all had the same auditors, Arthur Anderson which was once one of the top 5 accounting firms in the world.
The scandals lead to the creation of The Public Accounting Reform and Investor Protection Act as a result of work done by Senators Sarbanes and Oxley and is general referred to as Sarbox or SOX and applies to US publicly listed companies and their subsidiaries.
Some of the key items in the Act include:
Auditor Independence (s201,202)
Audit Partner Rotation (s203)
Forfeiture of Bonuses (s304)
Internal Controls (s404)
Personal Loans to Executives (s402)
Whistleblower Protection (s806)
But despite this it failed to prevent the Global Financial Crisis of 2008 .
So is Greed Good?
Common themes in all these scandals were:
Attitude of Senior Management
Failure to report ‘wrong doing’
Tax Avoidance is now in the spot light will that lead to new scandals coming to light?