Scribd
Upload
18 views9 pages

Corporate Governance Assignment - Barjesh Islam (1022050)

The document discusses governance failures in major corporate scandals, specifically Enron and WorldCom, highlighting issues such as lack of independent oversight, inadequate risk management, and board incompetence. It also examines the Maxwell Communications scandal, suggesting mechanisms like independent trustees and stronger board oversight to protect stakeholders. Additionally, it addresses how shareholder activism and regulatory intervention helped improve governance at Vivendi through management changes and corporate restructuring.

Uploaded by

islambarjesh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
18 views9 pages

Corporate Governance Assignment - Barjesh Islam (1022050)

The document discusses governance failures in major corporate scandals, specifically Enron and WorldCom, highlighting issues such as lack of independent oversight, inadequate risk management, and board incompetence. It also examines the Maxwell Communications scandal, suggesting mechanisms like independent trustees and stronger board oversight to protect stakeholders. Additionally, it addresses how shareholder activism and regulatory intervention helped improve governance at Vivendi through management changes and corporate restructuring.

Uploaded by

islambarjesh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 9

CORPORATE

GOVERNANCE
ASSIGNMENT
NAME :- BARJESH ISLAM
R O L L N O . : - 10 2 2 0 5 0
COURSE :- B.COM H
SECTION :- A
S U B J E C T : - C O R O P O R AT E G O V E R N A N C E
Q1: What governance failures allowed Enron’s
Board of Directors to overlook major risks?
Enron’s governance failures stemmed from a combination of weak oversight, conflicts of interest,
and a corporate culture that promoted excessive risk-taking. Key points to cover:-
oLack of Independent Oversight: Enron’s board failed to act independently, as many members had
personal ties to top executives or were too loyal to the company’s success.
oInadequate Risk Management: Enron’s board did not fully understand or adequately monitor the
complex financial instruments (such as Special Purpose Entities, or SPEs) used to hide debt and
inflate profits.
oFailure to Question Management: The board did not effectively question CEO Jeffrey Skilling and
CFO Andrew Fastow about the company’s financial practices, and the reliance on creative
accounting methods led to hiding Enron’s true financial condition.
o Complicity in Misleading Financial Statements: The board and audit committee signed off on
misleading financial reports that obscured the company's true liabilities and risks, resulting in a
false sense of security for investors.

o Lack of Transparency and Accountability: The board was also complicit in allowing a culture that
prized aggressive growth without sufficient checks, leading to catastrophic outcomes.
Q2: Compare and contrast WorldCom’s scandal
with Enron – what were the similarities and
differences in governance failures?
While both scandals involved fraudulent financial practices and poor governance, the companies’
operational issues and specific governance failures differed:

Similarities:

oFinancial Misreporting: Both Enron and WorldCom engaged in financial manipulation to inflate
earnings and hide liabilities.

oBoard Incompetence: In both cases, boards failed to ask the right questions or challenge executives
on their financial decisions. The boards were too reliant on the credibility of top management.

oLack of Independent Oversight: Both companies lacked independent, effective internal auditing and
governance structures to detect fraud in a timely manner.
Differences:

o Nature of Fraud: Enron's fraud involved the use of complex financial structures like SPEs to hide
debt, while WorldCom's involved accounting irregularities, specifically the misclassification of
expenses as capital expenditures to inflate profits.

o Industry Focus: Enron was a major energy company, while WorldCom was a telecommunications
giant. The financial intricacies of each company’s operations were different, influencing how the
fraud was carried out.

o Post-Scandal Accountability: WorldCom’s CEO, Bernard Ebbers, was sentenced to 25 years in


prison for his role in the fraud. In contrast, Enron’s executives were involved in a range of legal
battles, and the company’s bankruptcy led to far-reaching reforms.
Q3: What corporate governance mechanisms could
have protected stakeholders’ interests, particularly
pensioners in Maxwell Communication scandal?
The Maxwell Communications scandal involved the fraudulent activities of Robert Maxwell, who
misappropriated company funds, particularly pension funds, leading to massive losses for
employees and retirees. To protect stakeholders:-
oIndependent Pension Trustees: Ensuring that pension funds are managed by independent
trustees with no conflicts of interest would have safeguarded employees' retirement funds from
being misused.
oStronger Board Oversight: An independent and active board of directors, with a clear separation
between management and governance, could have raised concerns about the misuse of funds.
oAuditing and Transparency: Rigorous external audits and greater financial transparency would
have helped detect the fraudulent diversion of funds earlier.
o Employee Representation on the Board: Including employee representatives on the board could
have provided greater protection for the interests of workers, particularly regarding pensions.

o Regulatory Oversight of Pension Fund Management: A regulatory body overseeing pension funds
and their use by company executives could have acted earlier to prevent the diversion of assets.
Q4: How did shareholder activism and regulatory
intervention play a role in addressing governance
issues at Vivendi?
Vivendi’s governance issues were highlighted by the over-expansion of the company, financial
mismanagement, and a lack of accountability to shareholders. In addressing these issues:-

Shareholder Activism: Major institutional investors, such as the company’s shareholders, pushed for
changes in Vivendi’s management. These shareholders, including the likes of Vincent Bolloré, exerted
pressure on the board to make governance changes and improve financial performance.-

Regulatory Intervention: French regulators intervened by investigating Vivendi’s financial practices,


ensuring that the company’s accounting methods and financial disclosures were scrutinized more
thoroughly.-

Corporate Restructuring: Due to shareholder activism and regulatory pressure, Vivendi’s management
was forced to divest non-core assets, restructure the company, and improve transparency.
o Focus on Governance Reforms: The company also adopted reforms, including better financial
oversight and executive compensation tied more closely to company performance, in response to
shareholder demands.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy