Enron Company’s Downfall: Lessons Learnt
It has been posted that; “The cost of failure to those charged with protecting the shareholders, including outside auditors, analysts, credit-rating agencies, and regulators, was simply not high enough to ensure adequate scrutiny.”
Hence, it must be considered that the results of protecting the shareholder might end-up killing the investor. It is worthless to protect the investor with improper means if you have not protected them by ensuring that the company is performing well. As such, it must be argued that shareholder protection may not always work for the company. The breakdown of governance in the company can offer a lesson for many firms who are willing to utilize corporate governance for the protection of shareholders. It clearly shows how the management, board of directors as well as audit failed to perform their duties to handle the situation.
It was also not good for the investors not to be informed of the problem, and this was a job for the Wall Street analysts, credit rating agencies, and regulators, among others. The system of safeguard, which is essential for the survival of investors in such a problem, was let down by the fact that auditors could not identify the mismanagement and fraud. This is a lesson to the watchdogs, including Wall Street analysts, credit rating agencies, among others. The practice which has been going regarding aggressive interpretations of the accounting principles and then challenging the auditors to prove that the GAAP has not been complied with in these may damage the institutions.
It has been argued that this practice has been going on and thus must stop. It may also be posited that the free market system will fail companies that do not have proper mechanisms to respond, such as protecting shareholders through the right mechanisms. The scandal may as well reveal the failure of such commissions and authorities that oversee auditors such as professional organizations and governmental agencies on the fact that the mechanisms they have implemented may not be enough to see through the problems.