Importance of Business Law and Ethics in Corporate Governance: A Case Study of Enron Scandal

This report discusses the importance of business law and ethics in corporate governance, using the Enron scandal as a case study. It explores the relationship between ethical corporate governance and the Sabane-Oxley Act of 2002. The report highlights the consequences of not following ethics in corporate governance and the impact it can have on an organization's reputation and market image.

Business Law and Ethics

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 2............................................................................................................................................3
Introduction to the case..........................................................................................................3
Ethical corporate governance and the Sabane-Oxley Act of 2002 overview.........................4
Relationship between ethical corporate governance and the Sabane-Oxley Act of 2002......5
Conclusion of the report.........................................................................................................6
CONCLUSION ..........................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The reason behind the success of any company is having a strong and efficient corporate
governance. One of the major feature of a good corporate governance is following ethics while
doing business. Ethics are one of the most important thing that is important for an organization to
be followed to maintain discipline with order in it. Ethics are that kind of guidelines that are
applied in an organization in the form of standards and regulations that are applied in an
organization to maintain working environment. Scope of these laws are wider in nature because
they deal with basic framework of an organization. Also nature is dynamic because it impacts
workplace environment in direct manner. In this report it will be discussed that how following
ethics are important in the company and how not following ethics will lead to failure of corporate
governance with the help of a real case. It will be seen that how in the case of Enron the
company has not followed the ethics which has hampered the image of the company in the
market.
MAIN BODY
TASK 2
Introduction to the case
In this report an case has been given that is related to Enron Scandal and it has to be
explained in relation to corporate governance and Sabane-Oxely Act of 2002. Also basic details
regarding the given legal aspects has to be explained.
Main Body of the case
Case scenario: Enron Scandal the fall of wall street in this case Enron Corporation is the
organization that has been reaching at dramatic heights only to face dizzying fall. The
organization has collapsed which impacted thousand of employees that affected Wall Street to its
core. At Enron's peak its shares were worth $90.75. Just before it is going to declare its
bankruptcy on 2nd December, 2001. There trade was at $0.26. The present day everyone
wonders that how such powerful business entity that was at a time one of the largest
organizations in United state faced such a fall over night. Also difficult to believe that
how leaders have managed to fool regulators by showing long with fake holdings with
off-books accounts. Some key points from the case has been given as follows:

Leaders of Enron has shown fake holdings with as per the accounts that has been
mentioned by them.
Enron used SPV vehicle over special purpose entities for hiding huge debts and
assets to both creditor and investors.
Shares price also decreased from $90.75 to $0.26 which resulted into bankruptcy.
The organization has paid its creditors amount of more than $21.7 billion from 2004 till 2011.
the amount was paid to creditors and investors.
Ethical corporate governance and the Sabane-Oxley Act of 2002 overview
Ethical corporate governance: Such act is being used in order to make sure that policies
and process that has been used in corporate world is being controlled and directed in proper
manner(Siliquini-Cinelli and Hutchison, 2019). Corporate governance holds responsibility over
protecting interest of shareholders and make sure that duties is being performed by CEO and
manager in proper manner. Such kind of governance has to be carried out in relation to
Company's Corporate Governance Code. Main principals of the act has been explained as
follows:
Accountability: The code has been providing for accountability of Company's Board of
Directors to all shareholders in relation to applicability of law and guidance is being provided to
Board of Directors within decision making of monitoring activities of executive bodies(Singer,
2018).
Fairness: Organization has been undertaking over the shareholders with right and also
ensures equal treatment of shareholders. Board of Directors has to allow shareholders and given
them opportunity in order to make sure that violation of right does not take place.
Transparency: The company is required to provide timely, accuracy with disclosing of
information over all the facts that is related to activities of business that is related to both social
and financial situations. Also includes environmental indicators, performance, structure of
ownership and governance in an organization. It makes free access to such information of
stakeholders.
Responsibility: The company should recognize all rights that has been vested to the
parties that has been permitted over developing and providing financial stability.

Sabane-Oxley Act of 2002: This act has been formed in order to crack down the
corporate frauds. This has been created by the Public Company Accounting Oversight Board that
has been overseen as per the accounting industry. It has banned the organizations loans from
getting executed and provide protection against job to whistler blower. Also the act has
strengthen independence and financial literacy over the boards of corporations. This is holding
CEOs personally responsible for errors in accounting audits. The main aim of the act is to fix
auditing of public companies in U.S(Strickson and De La Iglesia, 2020). The consensus, auditing
has been working in poorly that has been increasing. This is considered to be very important
provision with effectiveness under the SOX Act 2000. Creation of this act is unique, quasi-public
institution which regulates auditing. In conversation of section 404 the law has been created with
new discloser-based incentives for an organization in order to spend money on internal controls.
This has increased the occurred corporate scandal that happened in the year 2000.
SOX Section 401: This section discuss about Disclosures in Periodic Reports. Further in this
section financial statement has been explained with requirement of accuracy within it. These
statements cannot be presented in a manner that it looks to be incorrect or unlawful. Such
statements only deals with all kinds of finances and monetary transaction records(Sulkowski,
2017).
SOX Section 404: This section explains about Management Assessment of Internal Controls.
All the annual financing report has been included within the Internal Control Report that has
been providing the evidence that management is responsible for an “adequate” internal control
structure. Also in this section management is given responsibility of forming an control structure
which is effective and efficient to be followed by an organization(Watts, 2019).
SOX Section 409 – The sections deals with Real Time Issuer Disclosures. In this the company
is required to disclose the real-time of information concerning materials that has been changing
financial conditions or operations.
Relationship between ethical corporate governance and the Sabane-Oxley Act of 2002
The case of Enron Scandal corporate governance is going to be applied in a manner that
organization has committed an ethical wrong by hiding all the assets and liabilities of the
organization by using Special purpose vehicles and has also fooled the investors as well as the
creditors. Though it had paid some amount between the year 2004 to 2011. While paying the rest
of the money it has broken the ethical governance criteria and did not followed basic principals

of it also been violated that has been explained above and these principal provides help in
dealing with the policies and processes that has been helping an organization to get controlled
and directed by making the flow of power possible between all the higher officials of an
organization that is helpful in making the organization controlled and directed(Tariq, 2018).
Another act that has been mentioned in the report is of Sabane-Oxley Act of 2002. the case falls
under this act in an manner that SOX Section 409 - Real Time Issuer Disclosures and SOX
Section 401 Disclosures in Periodic Reports is going to be applied in it because the organization
never showed the periodic report or has disclosed the issues of bankruptcy. They can be punished
under Section 802 - Criminal Penalties for Altering Documents, SOX Section 806 -
Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud,
SOX Section 902 - Attempts & Conspiracies to Commit Fraud Offense and SOX Section
906 - Corporate Responsibility for Financial Reports. All these sections contains the
procedure of getting punished under the act when the organization has not disclosed the debt and
the leadership has fooled the investors by fake holdings(Thompson, 2017).
Conclusion of the report
In this report the main focus has been put upon the two main things that is corporate
governance and he Sabane-Oxley Act of 2002. Both the act focuses upon dealing with crime that
is related to ethics and corporate crime. Such act has brought into existence to deal with violation
of basic principals which is impacting the flow of power in an organization.
CONCLUSION
From the above file it can be concluded that Business laws and ethics are one of the most
important factor to be used in an organization. As it deals with behaviour that an employees
shows at workplace. Here this study is related to two things corporate governance and Sabane-
Oxley Act of 2002 both the act deals with problems related to any kind of misconduct done at the
time of bankruptcy. In the end relevancy has been explained of both the things with the case
scenario.

REFERENCES
Books & Journals
Brenkert, G.G., 2019. Mind the gap! The challenges and limits of (Global) business
ethics. Journal of Business Ethics. 155(4). pp.917-930.
Carter, S.M and et. al. , 2017. A code of ethics for social marketing? Bridging procedural ethics
and ethics-in-practice. Journal of nonprofit & public sector marketing. 29(1). pp.20-38.
Harper, P.T., 2019. The symbolic imagination: Plato and contemporary business ethics. Journal
of Business Ethics. pp.1-17.
Holcomb, J.M., 2016. Corporate Governance: Ethics and Legal Compliance, Risk Management,
and Political Activities. The Handbook of Board Governance: A Comprehensive Guide
for Public, Private and Not‐for‐Profit Board Members. pp.683-702.
Hühn, M.P., 2018. CSR-the Cuckoo’s Egg in the Business Ethics Nest. Humanistic Management
Journal. 3(2). pp.279-298.
Suresh, A. and Rakesh, R., 2019. Relationship between Consumerism and Business Ethics in
India. Journal of Marketing & Management. 10(2).
West, A. and Buckby, S., 2020. Ethics education in the qualification of professional accountants:
insights from Australia and New Zealand. Journal of Business Ethics. 164(1). pp.61-80.