ACC03043 Corporate Governance Report: Financial Crisis and Collapses

This report delves into the failures of corporate governance, using the Enron scandal as a prime example, highlighting market manipulation, corruption, and the impact on stakeholders. It examines how current corporate governance codes, rules, and regulations address these issues, including the Sarbanes-Oxley Act and the importance of internal audits. Furthermore, the report explores the implications of the global financial crisis on corporate governance, emphasizing the importance of risk management, transparency, and the role of internal audits in maintaining financial stability. The analysis covers the relationship between shareholders, management, and the community. It stresses the importance of robust corporate governance practices in preventing financial crises and ensuring responsible corporate behavior. The report references the work of Tricker and Tricker (2015) to support its arguments.

Running Head: Corporate Governance
Corporate Governance
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Author’s Note

Running Head: Corporate Governance
What was the underlying reason for the failure? Would today's corporate governance codes, rules
and regulations have prevented these outcomes?
The reason for the failure in corporate governance targeted the public expectation that the
organization should be accountable for their performance and the impact which it’s created in the
fall of the Enron Corporation in 2001. The cause of the downfall had shook the Wall Street and it
resulted in market manipulation, corruption, illegal deals and corporate arrogance and suicide
cases. The Enron scandal is the example that gives lessons we learn about the corporate
governance (Tricker and Tricker 2015). The reason it had faced difficulties when it had
constructed the offshore entities to hide losses that the company would had otherwise engage. A
false impression was created by the officers who enacted the implementation of new tricks and
created an illusion of billions in profit, even in reality the company was essentially losing
revenue. Even at that time the organization was trading on the higher stock to match up with the
large share of profit gains. Various misdeeds and corruption committed by the employee of the
organization Enron’s and the officers were extensive and constant. Predominantly the damaging
misrepresentation produced overstated salaries reports for the shareholders and even for the
employees who suffered devastatingly when the company had failed.
In today’s world the officers of the corporate governance has taken steps to regulate the
rules and regulation which has changed regulatory procedures for the companies. The rules has
stated clearly to provide the shareholders to provide proper remuneration to the top executives,
employees and the labor staff. Secondly, the directors of the organization should be elected on an
annual basis. Thirdly, the creation of board level committees are lead to focus on the
organization towards the exposure of risk. Lastly a suggestion was made regarding the separation
of the role of CEO and the chairman and individually the policy was established. In order to cut

Running Head: Corporate Governance
down from the scam cases and incidence of the corporate fraud, the Us Senator and the US
representative had drafted a legislation known as Sarbanes- Oxley Act (SOX). The resolved of
the Act was to protect the investors by refining the correctness and reliability of corporate
disclosure in the financial statement. The increasing requirement for commercial transparency in
viewing the report of the shareholders and explanation of the financial statements.
It is advised by all the organization to provide a year-end report which would state the
financial statement and the internal control that has been implemented and the effectiveness of
the same place. In response to the collusion between the Enron and public accounting firm, the
organization monitored corporate behavior especially in the area of accounting. In case of any
crime or corruption the penalty would be charged on a high rate and can also lead to termination
from the work place. The Global Financial Crisis had kept a control over the internal and
external conducts of the organization. The problems were even faced by the government where it
could not understand the measuring power with the development of the market in the advanced
or emerging market. The sources of accounting and finance from the global market had resulted
in an increase in the diversity of the corporate ownership.
A brief report on corporate governance implications stemming from the global financial
crisis.
Financial crisis can be termed as when the value of the assets steeply declines in price
and value, the business and the corporates are unable to pay their credits and financial
institutions practice liquidity shortages. A financial crisis is associated with an organization
where the investors who sell off their assets and withdraw the money from the recurring and

Running Head: Corporate Governance
savings bank account. These are executed because the fear of the value of assets might drop
either at a low or fast rate. The financial crisis may be limited to the organization or it might be
limited to an economy or a worldwide economies. Where as in terms of corporate governance is
the system of rules, regulations and practices are processed by the organization which is directed
and controlled by the head of the company. It maintains a strong relationship between the
shareholder, senior management executives, suppliers, financiers and community. It is the aim of
the company to promote a framework for attaining the company’s objective. It includes practical
management in all the spheres from the measures taken to the action taken against the norm.
The global economic crisis resulted in the creation of a recession situation in almost
throughout the economy. During the time of economic crisis the significant weaknesses in
governance refers to the situation that is followed by the management of risk. The difference in
rapid growth in a particular product changes the functioning of the market that affects the
revenue and the structure of the market. It also leads to infrastructural development that could
safe from risk management. The management of risk is accepted and prevents the business from
identifying the environment and severity of the recent economy that the market faces. The
internal audit is a separation of risk management and may not have received the kindness it
deserved. The role of the internal management, the financial crisis is need to be assessed in the
business activity, strategies and the risk borne by the organization. The focus of the company
such as the collaboration of the employee with the risk, participation in monthly meetings,
handling the risk business capabilities and assisting in the organizational functioning and helping
in the development for the long and short term strategies and approaches.
The response to the global financial crisis is regarding the mode of interaction of the
economic condition in the corporate governance. One of the important factor that could be

Running Head: Corporate Governance
highlighted to perform the auditing on liquidity, capital and debentures. The view of the society
failed to recognize the danger of the budget and the internal audit. The budget on the balances
and the audit have increased in international and national level. In the course of future the
internal audit itself feels to consult on the board in order to recognize, identify, monitor and
manage the key risk factor. A panel led to identify and monitor the areas of the company that are
moving away from the corporates and the correctives measures are taken to get back to the track.
As a consequence the directors and the management of the organization are responsible for the
strategies and approaches of the business and overseeing the actions that are conducted by the
executive management.

Running Head: Corporate Governance
Reference
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices.
Oxford University Press, USA.