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AOL/Time Warner and WorldCom:Corporate Governance and the Effects of the Deregulation Paradox
Unformatted Document Text:  8 books partnerships. In a presentation before a US Congressional subcommittee, Watkins described Enron as having a culture of intimidation in which anyone who tried to challenge the business practices of Enron’s former chief financial officer, Andrew S. Fastow, faced the prospect of losing their job. She further acknowledged that there was widespread knowledge of the company’s shaky finances, but no one felt confident enough to confront former President and CEO Jeffrey Skilling or Andrew Fastow. To do so, I believe, would have been a job terminating move. Frankly, I thought it would be fruitless, that nothing would happen…(“Lone Voice,” p. C7). What is also clear is that Enron’s corporate board knew about and could have prevented many of the risky business dealings and accounting practices that led to the company’s demise. Enron’s board was later faulted for failing to ask the tough questions that needed asking and for failing to get involved in a meaningful way regarding the highly questionable partnership transactions that moved debt off the company’s balance sheet. And when the board did ask questions, they were not given the right answers. Most importantly, there was a diffusion of authority so that neither the board or its individual members took responsibility for the actions of Andrew Fastow. By failing to get more deeply involved, the board missed the opportunity to uncover fundamental flaws in the company’s accounting practices (Charran, & Useem, 2002). In a six month US Congressional inquiry, the subcommittee on investigation concluded: .... that much of what was wrong with Enron was known to the board, from high risk accounting practices and inappropriate conflict of interest transactions, to extensive undisclosed off-the-book activity and excessive executive compensation… (Byrne, 2002, pp. 50-51)

Authors: Gershon, Richard. and Alhassan, Abubakar.
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8
books partnerships.
In a presentation before a US Congressional subcommittee, Watkins described

Enron as having a culture of intimidation in which anyone who tried to challenge the

business practices of Enron’s former chief financial officer, Andrew S. Fastow, faced the

prospect of losing their job. She further acknowledged that there was widespread

knowledge of the company’s shaky finances, but no one felt confident enough to confront

former President and CEO Jeffrey Skilling or Andrew Fastow.
To do so, I believe, would have been a job terminating move. Frankly, I
thought it would be fruitless, that nothing would happen…(“Lone Voice,” p. C7).

What is also clear is that Enron’s corporate board knew about and could have

prevented many of the risky business dealings and accounting practices that led to the

company’s demise. Enron’s board was later faulted for failing to ask the tough questions

that needed asking and for failing to get involved in a meaningful way regarding the

highly questionable partnership transactions that moved debt off the company’s balance

sheet. And when the board did ask questions, they were not given the right answers.

Most importantly, there was a diffusion of authority so that neither the board or its

individual members took responsibility for the actions of Andrew Fastow. By failing

to get more deeply involved, the board missed the opportunity to uncover fundamental

flaws in the company’s accounting practices (Charran, & Useem, 2002). In a six month

US Congressional inquiry, the subcommittee on investigation concluded:
.... that much of what was wrong with Enron was known to the board,
from high risk accounting practices and inappropriate conflict of interest
transactions, to extensive undisclosed off-the-book activity and excessive
executive compensation… (Byrne, 2002, pp. 50-51)


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