The Enron collapse
Enron left behind $15bn of debts, its shares become worthless, and 20,000 workers around the world lost their jobs. Many banks were exposed to the firm, from lending money and trading with it. JP Morgan admitted to $900m of exposure, and Citigroup to nearly $800m. Former high ranking Merrill Lynch bankers have been charged with fraud in connection with Enron transactions. Andersen, which failed to audit the Enron books correctly, collapsed with the loss of 7500 jobs in the US, and 1500 in the UK. BBC News Online, 08 July 2004, Available Ebbers guilty of WorldCom fraud
Former Worldcom chief executive Bernie Ebbers has been convicted of conspiracy and fraud in connection with the 2002 collapse of the telecoms giant. Mr Ebbers, 63, who is to appeal against the verdict, was also found guilty of seven counts of filing false documents. Shareholders lost about $180bn (£94bn) in Worldcom’s collapse – the largest bankruptcy in US history – and 20,000 workers lost their jobs. Mr Ebbers could face up to 85 years in prison when he is sentenced on 13 June 2005. Worldcom emerged from bankruptcy last year and is now known as MCI. A federal jury in Manhattan had spent eight days deliberating before returning their verdicts. BBC News Online, 15 March 2005, Available
Required
Whilst very different companies, both the Enron Inc. and Worldcom Inc. collapses have significant similarities. The source of their respective failures rests almost entirely on a lack of control. Research the above corporate collapses and answer the following:
(a) What were the key objectives of control within Enron Inc. and Worldcom Inc.?
(b) What control activities appear to have failed in Enron Inc. and why did the control activities appear to have failed?
(c) What control activities appear to have failed in Worldcom Inc. and why did the control activities appear to have failed?
(d) How have the Enron Inc. collapse and the Worldcom Inc. collapse affected:
§ contemporary notions of control (especially internal control), and
§ the regulatory framework managing/controlling those responsible/accountable for the existence of internal control/corporate governance