Enron - When All Systems Fail: Creative Destruction or Roadmap to Corporate Governance Reform?

Abstract:     
This article raises the unthinkable proposition (for academics at least) that Enron may have been an aberration. The Enron debacle may have been the rare case in which nine, ten or more sets of monitors and gatekeepers failed. Alternatively, as with Tyco, WorldCom, Adelphia, Rite Aid or other celebrated corporate "busts," Enron may be the handiwork of one or two well placed wrongdoers, in this case, CFO Andrew Fastow. Enron then may not be the pathway to meaningful reform at all.

The article next proceeds to a critical review of Sarbanes-Oxley's principal provisions. The conclusion reached is that by and large only a few meaningful reforms have resulted, and those with significant costs (such as federalization of key aspects of corporate governance). One suggested pathway to meaningful reform would have been to take an enabling approach rather than the regulatory, even punitive, one that Sarbanes-Oxley encapsulates. The enabling approach would focus on the positive side of corporate governance, which over has improved dramatically in the United States over the last 20 years, principally through the predominance of independent directors. The article suggest several measures that could be taken to enhance the positive in corporate governance, including several lessons from the Enron board's operation that thus far have been ignored. The conclusion reached is that Enron's most meaningful contribution to our political economy is neither Sarbanes-Oxley nor the enabling reforms suggested. Enron's contribution instead is creative destruction of a different kind, namely, creative destruction of what Professor William Bratton terms the "winning culture," or what the author terms the culture of the "good deal exemption," and the countless moral hazards that those cultural viewpoints spawned.

Keywords: Enron, Corporate Governance, Securities Law, Corporate Law, Sarbanes-Oxley

Accepted Paper Series