Table Of ContentEnron and World Finance
A Case Study in Ethics
Edited by
Paul H. Dembinski, Carole Lager,
Andrew Cornford and Jean-Michel Bonvin
Enron and World Finance
Also by Observatoire de la Finance
From Bretton Woods to Basel
Finance & the Common Good/Bien Commun,no.21,Spring 2005
Ethics of Taxation and Banking Secrecy
Finance & the Common Good/Bien Commun,no.12,Autumn 2002
Will the Euro Shape Europe?
Finance & the Common Good/Bien Commun,no.9,Winter 2001–2
Dommen,E.(ed.) Debt Beyond Contract
Finance & the Common Good/Bien Commun,Supplement no.2,2001
Bonvin,J.-M.Debt and the Jubilee:Pacing the Economy
Finance & the Common Good/Bien Commun,Supplement no.1,1999
Dembinski,P.H.(leading contributor) Economic and Financial Globalization:What the Numbers Say
United Nations,Geneva,2003
Enron and World Finance
A Case Study in Ethics
Edited by
Paul H.Dembinski
Carole Lager
Andrew Cornford
and
Jean-Michel Bonvin
in association with
Palgrave Macmillan
Selection,editorial matter and Chapters 1,2 and 16
© Observatoire de la Finance
Remaining chapters © contributors 2006
Softcover reprint of the hardcover 1st edition 2006 978-1-4039-4763-5
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Library of Congress Cataloging-in-Publication Data
Enron and world finance :a case study in ethics / edited by Paul H.
Dembinski…[etal.].
p.cm.
Includes bibliographical references and index.
1.Enron Corp.—Corrupt practices—Case studies.2.Energy industries—
Corrupt practices—United States.3.Corporations—Corrupt practices—United
States—Case studies.4.Business ethics—United States—Case studies.
5.Corporate governance—United States—Case studies.6.Corporate culture—
United States—Case studies.I.Dembinski,Pawel H.,1955–
HD9502.U54E57367 2005
333.79(cid:2)0973—dc22 2005051354
10 9 8 7 6 5 4 3 2 1
15 14 13 12 11 10 09 08 07 06
Contents
List of Tables and Boxes ix
Acknowledgements x
Notes on the Contributors xi
List of Abbreviations xv
1 Overview of the Book 1
Andrew Cornford
Enron: origins, character and failure 2
Transactions and institutional structure 2
Accounting and auditing 3
Strengthening corporate governance 5
Corporate culture and incentive systems 9
Ethical foundations 11
Part 1 Enron:Origins,Character and Failure
2 Enron and Internationally Agreed Principles for
Corporate Governance and the Financial Sector 19
Andrew Cornford
Introduction 19
A sketch of Enron 20
Accounting and transactional techniques
used by Enron 21
Enron’s financial reports 24
Some other examples of Enron’s activities 26
Different parties and non-observance of good
corporate governance 26
Corporate governance and the OECD Principles 33
The policy response to recent corporate scandals 35
Corporate governance and key financial standards 39
Annex 1 Illustrations of Enron’s accounting and
transactional techniques 40
Annex 2 A look at some of Enron’s financial reports 45
v
vi Contents
3 A Revisionist View of Enron and the Sudden Death of ‘May’ 54
Frank Partnoy
Introduction 54
A revisionist view of Enron 57
The regulatory response to Enron’s use of derivatives 66
Conclusion 77
4 Who Is Who in the World of Financial ‘Swaps’and Special Purpose Entities 90
François-Marie Monnet
Part 2 Ethics in Thought and Action
5 An Ethical Diagnosis of the Enron Affair 103
Etienne Perrot
Principles of action and the foundation of
ethics: some diagnostic tools 103
The ethical basis for an analysis of the Enron affair 105
Conclusion 116
6 Anonymity:Is a Norm as Good as a Name? 117
Edward Dommen
A society of the anonymous 118
What does anonymity convey? 119
Anonymity and compartmentalisation 122
Norms and names 122
Is communitarianism the answer to anonymity? 126
Decent dress: how much to reveal? 127
Conclusion 128
7 Spaces for Business Ethics 131
Domingo Sugranyes Bickel
New forms, old problems 131
An unfinished revolution 132
Codes of conduct and social responsibility 134
Corporate culture as the key 135
The combination of people and capital 136
The bottom of the pyramid 137
Part 3 Corporate Governance and Auditing
8 The Demise of Andersen:A Consequence of Corporate
Governance Failure in the Context of Major Changes in the
Accounting Profession and the Audit Market 143
Catherine Sauviat
Contents vii
The Andersen collapse as a case of corporate
governance failure 144
Concentration, diversification and loss of independence 148
Auditing as the ‘poor relation’ of professional
services: the problem and its effects at Andersen 151
Conclusion 154
9 Enron et al.and Implications for the Auditing Profession 159
Anthony Travis
Introduction 159
Historical role of the auditing profession 160
The expanding role of external auditors to identify fraud 162
Unanswered questions 163
Today, a regulated profession 163
10 Enron Revisited:What Is a Board Member to Do? 168
Beth Krasna
High risk accounting 168
Inappropriate conflicts of interest 171
Extensive undisclosed off-the-books activity 173
Excessive compensation 174
Lack of independence 176
Fiduciary failure – a Board is not a team 177
11 How to Restore Trust in Financial Markets? 180
Hans J. Blommestein
Introduction 180
Public information, valuations and financial market efficiency 181
The central role of the gatekeepers of public trust
in the new financial landscape 182
Why have the gatekeepers of public trust failed? 182
A fundamental response is needed to restore public trust 187
Part 4 Corporate Culture and Ethics
12 Enron:The Collapse of Corporate Culture 193
John Dobson
Introduction 193
Enron’s corporate culture 194
America’s corrupt corporate culture: an educational failure 198
Rising from the ashes of Enron: building a sound
foundation for corporate culture 200
Some concluding thoughts 203
viii Contents
13 Ethics,Courage and Discipline:The Lessons of Enron 206
Robert G. Kennedy
The external response: law and regulation 207
The internal response: professionalism 208
The character of business professionals 213
Business schools and corporate cultures 215
14 Developing Leadership and Responsibility:No
Alternative for Business Schools 217
Henri-Claude de Bettignies
The ‘leadership’ dimension 218
The ‘responsibility’ dimension 219
Leadership and responsibility: two facets of the
same challenge 222
15 Ethics for a Post-Enron America 226
John R. Boatright
What went wrong? 227
What is to be done? 229
Part 5 Conclusion
16 Enron:Visiting the Immersed Part of the Iceberg 237
Paul H. Dembinski and Jean-Michel Bonvin
Enron, a multi-causal reading 237
‘Financiarisation’: trust in finance 240
Loss of bearings – the conflict of interest example 243
Beyond ‘financiarisation’: common good at risk 245
Index 253
List of Tables and Boxes
Tables
2.1 Effects of application of six accounting
techniques on Enron’s financial statements for 2000 25
2.2 Adjusted components of Enron’s key credit ratios 25
Boxes
1.1 Selected legal proceedings connected to the Enron case 7
2.1 International Financial Reporting Standards (IFRS) 20
2.2 International Standards on Auditing 20
2.3 Prepays precedents and applicable law 23
3.1 Derivatives markets 55
3.2 The concept of a ‘prudency’ reserve 65
3.3 Forward curves 65
ix
