Enron and Corporate Governance
The Enron Corporation filed for bankruptcy protection on December 2, 2001. Just a few months before, it was one of the top ten publicly-held corporations in the United States. The collapse of Enron led to a vigorous public debate about ethical problems in the management of large American companies and to a wide range of legal reforms.
On June 24, Professor Lawrence Repeta took advantage of the modern audio-visual equipment of the new Omiya Law School building to conduct a workshop titled “Enron and Corporate Governance” featuring a large-screen powerpoint presentation with numerous photos, diagrams, editorial cartoons and other material to illustrate the complexities of the Enron story.
The collapse of this powerful company was the result of complex accounting fraud, made possible with the advice and support of one of the country’s “Big Five” accounting firms and the most “prestigious” (and expensive) law firms based in Houston, Texas.
Professor Repeta’s presentation focused on the roles of lawyers and the failures of the so-called “gatekeepers” such as auditors, research analysts and the Securities Exchange Commission to detect or stop the systematic fraud that both supported the grossly inflated stock price of the company and led to its collapse.
After considering the overall question: “Why did the American system of corporate governance and regulatory oversight fail?” the discussion moved on to ask “Will it fail again?”
The Enron incident led to numerous changes in law and other rules intended to prevent the occurrence of similar cases in the future. The most important of the post-Enron reforms is the Sarbanes-Oxley Law, often described as the most far-reaching reform of federal securities law since the 1930s. Despite the law’s complexity, demand for reform was so great that it passed the U.S. Senate by a vote of 99-0 and the House of Representatives by 423-3 in July 2002 and was signed by President Bush a few days later. Other reforms included changes to ethical rules governing lawyers, to stock exchange listing standards and to rules issued by the Securities and Exchange Commission.
Workshop participants also considered a massive “class action” lawsuit led by the University of California (UC) to recover losses suffered as the result of the bankruptcy.
As of June 2005, the UC and other plaintiffs had already recovered nearly $ 5 Billion in damages from investment banks, directors and others involved in various aspects of the Enron fraud. The suit is ongoing.
The presence of fifty students during their free time on a Friday evening demonstrated the enthusiasm of Omiya Law students to understand recent developments abroad that are likely to have an influence on Japanese law in the future.