Enron was a well established company registered in the United States of America which was ranked 7th in the Fortune 500 magazine and arguably the most innovative company in the United States. Hanson (2002), as quoted by Nakayama (2002) argues that the Enron scandal is the most significant corporate collapse and it demonstrated the need for significant reforms in accounting and corporate governance, as well as a close look at the ethical quality of the culture of business generally.
There are many causes of the Enron collapse. Among them are the conflict of interest between the two roles played by Arthur Andersen, as auditor but also as consultant to Enron; the lack of attention shown by members of the Enron board of directors to the off-books financial entities with which Enron did business; and the lack of truthfulness by management about the health of the company and its business operations. In some ways, the culture of Enron was the primary cause of its failure.
Zimbabwean companies can draw a number of lessons from the Enron scandal. The lessons learnt from the Enron scandal have been one of the bases for the development of more robust corporate governance recommendations and legislation in some countries, for example the Sabanese-Oxley Act in the United States. According to Nowroozi (2002), the failures and lessons associated therewith can be classified as follows:
Fudiciary failure
Enron’s board clearly failed in its fudiciary duties to safeguard the shareholders’ interest in the following ways: * It allowed Enron to engage in high risk accounting * It allowed transactions carrying obvious conflicts of interest * It allowed off-the-book activities to go undisclosed as well as; * Lavish compensation policies
The board may have been misled by management and, in some cases, by the Auditor. The board of directors must exercise due care in the