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June 19, 2002--Approximately 200 representatives from area businesses and corporations gathered at Clayton Hall on the University of Delaware’s Laird Campus Monday, June 17, to attend “Accounting, Auditing and Governance After Enron,” a daylong seminar sponsored by the UD Audit and Financial Reporting Institute for Corporate Directors.
The seminar focused on accounting, auditing and regulatory issues in the wake of the collapse of the energy giant Enron.
Charles M. Elson, Edgar S. Woolard Jr. Chair of Corporate Governance and director of the University’s Center for Corporate Governance, discussed several events that he believed people should have seen as “red flags”—signs that Enron was spiraling downward.
- Elson identified these danger signs as:
- The board’s waiving of the company’s conflict of interest policy;
- Company insiders selling their Enron stock;
- Arthur Andersen’s role in the company as both the internal and external auditor, as well as a myriad of problems in the overall auditing process; and
- The lack of term limits for the board of directors and senior positions.
“Although each individual implication may not have seemed too alarming, as a whole these red flags were obviously cause for concern,” Elson said.
Elson said he believes the only way for a board of directors to be completely effective is with the presence of both independence and equity. He said Enron directors lacked independence because of their financial involvement in the corporation.
“As a member of the board, your only participation in the company should be as an owner. Other than long-term equity, a board member should have no financial connections to the company. This lack of independence compromised objectivity,” Elson said.
Elson proposed several solutions to the problems that contributed to the Enron collapse. He suggested that a board of directors be restricted to term limits, allowing for a consistently refreshed outlook; prohibition of an outside auditor to internally audit; and quicker disclosure of insider stock selling.
“As disastrous as Enron was, it might have been a good thing. It could be the rain that nourishes the seed of good corporate governance,” he said. “You’ll never eliminate fraud. Sometimes bad people do bad things. But at least now we can devise systems to mitigate these bad things from happening again.”
U.S. Sen. Thomas R. Carper (D-Del.) also spoke during lunchtime on Congress’s response in the wake of the corporation’s collapse. “There is certainly a sense of outrage,” Carper said. “But we must seize this moment and harness the outrage and make it productive. In the end, we’ll certainly survive this.”
Article by Elissa Serrao
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