Corporate Strategy

Individual

Corporate Strategy

Individual

Introduction to the case

The case discusses on one of the largest fraud case in the history of the accounting profession during the early 20th century, where a company by the name of Eron corporation during 2001 reported the biggest ever bankruptcy resulting in over 4000 jobs and many stakeholders facing major issues in their decision making. Especially the shareholders, has lost the prices of the shares from US$ 90.00 to 0.30.

1.1
Eron ?

Question 1

What mechanism in the governance chain should (or could) have prevented what happened at

According to (Geryy.j, kevan.s, Richard.w, 2008) the governance chain illuminates the roles and relationships of the different groups in the governance of an organization. This lack in the chain of governance has made the senior executives of the company to move ahead with the scandal, where both of the CEOs has been able to play around with the accounts of the company which has resulted in the financial scandal within the company, and which was not being monitored even with the request of the VP. The company has not passed the required information to the beneficiaries on the performance of the company, but some amended or artificial accounts have been provided to the beneficiaries or the shareholders and the public as the financial performance of the company. It could be said that with the presence of a higher chain of governance, which starts and ends with the beneficiaries along with the presence of a board of directors, who are being elected from the shareholders of the company and the presence of an executive board, who acts as the agents of the shareholders/ beneficiaries and controls the acts of the senior executives of the company, then the scandal could have been prevented.

1 BABM-7

Corporate Strategy

Individual

1.2 Question 2
What changes in corporate governance are required to prevent similar occurrence? Corporate governance is mainly the activities carried out by the company which prevents unethical activities and ensures that the companies are moving along with the best interest of the shareholders or the beneficiaries. (Steger, Ulrich .A, Wolfgang, 2008) The corporate governance which needs to be implemented within the companys operations to ensure that similar activities could be prevented would be the shifting of the company from the shareholders perspective to a stakeholders perspective, where the stakeholders act as beneficiaries and ensures that a proper chain of governance is being implemented within the organsiation. The appointment of external auditors needs to be in the hands of the shareholders and the auditors need to report directly to the shareholders instead of the senior executives as how it has nee undertaken by Eron. If the above mentioned activities have been carried out within the company, they could have detected the scandal well before it could have occurred and saved a number of employments as well as the huge bankruptcy

2 BABM-7

Corporate Strategy

Individual

Conclusion

It is understood from the above mentioned paragraphs that there needs to be a proper chain of governance as well as a proper governance mechanism established within the companies, in order to ensure that the companies does not fail in its operations and ensures that the companies operate with the intention of surviving for a foreseeable future.

3 BABM-7

Corporate Strategy

Individual

References

Gerry.j,kevan.s,Richard,w (2008), Exploring corporate strategy text and cases (8th edition ) UK financial timer prentice hall. Steger, Ulrich .A, Wolfgang, (2008), Corporate Governance: How to Add Value, USA, Wiley

4 BABM-7