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Enron had been known as a knowledge intensive company that had been leading the New Economy. The reveal of the bankruptcy had shocked many economists, accounts, regulators and investors who had intention to works in the company. The financial market in the United States and aboard had lost confidence due to the failure of Enron. Multi hundred million dollar write offs and caused large damage throughout the financial system.
Enron was transformed from a large natural gas pipeline company to become an energy trading firm that bought and sold gas as well as electricity. The company businesses mainly come from trading. This section will be discussing the lesson that we can learn from Enron's collapse, and how to prevent another kind of this situation happened again.
6.1 Exploitation of conflicts of interest
Enron's unexpected collapse was cause by the discovery of very complex off balance sheet transactions that had been used to cover the debt and inflate profits. This discussion is about the motivation, mechanics and consequences of these transactions. In the late 1990s, Enron was deceiving its investors that it was pursuing an asset light strategy to improve its profitability. The argument was that when markets are well developed, it is no longer necessary to own expensive assets. For example, it is not necessary to own a power plant and a transmission network to offer a long term contract to sell power to a customer. It is potential to sell the contract and buy the power from the market. More precisely, it is potential to break up the risks that involved in the long term contract into a number of element risks like energy price risk and transmission cost risk and hedge the component risks in appropriate markets. Enron claimed that its competitive advantage would come from its deep understanding of these markets both the underlying market and the various derivative markets that had come up on top of the underlying markets.
This knowledge and the associated trading skills would allow Enron to offer the long term contract to a customer cheaper than a competitor that actually owned a power plant and a transmission network. If that could be achieved, Enron would earn very large profits with very little investment and the return on investment would be extremely large.
It was these visions that boost the Enron stock to high levels and gave Enron the image of being a highly innovative company. Enron described this strategy as Wholesale Services manages its portfolio of contracts and assets in order to maximize value and minimize the associated risks and provide overall liquidity.
In doing so, the Wholesale Services had uses portfolio and risk management disciplines, including offsetting or hedging transactions, to manage exposures to market price movements like commodities, interest rates, foreign currencies and equities. Moreover, Wholesale Services handle its liquidity and exposure to third-party credit risk through monetization of its contract portfolio or third-party insurance contracts. Wholesale Services also sells interests in a certain investments and other assets to improve the liquidity and overall return, the timing of which is dependent on market conditions and management's expectations of the investment's value.
With increased liquidity in the marketplace and the success of Enron Online, Enron believes that it no longer needs to own the same level of physical assets, instead utilizing contracting and market-making activities.
However, Enron buy this asset light strategy with a single minded focus only under Jeffrey Skilling. Prior to that, Enron had joint an asset light strategy in the North American markets with the strategy of aggressive investment in physical assets in emerging markets. In various markets outside the North America and Europe, a shortage of energy infrastructure exists, providing Enron significant opportunities to develop, construct, promote and operate natural gas pipelines, power plants and other energy infrastructure. Enron has developed regional wholesale energy businesses around its international asset base in both South America and in India and continues to pursue a range of energy infrastructure opportunities outside of North America and Europe.
Over time, Enron built up a portfolio for promising market assets in India, Argentina, Brazil, Bolivia, Venezuela, Panama, China, Philippines and Korea. The promising market strategy, associated with Rebecca Mark  was predicated on the assumption that, by offering to make large investments in capital starved emerging markets; Enron would be able to negotiate very profitable contracts. In fact, Enron did succeed in negotiating contracts that appeared to be profitable and one-sided in countries like India that critics in these countries accused the company of bribery and deception.
However, economic occur trouble in the host countries combined with problems of contract enforcement made these projects unprofitable. To pursue its asset light strategy, Enron needed to sell these assets and sell them quickly. When selling these assets it would produce two major benefits to Enron.
On the balance sheet side, it would eliminate the assets as well as the associated debt. The reduction in debt would reduce the debt-equity ratio and improve the credit worthiness of Enron. Retaining a high credit rating would be critical in the trading business which Enron saw as its future  . The counterparties with whom Enron go through into long term contracts would be worry about the ability of Enron to pay its obligation during the life of the contract. If its credit rating felled, counterparties would be unwilling to trade with Enron and the trading business would grind to a halt.
Therefore, debt reduction was a very important reason for selling physical assets. Another potential benefit would be on profitability. If an asset could be sold higher than its cost there would be an instant profit. If a loss making asset were sold, the recurring future losses would be eliminated. Unfortunately, several of the assets that Enron wanted to sell were assets that others were not eager to buy. Some assets were so entangled in the legal and political difficulties that nobody would want to get involved in it.
Other assets might have had potential buyers but only at prices that would produce large losses for Enron. Even in the case of better assets that might have had willing buyers, Enron's desire to sell the assets quickly typically ahead of a reporting deadline made a lengthy negotiation with third parties unattractive.
This situation had clearly revealed a very important weakness in the behavior of the company and financial markets, which is the exploitation of conflicts of interest. The management direction failed to protect investor interests by deceiving in recording transactions, so it create the economic risk in the company by transferring the liabilities and loses to off balance sheet entities.
Most important, it promoted a culture based on oversized business egos that went further than its original core business and encourage aggressive accounting practices (Walter, 2004). The conflicts of interest exist when competition is not perfect and when markets are not fully transparent. The market imperfections is systematic even in extremely developed financial systems, but causing agency problems, it is important that this trouble to be solved through improved transparency and market discipline to build up public confidence in financial markets (Walter, 2004).
The lesson in corporate responsibility is there are major concerns that need to be addressed in the failure of Enron including the part of electric power deregulation, audit committees and financial analysts. The Enron was a financial institution but it was not issue by federal regulation as a financial institution. It had no capital requirements, no reporting requirements, no margin or collateral requirements, no licensing or registration requirements, and there was no obligation as a dealer to make a market by maintaining bid and ask quotes as specialists on stock exchanges. The traditional financial institutions had to meet all these requirements (Bing, 2002, McLean and Elkind, 2003).
Accounting standards today are unnecessarily complex, lacking in conceptual foundations. These deficiencies need to be rectified. Accounting standards must be based on sound theoretical foundations and not on pragmatic considerations. It is necessary to put the principles back into Generally Accepted Accounting Principles (GAAP).
Such principle based standards would be closer to the International Accounting Standards than to the US standards. Yet even the International Accounting Standards are not completely free from the complexities of the US standards. A good illustration of this phenomenon is provided by the International Accounting Standard (IAS), Financial Instruments: Recognition and Measurement, which establishes principles for recognizing, measuring, and disclosing information about financial assets and financial liabilities.
The standard is so complex that it is accompanied by an implementation guidance running into over 150 pages. The Standard is full of ad hoc exemptions that make the standard long, complex and difficult to understand. To give one example, the standard excludes financial guarantee contracts that provide for payments to be made if the debtor fails to make payment when due. This was an exception tailored to exclude letters of credit and other similar instruments.
However, many credit derivatives, such as certain credit default swaps would also be excluded under this clause. The credit derivatives market is growing rapidly and is estimated to have a estimated amount outstanding of $2 trillion. The standard is even more apparent when it is realized that not all credit derivatives are excluded from the standard.
A credit derivative is within the scope of International Accounting Standards (IAS) if it makes a payment based on a ratings downgrade or a change in credit spread or the debtor's default on debt payable to a third party. Scores of similar examples can be given of how attempts to placate some vested interest or the other leads to several layers of irrational exceptions and exceptions to the exceptions that make the standard an exercise in sophistry.
The International Accounting Standard Board and several national standard setters have been working on a much simpler standard that treats all financial assets and liabilities in the same way. This effort produced a 50 page draft standard and a 70 page application supplement that would be a vast improvement over existing standards but progress in this direction has been extremely slow.
Moreover this draft too has several exemptions for example, insurance contracts and some highly ad hoc provisions relating to securitization that detract from a true principles-based-approach. There should be a concerted effort at the international level to rationalize and simplify the accounting standards, eliminate exemptions for vested interests and put the accounting standards on a sound theoretical basis derived from first principles.
In sum, Enron leadership failed to protect investor interests by recording misleading transactions in which the economic risk stayed with the company, but liabilities and loses were transferred to off balance sheet entities. Most important, it promoted a culture based on oversized business egos that went further than its original core business and encourage aggressive accounting practices.
The Enron need to have tougher regulation in several areas, firstly and foremost is a need to improved reporting model that provides investors with quality information in making investment decisions. This model should address off balance sheet activity, other risks related uncertainties that will provide transparent reporting.
6.2 Protecting retirement fund
United States law allows employees to accumulate a tax sheltered stock portfolio under what is called as 401(K) retirement plans. In the typical participant directed plan, employees make contributions to their 401(k) accounts and control where their contribution is invested. Employers often make matching contributions usually some percentage of the employee contribution. When they do so, employers can make this contribution in their own stocks and can also require the employee to hold this stock for a long waiting period before switching the matching contribution into other stocks.
At Enron, workers were systematically misled by Enron executives about the financial situation of the company. For years, Enron, like many other companies, pushed its workers to buy company stock with their own 401(k) contributions. As a result, Enron workers had more than 60 percent of their 401(k) assets in Enron stock. They were turned into captive investors who could not sell their stock when they needed to or wanted to. Workers at many of America's leading companies face similar risks because they are overinvested in company stock.
At Lucent, the company's stock dropped from a peak of $45 to $6 last August. Lucent's workers lost millions because they were overinvested in company stock. At Polaroid, workers were required to invest in company stock and barred from selling until they retired. As Polaroid went bankrupt, the workers lost virtually their entire retirement savings.
Enron made a matching contribution of 50% in its own stock and allowed employees to switch out of it only at the age of 50. In addition, employees voluntarily held Enron stock in their part of the portfolio also. At the end of 2000, 62% of Enron's 401(k) plan assets were invested in Enron common stock; eighty-nine percent of this represented stock purchased by employees and the rest was attributable to company matching contributions.
The high holding on employer stock 62% was by no means unique to Enron. At General Electric and Coca Cola, the corresponding numbers were above 75%, while at Pfizer it was above 85% and at Proctor and Gamble it was nearly 95%. The 401(k) plan assets of one in five companies were at least 50% invested in the company's own stock  . However, the high holding of employer stock meant that the demise of Enron also destroyed the lifetime savings of many employees.
While this was a calamity, it did not result from any action that was illegal or irregular except, firstly the overstatement of profits and understatement of debt in the Enron financial statements certainly induced many employees to hold stock by painting a rosy picture of the company's performance and prospects. Secondly, while employees lost their lifetime savings, some insiders were selling stock surreptitiously and protecting their own investment. Thirdly, while selling stocks on the sly, Enron's top management was encouraging employers to buy the stock stating the prospects of the company were very good.
There was another aspect of the Enron 401(k) that was very problematic. During a crucial period between the middle of October and the middle of November when Enron was spiraling downwards, employees were prevented from moving their investments out of Enron stock into other assets. This happened because Enron was changing the plan administrator and during the changeover period all changes in investment options were blocked. The exact number of days for which this blackout lasted is disputed.
According to the outgoing administrator  , the blackout period began on October 29, 2001 while according to the incoming administrator  ; the blackout period began on October 26, 2001 and ended on November 13, 2002. Apart from this small discrepancy, employees have alleged that the blackout period began much earlier and was longer. Some of the confusion might also be because even according to the plan administrators, the blackout periods for loans and withdrawals began on October 19, 2001 while the blackout for investment option changes began only on October 26/29, 2001.
The exact dates are very crucial because the Enron stock fell from $26.05 on October 19, 2001 to $15.40 on October 26, 2001, $13.81 on October 29, 2001 and further to $9.98 on November 13, 2001. Therefore, if the dates claimed by the plan administrators are correct, the fall in the stock price during the blackout was only about 28% while if the blackout began ten days earlier, the fall is over 60%.
The related issue is whether given the magnitude of problems facing Enron in the second half of October 2001, the planned schedule of blackouts and change of administration should not have been altered. The incoming plan administrator has testified that discussions were held on October 25, 2001 on delaying the changeover process as well as shortening the blackout period.
A further discussion was held on November 1, 2001 on whether it would be possible to halt the process in place and have the old administrators simply reassume their duties until a later date. This option was apparently abandoned as infeasible.
Employee and employer need to learn lessons from the Enron debacle so that they can strengthen the pension system and protect themselves. At Enron, executives cashed out more than $1 billion of stock while Enron employees lost more than $1 billion from their money purchase schemes, known as 401(K) retirement plans. There are thousands of Enron employees lost nearly all of their retirement savings. While Enron executives got rich off stock options even as they drove the company into the ground and systematically mislead workers about the true financial condition of the company. Sadly, Enron is not just an isolated tale of corporate greed.
Instead, the Enron debacle reveals a crisis of corporate values. In America, people who work hard all their lives deserve retirement security in their golden years. It is wrong dead wrong to expect Americans to face poverty in retirement after decades of working and saving. Enron has shown us that workers today do not have true retirement security.
The emerging details of the Enron scandal reveal a shocking abuse of corporate power that left workers powerless to protect themselves. Executives like those at Enron should not put their own short-term gain ahead of the long-term interests of workers and shareholders. They must not be rewarded for doing so. Above all, the Enron debacle demonstrates the urgency of reforming 401(k) plans which are now the bedrock of America's pension system.
They should commend President Bush for proposing legislation to provide fair notice for workers before any lockdown and to end age restrictions on the sale of company matching stock. But these first steps only address the tip of the iceberg in terms of protecting workers' retirement security. The President's proposal does nothing to respond to the core issue the need for investment diversification to protect workers at Enron and other companies across the United States. When it comes to protecting the hard earned retirement dollars of America's workers, we should not settle for half measures.
A generation ago, Congress took action to safeguard pensions in response to an Enron-like debacle at Studebaker. These protections for defined benefit plans included diversification requirements and Government insurance. As many companies have abandoned the traditional defined benefit pension plans, 401(k) plans have become the bedrock of America's pension system.
Today 401(k)'s offer few if any of these safeguards for workers' retirement security; 401(k) plans are not professionally managed, they are exempt from diversification standards, and they are not backed by insurance. In the wake of Enron's collapse, Americans across the spectrum now recognize that a successful free enterprise economy depends on a framework of laws and institutions to make it work.
Enron ex-executives were some of the leading cheerleaders for deregulation, arguing against any kind of Government oversight. The results are now in, and it is clear that this approach leaves America's workers high and dry. Above all, the Enron debacle shows that we need a top to bottom review of 401(k) plans. But we must do more to protect the retirement security of workers. We must take concrete steps to foster the diversification of workers' 401(k) plans. Companies should be required to adequately insure their pension plans and to give workers a voice in overseeing pension plans.
We must guarantee that workers receive complete and precise information to make their investment decisions and make clear that executives cannot give workers incomplete or misleading information to affect their stock purchases. The private pension system is made essential to all the workers, retirees and their families. While the current study is appropriate and welcome, there must strengthen the confidence of the workforce that their retirement savings are secure.
6.3 Protecting Stakeholder
The word "Enron" has now come to represent an era as much as a company. The company Enron was the most spectacular example of collapse due to internal fraud or questionable accounting practices during a shameful two year period beginning in late 2001.
Other American and international firms implicated in such scandals during this period included AT&T, AOL-Time Warner, Arthur Andersen who were Enron's auditors and consultants, WorldCom, General Electric, Tyco, Qwest, Adelphia, Halliburton, Global Crossing, Merrill Lynch, Health South, Royal-Dutch Shell, Parmalat, Nortel, Hollinger, and so on.
Of course, there have always been corporate scandals, and there always will be. If we ask critics of capitalism what lessons there are to learn from these scandals of the Enron era, that is what we are most likely to hear would be Enron is symbolic of capitalist greed; it shows that corporations and business people will do anything they can get away with; if government loosens its control even a little over the corporate world business people will do whatever is in their interest with no regard to the public interest.
This is not exactly the situation of Enron lesson drawn by those with a vested interest in modern capitalism including investors, brokerages, pension-fund managers, auditors, stock exchanges, financial regulators, legislators, and so on. Their analysis begins by distinguishing between different elements of what critics often see as a monolithic capitalist corporation. In particular, they distinguish between the shareholders, the Board of Directors that is elected by the shareholders and is supposed to safeguard their interests, the CEO and other senior executives, and the enduring fictitious legal person that is corporation itself.
Of course, there is no particular explanation for all of the Enron scandals. However, in most of the cases it was not the capitalists, literally the shareholders or the corporations as such that were to blame, but rather the shareholders' humble and not so humble servants as the senior executives, and their watchdogs, the Boards of Directors. The scandals were not a business as usual under the capitalism, but rather a subversion of the basic structure of capitalist governance. It is not that managers were acting in the interest of shareholders to the detriment of all of the other stakeholders. Rather it was typically the case that managers were acting in their own interests, defying their moral and legal duties to shareholders and thereby inflicting tremendous harm on other stakeholders.
The governance relation between the shareholders and executives had broken down in numerous places. The managers were able to develop themselves in ways that were not in the shareholders' interests, and in most cases they were able to cover these benefits; the Boards of Directors often conspired with the executives because the executives and their friends sat on the Board, controlling the agenda and directing important committees, or failed to exercise sufficient diligence in monitoring the executives; the shareholders, especially large institutional shareholders, paid insufficient attention to the quality of the Boards and to the reports of external auditors; and the auditors, who are supposed to evaluate management and work in the shareholders' and public's interest, were sometimes more inclined to curry favors with managers who could offer their firms lucrative consulting contracts.
It did not take long for this mainstream analysis to translate into some concrete institutional changes in the governance of corporations in the USA. Various public and private regulatory bodies such as stock exchanges quickly put into place new rules that would make each of these contributing factors less likely in the future. Auditing firms have been barred from providing consulting services to their clients; independent directors' example, those who are not also executives have been given much more authority on Boards, especially when it comes to hiring, firing and compensating senior executives; and CEOs have been made more legally accountable for the truth and integrity of their financial statements. Most of these changes have also been filtered through to other western countries.
Even though other Organization for Economic Co-operation and Development (OECD) member states did not experience the amount of scandals seen in the USA, almost all analysts here recognized that their firms were as vulnerable as those in the USA.
6.4 Strengthen Board Culture
The failure of the Enron Board of Directors to challenge management and possibly avert that corporation's downfall has unleashed a growth industry of corporate governance advice and triggered some needed housecleaning.
In recent months, many boards, including those at hospitals and health systems, have shored up loose oversight processes, especially for audit and executive compensation. At the same time, a lot of trustees have convinced themselves that "we're not like Enron," so the rest of the board's business goes on pretty much as usual. That could be a costly mistake.
The real lesson of Enron is not that boards need better structures and stronger processes, although many do. Enron had in place many sound board structures, and it followed practices recommended by corporate governance gurus. It was well organized, knowledgeable and experienced, and it populated the audit committee with independent directors. It is hard to figure out that those directors did not know the right questions to ask or where to find independent experts to help them.
What Enron lacked was not structure, process or talent, but a culture of accountability, independence, diligence and honesty in which directors raised hard questions and did not rest until they got good answers. The lesson of Enron is that while board structure and process may set the stage for effective the culture that determines whether board members can apply their skills to the fullest.
A corporate culture may be loosely defined as "the way we do things around here." Corporate culture is a product of formal rules and unspoken dicta, fables and heroes, and the behaviors hat are rewarded and punished. A governing board culture may be passive or assertive, complacent or diligent, accepting of rationalizations or demanding of results.
The board may be inclined to accept average performance or to challenge management to achieve stretch goals. Hospitals and health systems today need a board culture in which directors do their jobs with rigor, challenge management to pursue benchmark performance, give frank advice, heed red flags and demand accountability. They need a culture that allows board members to carry out their responsibilities respectfully but also to put organizational good before friendships and professional relationships.
Every board, no matter how well intentioned and honest its members and management may be, needs to make a frank assessment of its culture. The same factors that produced the Enron board culture of agreement exist to some degree on many good boards, including most hospital and health system boards. Individuals join boards for the chance to contribute expertise and offer counsel, and they enjoy the prestige and the camaraderie. Most board members respect and like the CEO, the management team and their fellow trustees; they want to be supportive. Retreats and social outings cement personal relationships.
Board members prefer collegiality to confrontation. They accept their legal responsibilities, but they didn't sign on to be the neighborhood tough guy. Oversight of corporate compliance, audit, executive compensation and so forth are legal necessities, not their motivation for serving. Most of all, directors don not want to be the "skunk at the lawn party" that stands alone to challenge the prevailing wisdom. When savvy executives report solid financial returns, many directors do not want to appear as soft by questioning whether a company's management is following ethical and legal rules to the letter.
Yet every courageous stand begins with one voice. Often, one director's willingness to contradict the group or to ask for help understanding something opens the gates of inquiry that lead to insight, wisdom and better decisions. A CEO is well served by a probing board that challenges, learns and enriches high-level decisions.
Accountability and commitment go hand in hand. No matter what their roles are outside the boardroom, the members of an effective board must be fully committed to the organization and to its mission, vision and values; and to each other as members of a cohesive team.
Several years back, a Washington, D.C., bank used this line in its advertising: "We never forget whose money it is." Similarly, directors can never forget that the corporation belongs not to the board or management but to the owners that its shareholders.
The board of a not for profit organization is accountable to the public, which includes the stakeholders and constituencies that benefit from its good works. First and foremost among the stakeholders are the patients and the community. As the single body that is accountable to the owners, the board has to conduct itself with a certain degree of independence to ensure that management is serving the stakeholders well.
That does not mean the board should be suspicious or adversarial, but rather, it should act in ways that embody independence and accountability. For example, the independent board selects the auditors and the executive compensation consultants, meets with them in executive session, asks blunt questions and does not hesitate to request further information.
Some boards, such as Catholic Healthcare Partners of Cincinnati, take this a step further, scheduling an executive session of just the board and CEO with no other management at every meeting.
In the past, many CEOs wanted the board to be supportive, and little more. Today, chief executives recognize that an informed, engaged and independent board is their strongest ally in challenging, competitive times. Without trust in and respect for each other and for management, boards that flex their muscles and assert their independence may descend rapidly into personality conflicts, friction and factionalism. When trust is absent and assertive directors raise probing questions, management naturally gets defensive.
At the same time, inquiring trustees may be labeled "disloyal" and shut off from information and influential committee positions. Trust is the glue that unifies the many voices of independent directors into a cohesive team. Board members and management need to trust that everyone in the room is working in good faith toward a common goal, the good of the organization. Trust cannot be assumed, it must be earned. One thing management can do to merit the board's trust is to support the board with information that is accurate, timely and complete.
6.5 Investment banks transparency
All the major securities firm in the United States have large research departments that provide research reports on most major companies to their institutional and retail clients. This research is known as "sell-side" research as it is done by firms that are trying to sell these securities to their clients.
Some of the large investment institutions like mutual funds and pension funds also do their own research "buy-side" research, but they also rely to a great extent on the sell-side research at least as a starting point for their own research.
The collapse of Enron and other companies have highlighted three major problems  with sell-side research that is shown.
Firstly, a conflict of interest within the investment banks that causes analysts to put out false research reports to help win investment banking business for their employers. If the false reports is identified it will led to investigations and fines for the investment banks.
Secondly, sell-side analysts make far too few sells recommendations and rate almost all companies that they cover as buy or neutral. In the Merrill Lynch, though the company had a five point scale, "Buy-Accumulate-Neutral-Reduce-Sell", no "Reduce" and "Sell" ratings were actually issued by the Internet Group.
If a company is too bad, the analysts simply drop coverage of the stock rather than rate it as sell. This practice does not fool the institutional clients who understand the coded language of each of the investment banks. For example, institutions might well have understood neutral as a euphemism for sell and accumulate as a euphemism for neutral.
Moreover, institutions could also talk to the analyst for a frank opinion shorn of all the guarded language of the published reports. However, it might have fooled retail clients who might quite legitimately have expected words to have their natural meaning.
Thirdly, sell side research is not sufficiently in-depth. Particularly, in the case of complex companies like Enron, few analysts actually understood the company and its business. Rather than simply admit ignorance and drop coverage of the company, the analysts took the company on faith and put out optimistic research reports.
An analyst who is Enron castigated for his unfriendly ratings testified that "Enron became a nearly impossible company to model. There were a tremendous number of moving parts. Analysts increasingly had to rely on company guidance to make the numbers work. This turned out to be very dangerous." Another analyst testified "the analysts to some degree were more victims rather than culprits in the Enron situation.
One reason that analysts may have been more willing than normal to accept company guidance for Enron was that it was becoming increasingly difficult to understand how Enron was achieving its revenue growth and profitability. Often the way out for analysts when faced with difficult to analyze situations like Enron is to drop coverage.
There is no need to take the risk when there are plenty of companies that are transparent enough to do meaningful analysis with confidence. The problem with dropping Enron was that it had become the giant in the industry. If you were an analyst covering that industry, you essentially had to cover Enron.
The investment bank must not within their own interest that causes analysts to put out false research reports to help win investment banking business for their employers. If the false reports is identified it will led to investigations and fines for the investment banks.
At the end of a long paper, it is useful to summarize the lessons to be learnt from all this.
These lessons have been brought out in detail in the body of the paper. So it is scarcely necessary to provide lengthy justification for these conclusions. The Enron and related scandals demonstrate a massive regulatory failure. More importantly, they demonstrate regulatory failures that do not admit of any easy fixes. Instead one must proceed on the basis that such state failure are inevitable and try to strengthen the processes of market discipline. The market failures that took place are fixable and should be fixed. Rule and law had been implemented to make sure that it will not be repeated from the same mistake.