Title Essay

4582 Words Feb 12th, 2015 19 Pages
Director Notes

From Enron To Lehman Brothers
Lessons for Boards From Recent Corporate Governance Failures by Frederick D. Lipman

In order for boards to fulfill their oversight obligations, the organizations they serve must have robust whistleblower and compliance policies and programs to encourage reporting that can help identify risk exposures, fraud, or other illegal activity. This report identifies common pitfalls in many current whistleblower and compliance programs, and it offers recommendations on how audit committees can strengthen them.
Government investigations, bankruptcy receiver reports, and numerous books provide a rich source of information about the major corporate disasters of the first decade of the twenty-first
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An investment advisory group formed by the Public Company Accounting Oversight Board (“PCAOB”) noted that a number of companies all received unqualified audit opinions within months of their failure. (See “A Sampling of Failed Financial Institutions” on page 3.)
2 See Andrea Redmond and Patricia Crisafulli, Comebacks: Powerful Lessons from Leaders Who Endured Setbacks and Recaptured Success on Their Terms (San Francisco: Jossey-Bass, 2010), which details the story of Herbert S. “Pug” Winokur, Jr., former head of the Finance Committee of the Enron Board of Directors, who subsequently lost his directorship with the Harvard Corporation.

No. DN-V4N6 MARCH 2012

It is clear that corporate governance oversight cannot be effective if the only source of board information is the CEO, CFO, and the independent auditor. In reaction to Enron, WorldCom, and the other shareholder disasters that took place from 2000 to 2002, Congress enacted the Sarbanes- Oxley Act of 2002 (SOX), which mandated that companies whose stock is traded on national securities exchanges require their audit committees to establish procedures for “the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters.” This resulted in employee hotlines being established by most public companies. However, these hotlines have not been effective in most cases to induce management personnel to go over the heads of the CEO or CFO and make disclosures

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