Enron and the biggest corporate governance scandals of the past decade

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Enron and the biggest corporate governance scandals of the past decade

Janet McFarland

Globe and Mail Update

Published Sunday, Nov. 27, 2011 9:20PM EST

Last updated Sunday, Nov. 27, 2011 11:24PM EST

A recap of some of the biggest corporate governance scandals that hit in the last 10 years

1 of 10

Enron Corp.

The energy company has become synonymous with board failings, and is credited with spurring a wave of governance reforms across North America. Enron’s collapse in 2001 amid allegations of massive accounting fraud also spurred the collapse of auditing firm Arthur Andersen, leading to new rules governing the behaviour of auditors. Founder Ken Lay was convicted of fraud, but died of a heart attack before sentencing. Former CEO Jeffrey Skilling (pictured) is serving a 24-year prison sentence.

(Richard Carson/Reuters)
WorldCom Inc.

The long-distance phone company launched the largest bankruptcy protection filing in U.S. history in 2002, revealing top executives had used fraudulent accounting to hide years of losses and grossly inflate assets. Also revealed: the board of directors had rubber-stamped more than $400-million in personal loans to CEO Bernard Ebbers. Independent reviews later concluded WorldCom’s board did almost nothing to supervise management.

(Louis Lanzano/AP)
Nortel Networks Corp.

A trial will begin in January for three former top executives of Nortel, who are accused of overseeing accounting manipulations at the failed telecommunications giant. RCMP allege the men, including former CEO Frank Dunn, were manipulating earnings to try to trigger millions of dollars of bonuses under their compensation plan. Shareholders criticized the board for allowing a controversial compensation plan that promised bonus payouts if Nortel achieved even a single quarter of profitability.

(Fred Lum/The Globe and Mail)
Hewlett-Packard Co.

The computer company was embroiled in an unusual governance controversy in 2006 when chairwoman Patricia Dunn asked the company’s top lawyer to hire a security firm to investigate board members to see if any were leaking information to journalists. The plan blew up when private investigators lied to obtain phone records, claiming they were board members and journalists seeking their own documents. Ms. Dunn resigned and was later charged criminally in the matter, along with four others. A judge dismissed the charges in 2007.

(Paul Sakuma/AP)
Adelphia Communications Corp.

The cable company’s founder, John Rigas (pictured), and his son, Timothy Rigas, were convicted of stealing $100-million from the company and sentenced in 2005 to 15 and 20 years respectively, later reduced on appeal to 12 and 17 years. The men were accused of using the company as a “personal piggy bank,” abetted by a compliant board that bowed to the family’s influence. Investors learned the Rigas family entities “co-borrowed” $2.3-billion in loans backed by Adelphia.

(Seth Wenig/Reuters)
Research in Motion Ltd.

U.S. and Canadian regulators launched more than 100 cases in 2006 and 2007 involving executives and directors accused of using hindsight to choose favourable grant dates for their stock options. Three RIM executives reached a $68-million settlement with the Ontario Securities Commission in 2009 over option backdating. An OSC hearing panel called the case a “fundamental failure” of corporate governance, saying the board was negligent for allowing backdating to occur unchallenged for 10 years. Four RIM directors also faced allegations in the case, and were ordered to take director training courses.

(Jennifer Roberts for The Globe and Mail)
Parmalat SpA

The Italian dairy multinational was dubbed “Europe’s Enron” after it declared bankruptcy in 2003 with debts topping €14-billion - an amount eight times higher than the company had reported to investors in its financial statements. CEO Calisto Tanzi was sentenced to 10 years in prison after being found guilty of financial fraud for hiding the company’s true financial position for 15 years. Other executives and directors from Parmalat’s board were also convicted for assisting in the cover-up.

(Luca Bruno/AP)
Satyam Computer Services Ltd.

Asia had its own Enron moment when Satyam chairman Ramalingan Raju announced his resignation in early 2009, admitting he had been manipulating the company’s financial statements to inflate profits and overstate cash balances. The mastermind of India’s largest corporate fraud said he started off trying to close a “marginal gap,” but the manipulations escalated and grew unmanageable. Mr. Raju and other executives were arrested and charged with fraud, and India’s government took the rare step of dismissing Satyam’s board and appointing new directors.

(Louie Paul/The Globe and Mail)
Tyco International Ltd.

CEO Dennis Kozlowski became the poster child for corporate excess when investors learned he had used Tyco money on ostentatious personal purchases, including a $6,000 shower curtain and a $2-million birthday party for his wife. Mr. Kozlowski was convicted of taking more than $120-million in unapproved bonuses and also abusing an employee loan program. At his trial, he claimed the board approved the compensation, but the approvals were informal. Directors denied they knew of the spending.

(Chris Hondros/Getty Images)
Olympus Corp.

The newest addition to the scandal list is still unfolding after the Japanese camera giant admitted earlier this month it had used accounting sleight of hand to hide billions in losses on securities investments in the 1990s. The information came to light after new CEO Michael Woodford was fired in October and went public with problems he had uncovered. One of the company’s largest shareholders has demanded the ouster of the whole board, saying it has either been complicit or incompetent for over 20 years.

(Yoshikazu Tsuno/AFP/Getty Images)

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