INTERNATIONAL BUSINESS FINANCE AND TRADE Essay Example | Topics and Well Written Essays - 3000 words

INTERNATIONAL BUSINESS FINANCE AND TRADE - Essay Example The Enron Corporation before its collapse was one of the largest global company which had its hands in the sales of natural gas and electricity, commodities like bandwidth internet connection and provided other financial and management services. Failure of corporate governance can be due many reasons. In financial terms if a company owes more than it earns over a significant time period and is not able to carry out trade then it faces a corporate failure. Failure can also occur due to institutional failure in which a group of managers fails to tackle major issues of the company. An important factor behind the collapse of corporate governance is the financial crisis. â€Å"The Enron failure demonstrated a failure of corporate governance, in which internal control mechanisms were short-circuited by conflicts of interest that enriched certain managers at the expense of the shareholders.† (Enron: Corporate Failure, Market Success, 2002). A complete reevaluation of corporate govern ance practice in the United States became important after the fall of Enron. The financial goals of a corporate sector are mainly maximization of share holder’s wealth and the maximization of corporate wealth. The wrong financial decisions taken by the authorities leading to a ‘dubious’ financial transaction also contributes to the failure of corporate governance. The free market situation which emerged as a result of liberalization and the process of privatization of public sector got questioned after the breakdown of the Enron. â€Å"The failure of the corporate governance system should be viewed as the failure of the corporate internal control system† (Dewan, 2006, P. 51 An effective system of corporate governance has both internal and external aspects that have to be sufficiently responsive if governance is to succeed. â€Å"Different internal and external influences address different issues within an organization† (Hafner, 2010, P. 6). Absence of an appropriate internal governance system which leads to an inefficient financial and management performance may also contribute to the breakdown of corporate governance as happened at Enron. Failure of External governance system which has the responsibility to warn the company about the future market situations to do its duty may also contribute to the failure of the corporate governance. The power in the hands of the company given by the corporate rules to influence the policy makers and hence the government has been another reason for the corporate failure. The collapse of corporate governance was not just rooted in poor managerial performance but the entire corporate department plays a major role in ruining the corporate ethical values and principles. But the primary responsibility for the failure of corporate governance lies with the executives and the managers. If the operations management were allowed to work according to the corporate norms then the tragedy of the Enron c ollapse might not have occurred. Effective regulation and oversight, restrictions on campaign financing, and an arms length approach of government in dealing with business may have prevented the breakdown of Enron. â€Å"Enron situation taught a lesson about the main reasons for such failures and not to repeat the same mistakes in the future. The Enron situation was the focus of a massive investigation that led to significant changes in corporate governa