Random Case

2a.

The board of directors are responsible for representing the shareholders and their interests in the company. To fully represent the shareholders and their interests, the board of directors must be independent from the managers and must remain involved in management’s activities so they scrutinize their actions. The board of directors also ensure management implements proper internal controls and financial reporting processes. If the board of directors fail to remain involved in management’s activities, then the likelihood of management overriding controls increases. In the event the board of directors fail to fulfill their responsibilities, they can be held liable by the shareholders for their loses.

2b.

It is hard to tell if the board of directors could have stopped the collapse of Enron, but it can be seen that they could have made the collapse less terrible. The audit committee should have noticed that the chosen accounting methods were not exactly within the accounting rules and that it would cause the financial statements to be deceptive and inaccurate. The chosen accounting methods should have been reported to the board of directors so that they could stop poor practice and protect shareholders. Also, by correcting the accounting methods it would have helped control the excessive amount of executive compensation that was tied to financial performance and helped stop insider trading. The board of directors should have also had greater oversight of all aspects of managements work so that they would have been able to stop activities where managers had a conflict of interest and stopped “off the books” activities.