About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

76 Tul. L. Rev. 1275 (2001-2002)
Enron and the Dark Side of Shareholder Value

handle is hein.journals/tulr76 and id is 1299 raw text is: Enron and the Dark Side of Shareholder Value William W Brattoff This Arficle addresses the implications that the Enron collapse holds out for the self- regulatory system of corporate governance. The case shows that the incentive structur that motivates actors in the system generates much less powerful checks against abuse than many observers have believed Even as academics have proclaimed rising governance standards, some standards have decline4 particularly those addressed to the numerology of shareholder value. The Article§ inquiry begins with Enron§ business plan. The Article asserts that there may be more to Enron r Wrtual frmstrategy than meets the eye beholding a firm in collapse. TheArticle restates the strategy as an application ofthe incomplete contacts theory ofthe firm that prevails in microeconomics today and assetts that Enmon failed because its pursuit of immediate shareholder value caused it to misapply the economics, mistaking its owe inflated stock market capitalizaion for fundamental value. The Article proceeds to Ehron§ collapse, telling four causation stories. This ex ante descrpdon draws on information available to the actors iho forced Enron into banauptcy in December2001. The discussion accounts for the behaviorofEnronkprincioals by reference to the shareholder value norm andEnron s corporate culture. Finally the Article takes up the self-regulatory system of corporate governance, asserting that the case justifies no fundamental reform. The costs of any significant new regulaton can outweigh the compliance yield paticularlyin a system comrnittedto open a wide field for entrepreneutial usk taling If we seek high returns, we must discount for the rsk that radonaWh andreputadon will sometimesprove inadequate as constaints. At the same tine, we should hold critical gatekeepers, particularly auditors, to high professional standards. The Article argues that present reform discussions respecting the audit function do not adequately confront the problem ofcapture demonstratedin this case. I. INTRODUCTION .......................................................................... 1276 II. ENRON AND THE CONTRACTARiAN IDEAL ................................. 1288 A. The Virtual Corporaton ................................................... 1288 B. Enron ' Virtual Corporation and the Theory of the Fim ................................................................................... 1294 III. ACCOUNTING FORENRON'S COLLAPSE-FOUR STORIES .......... 1299 A. Enron as Conventional MarketReversal ........................ 1299 B. Enron as Derivative Speculaion Gone Wrong ............... 1302 C. Enron as a Den of Theves ............................................... 1305 * Samuel Tyler Research Professor of Law, The George Washington University Law School; Visiting Professor of Law, Georgetown University Law Center (Spring 2002). My thanks to Matt Barrett, Margaret Blair, Jill Fisch, Miriam Galston, Mitu Gulati, Shi Ling Hsu, Lyman Johnson, Kim Krawiec, Don Langevoort, David Millon, Larry Mitchell, Ron Pearlman, Richard Pierce, Warren Schwartz, Bill Vukowich, Andrew White, and participants of workshops at the Georgetown, George Washington, and North Carolina Law Schools for assisting in this project with comments and materials. This Article speaks as of April 11, 2002. 1275

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most