2017 Fall FSA
2015–19064 Choi Sooahn
Prevention of the Next Enron Scandals
The Enron scandal was a case in which governance and incentive problems caused the rise
and dramatic fall of a corporation (Palepu and Healy, 2003). By Enron’s financial schemes and the
gatekeepers’ overlooking, Enron’s investors were fooled to believe that it was performing well in its
creation and exploitation of unique trading opportunities (Gordon, 2003). This essay aims to suggest
methods to prevent the reoccurrence of such fraud, by examining the key partakers of the Enron
scandal and their motivation.
The first ‘contributor’ to the Enron case is, evidently, its top management. As Palepu and
Healy (2003) points out, Enron’s management was compensated mainly by stock options. Because
