Last week, we carried an article on the issue of conflict of interest with specific reference to the Enron accounting scandal. This scandal is considered the biggest audit failure in American history because of: (a) the cozy relationship that developed between the company’s auditors, Arthur Andersen, and the senior executives of Enron during the period of the company’s existence from 1985 to 2001; and (b) the serious conflict of interest that the auditors found themselves in whereby they were getting a bigger share of their income from Enron through the offer of consulting services while at the same time auditing the books of the company.
There was a second element of conflict of interest which we will discuss in this article. This relates to executive compensation. We will also examine the requirements of the Sarbanes-Oxley Act of 2002 which was enacted following the collapse of Enron.
Enron’s executive compensation
A public company is usually judged by the performance of its shares in the stock market. If the company does well, investor confidence will be boosted and more
