Lehman Brothers and the Enron: Company Analysis
Lehman Brothers was a financial company involved in investment and other areas and was considered one of the world largest companies specialized in this type of business. However, in 2008 the company declared bankruptcy and had to finish its existence; the primary reasons for the failure include the hiding of the real situation whereas all the financial failures were masked and the investors as well as shareholders did not realize the actual state of the company. The world financial crisis became devastating for the international business whereas the Lehman Brothers were still trying to conceal their collapse. So, ineffective financial procedures did not manage to cover the failures.
Another company to be discussed is the Enron which was one of the largest energy companies as well while it ended its operation in 2001. Some people claim that the major impact of this failure was the creation of Act of Sarbanes–Oxley of 2002 that was aimed at controlling and making the auditing procedures stricter and more disciplined. In this respect, it is possible to see some similarities between the Lehman Brothers Corporation and the Enron Corporation though they did not declare bankruptcy simultaneously. The first fact that advocates the similarity between the two is that they did not release information about the financial problems experienced by the companies. At the same time, the financial reports of the companies and their financial statements for auditing were said promising and shareholders and companies involved in investment banking were interested in investing costs into these companies hoping for prosperity and generous dividends. In this respect, both companies were aware of the financial problems experienced but did not find it necessary to inform the investors and shareholders bout this fact.
The financial performance of the company is usually measured in accordance with its financial statement unless the company does not plan to falsify some documents and conceal the real state of things. In other words, the second similarity between these two companies concerns the auditing as the means to conceal unfavorable financial information from the shareholders. In Enron Corporation the auditing procedures were performed by the accounting company Arthur Andersen though this was not an independent company that carried out the audit but it was a company that cooperated with the Enron Corporation and was a part of it. At the same time, the Lehman Brothers Corporation was supposed to work under the Act of Sarbanes–Oxley of 2002 which means that it had to be audited by an independent auditing company.
The most important feature that seems to be similar for both companies is that the financial performance was stable and promising before they declared bankruptcy while the situation was not as good as reported by the companies in their financial statement. In other words, the increasing dividends were inviting for more and more investors whereas the actual revenues of the companies were low. The case of the Enron Corporation became the basis for the creation of the Sarbanes–Oxley Act (2002) whereas the case of Lehman Brothers Corporation should make the government review the auditing principles and exclude any possibility of the company to hide its financial performance from its shareholders. The auditing procedures should be carried out by independent companies that would gain no benefits from the deals with companies like Enron and Lehman.