Corporate Governance Adrift
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Corporate Governance Adrift

A Critique of Shareholder Value

Michel Aglietta and Antoine Rebérioux

Recent corporate governance scandals have brought to the fore the inherent contradictions of a capitalism dominated by financial markets. This challenging book by Michel Aglietta and Antoine Rebérioux argues that capitalism’s basic premise – that companies must be managed in the sole interest of their shareholders – is incongruent with the current environment of liquid markets, profit-hungry investors and chronic financial instability. The authors advocate rather that a company should be managed as an institution where common objectives are developed for all stakeholders, and that this democratic principle should be extended to the management of collective savings to reduce macro-financial instability. These two conditions, they contend, could make contemporary capitalism a vehicle for social progress.
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Chapter 8: Reinterpreting the Financial Scandals of the Enron Era

Michel Aglietta and Antoine Rebérioux


8. Reinterpreting the financial scandals of the Enron era On 16 October 2001, Enron announced an exceptional expense of $500 million for hedging with LJMs 1 and 2, companies managed by Enron’s own Chief Financial Officer (CFO). The result was a loss of $638 million in the third quarter, after a profit of more than $400 million the quarter before. On 17 October, the personal enrichment of the CFO, to the sound of $30 million, was made public by the Wall Street Journal. On 22 October, the Securities Exchange Commission (SEC) launched an investigation. From that point on, nothing could break the fall. The stock price collapsed, and ratings agencies lowered their assessments. On 2 December, Enron was placed under bankruptcy protection according to Chapter 11 of the Bankruptcy Code. At $63 billion in assets, this has been the largest bankruptcy in US history. In terms of stock market capital that vanished, the loss inflicted on shareholders was considerable: at the end of November, the stock traded at 26 cents. For Enron’s 27 000 employees in 40 different countries, the damage was just as heavy. They lost their jobs, and their retirement fund evaporated. The in-house pension fund, based on the 401(k) Plan and thus exempted from the ERISA law imposing diversification, had been 60 per cent invested in Enron shares (Bratton, 2002). Enron’s bankruptcy was remarkable not only for the sheer magnitude and extent of the disaster, but also because it hit such...

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