Ten years ago, Houston’s Enron Corp. collapsed in what was then the largest bankruptcy in U.S. history. Given the current financial turmoil, it is easy to forget how the collapse, and the bankruptcy dominoes that fell thereafter, shook market confidence. Congress swiftly passed the Sarbanes-Oxley Act in response. Enron was then followed by a housing and financial crisis whose economic ramifications dwarfed the previous crisis. Again, the government responded by amplifying regulatory and enforcement efforts through another statute, Dodd-Frank.
While much has been written about the details and ramifications of Sarbanes-Oxley, Dodd-Frank and the other regulatory and fraud enforcement measures of the past decade, this anniversary provides an opportunity to pause and look back at the unprecedented changes in corporate governance, bookended by responses to two very different economic crises. The government’s separate but related responses paved a rugged terrain of corporate-fraud regulation and enforcement. To understand how to move forward, and learn lessons for the decade ahead, it is important to reflect on how we got here.
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