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US: The Enron case. Corporation law



David Westbrook teaches basic and advanced law school courses on corporations. He answers my question about the choice of the state in which Enron was incorporated. He speaks of the competition among states to attract corporations, a source of revenue. Delaware in generally preferred, but Enron was incorporated in Oregon. I hope David can explain why. He writes:

"There is a considerable academic literature about what "wins" in the competition among states for incorporation, a competition in which Delaware has done very well. That said, the differences among modern corporation laws are relatively fine-grained -- Delaware's law looks much like New York's looks much like . . . Moreover, the law of corporations has become, over the past century or so, almost completely non-substantive. Corporate law is generally thought of as a "blueprint" for creating a vehicle with which to do business. As a result, few if any regulatory objectives are achieved through modern corporate law.

Within contemporary understandings of how the U.S. market operates, however, your question pertains more closely to securities law, which is generally responsible for disclosure, i.e., keeping people informed about the health of publicly traded corporations. In the Enron scandal, a great deal of information was not disclosed to the markets. Lacunae in the regulatory structure relevant to Enron include limited partnerships, derivatives, and a number of accounting practices. On the other hand, there appears to be some outright fraud here, so some of this is evasion of the legal system, rather than failure of its conceptual structure.

Incidentally, Harvey Pitt built his career as a D.C. lawyer on being an opponent of wider standards of disclosure, which, after all, impose considerable costs on large corporations. He has come under considerable fire for being the wrong man for this job, at least at this time, when we are rethinking some of the enthusiasm for deregulation of financial markets".

My comment: Well, what does Oregon securities law imply about the Enron case? Surely relevant legislation should be federal. Harvey Pitt, appointed by President George Bush, has long lobbied for looser accounting standards, and his appointment has been widely criticized.

Ronald Hilton - 2/5/02


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