In 1980, Mr. Green set up a private waste management company - ECO in the State ofSan-Francisco (USA). ECO developed a network of sewage system, as well as water supply pipelines for the residents of the fictitious city of New-Coast. The board of the company consisted on Mr. Green - a mechanical engineer and Mr. Thomson - son in law of Mr. Green, retired basketball player.

In 1995, the Board of Directors of ECO decided to expand the business by penetrating a fast growing market of internet business. To this end, they acquired a company - TELELINE, which owned a telecom network capable of providing internet services along with traditional landline telephones communication. Following such acquisition, as well as expansion of their business to other state, ECO became ECO Group.

Following successful listing at New York Stock Exchange, in 2000, ECO Group appointed a reputable audit firm - Adelstein Associates as its auditor and financial advisor. In addition, Mr. Smith a former partner in Adelstein Associates was appointed as a senior financial executive of ECO Group. The contract with Adelstein Associates was for a ten-year term. In the course of its services, Adelstein Associates collected more consultancy fees as financial advisors to ECO Group compared to their fees as auditors.

By 2003, the turnover of ECO Group increased twenty times from $200 million per annum to $4 billion, which led to dramatic rise of the share prices. In order to maintain the continuous raise of its share prices ECO Group Board of Directors started to implement an aggressive take over strategy by acquiring new businesses in the USA, as well as in other countries. Most of the new business was acquired through special purpose entities (SPE), incorporated in offshore jurisdictions, which were controlled by Mr. Thomson. The Executives paid themselves lucrative fees and bonuses for each takeover, besides receiving stock options as part of company's remuneration scheme.

By 2005, ECO Group's business model became unsustainable and in order to conceal the problems, ECO Group financial executives showed $1,2 billion as the 'other operating activities'. Besides, ECO Group overstated its profits in annual financial statements, which were approved by the audit company as 'clean'.

However, due to stiff competition and market saturation ECO Group's revenues from internet business did not match market expectations. In parallel 60% of the businesses acquired by ECO Group failed resulting in the loss of hundreds of millions of dollars to the company. In 2003, Mr. Green received $5 million as loans from ECO Group to pay for his new house.

The 2008 financial crisis suddenly exposed ECO Group's dire financial position in the market. Due to the shattering of investor confidence its share value declined to 10% of its original floatation value and resulted in its bankruptcy.

With reference to the above scenario critically evaluate the followings:

1. The major corporate governance failures/issues in ECO Group.

2. The position of auditors, failures, if any and the extent to which the arrangement is compliant with the provisions of the Sarbanes-Oxley Act.

3. What control mechanism could be imposed to prevent Mr. Green and other executives of ECO Group from taking the decisions which led to the company's failure?"

4. What similarities with Enron do you find in the governance practices of the ECO Group Company?