Final answer:
The root cause of the bankruptcies and business failures like Enron and WorldCom was a lack of corporate governance, characterized by poor oversight, financial misconduct, and excessive risk-taking.
Step-by-step explanation:
The root cause of bankruptcies and business failures such as Enron, Arthur Andersen, and WorldCom can be largely attributed to a lack of corporate governance. This lack of oversight and proper checks and balances within these organizations led to unethical practices, financial misconduct, and excessive risk-taking. For instance, the Lehman Brothers' failure was due to the Board of Directors not preventing managers from undertaking excessive risk, according to Tim Geithner's 2010 testimony to Congress, and a court examiner's report that highlighted the Board's insufficient attention to the operations of the company and limited financial service experience.
The context of the Great Recession highlights how unregulated financial assets like collateralized mortgage obligations (CMOs) and credit default swaps (CDSs), which were rated safe by private credit rating agencies such as Standard & Poors, Moody's, and Fitch, also played a critical role in triggering a global financial crisis. Moreover, the era was marked by a tendency to ignore warnings about the stability of financial institutions because of their simultaneous record profits, reflective of the same inadequate corporate governance and regulatory oversight that precipitated the downfall of companies like Bear Stearns and ultimately Lehman Brothers.
These scandals and the ensuing financial crisis serve as stark reminders of the importance of robust corporate governance frameworks in maintaining the health and stability of the financial ecosystem and the broader economy.