Enron Revisited: What Is a Board Member to Do?

Abstract

Given the evolution of the role of the Director of the Board and the increased liability attached to the position, in particular since Sarbanes-Oxley became law, it is important to know what degree of freedom a Board member could have in a situation such as Enron. The Permanent Subcommittee on Investigations of the Committee on Governmental Affairs of the United States Senate published their report, entitled The Role of the Board of Directors in Enron’s Collapse, on 8 July 2002. The Subcommittee examined in detail the role of the Enron Board in the company’s bankruptcy, and held the Board accountable for the company’s downfall. The Subcommittee believes that the Enron Board not only failed their shareholders and employees, but also did not acknowledge their own responsibility in the collapse. The main findings with respect to the role of the Enron Board of Directors are regrouped in the report under the following six headings: high risk accounting; inappropriate conflicts of interest; extensive undisclosed off-the-books activity; excessive compensation; lack of independence; and fiduciary failure.