The Enron scandal (and subsequent corporate fallout) is now a key
influence on the business and financial environment. It raises many
issues about accounting, business regulation, financial strategy etc.
But perhaps one of the most insightful perspective so far are
the "findings" of the Congressional Investigation into the activities of
Enron's Board of Directors. The following is the summary of the
Investigation - a quite astounding indictment of the behaviour of some
high profile US (and UK) business people...
QUOTE:
Based upon the evidence before it, including over one million pages of
subpoenaed documents, interviews of thirteen Enron Board members, and the
Subcommittee hearing on May 7, 2002, the U.S. Senate Permanent
Subcommittee on Investigations makes the following findings with respect
to the role of the Enron Board of Directors in Enron’s collapse and
bankruptcy.
(1) Fiduciary Failure
The Enron Board of Directors failed to safeguard Enron shareholders and
contributed to the collapse of the seventh largest public company in the
United States, by allowing Enron to engage in high risk accounting,
inappropriate conflict of interest transactions, extensive undisclosed off-
the-books activities, and excessive executive compensation. The Board
witnessed numerous indications of questionable practices by Enron
management over several years, but chose to ignore them to the detriment
of Enron shareholders, employees and business associates
(2) High Risk Accounting
The Enron Board of Directors knowingly allowed Enron to engage in high
risk accounting practices
(3) Inappropriate Conflicts of Interest
Despite clear conflicts of interest, the Enron Board of Directors approved
an unprecedented arrangement allowing Enron’s Chief Financial Officer to
establish and operate the LJM private equity funds which transacted
business with Enron and profited at Enron’s expense. The Board exercised
inadequate oversight of LJM transaction and compensation controls and
failed to protect Enron shareholders from unfair dealing
(4) Extensive Undisclosed Off-The-Books Activity
The Enron Board of Directorsknowingly allowed Enron to conduct billions of
dollars in off-the-books activity to make its financial condition appear
better than it was and failed to ensure adequate public disclosure of
material off-the-books liabilities that contributed to Enron’s collapse
(5) Excessive Compensation
The Enron Board of Directors approved excessive compensation for company
executives, failed to monitor the cumulative cash drain caused by Enron’s
2000 annual bonus and performance unit plans, and failed to monitor or
halt abuse by Board Chairman and Chief Executive Officer Kenneth Lay of a
company-financed, multi-million dollar, personal credit line.
(6) Lack of Independence
The independence of the Enron Board of Directors was compromised by
financial ties between the company and certain Board members. The Board
also failed to ensure the independence of the company’s auditor, allowing
Andersen to provide internal audit and consulting services while serving
as Enron’s outside auditor.
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