Overseers did nothing as financing wrecked company

HOUSTON -- At best, they were bamboozled by executives who offered empty assurances and fuzzy math in place of lucid balance sheets. At worst, they rubber-stamped shady deals and then stood by idly as secretive partnerships helped bleed Enron Corp. to death.

Neither scenario can be particularly comforting for the 15 current and former independent directors of Enron who have served since the board waived the company's ethics code to let a top executive work both sides of business deals with the company.

"When you're on the board and someone comes to you and says he wants to waive a conflict-of-interest rule, here is why they pay you all that money," said Nell Minow of The Corporate Library, which monitors governance issues.

"They don't pay you to smile and have your picture in the annual report."

Now the board members, who hail from four continents and represent nearly every region of the United States, face lawsuits and inquiries as others debate their culpability.

Washington attorney Neil Eggleston, who represents the entire current board and has advised them not to speak publicly as individuals, said the group is better portrayed as victims than perpetrators.

"Most of the outside directors have full-time jobs and they're expected to be outside directors, not managers of the company," Eggleston said. "They have to -- and the law permits them to -- make judgments based on advice from management, inside legal advisers, outside legal advisers and the outside accounting firm."

A voluminous internal report, headed by new director William Powers and released earlier this month, criticized the board for not thoroughly questioning problematic deals and not monitoring them after approval.

Information denied

"The board of directors was denied important information that might have led it to take action (sooner), but the board also did not fully appreciate the significance of some of the specific information that came before it," read a section of the report written by Powers and professional corporate director Raymond Troubh, another board latecomer.

Herbert Winokur Jr., a longtime director and third member of the investigative committee, abstained from portions of the report addressing board conduct and testified before Congress earlier this month that he disagreed with some conclusions.

"With the benefit of hindsight, the report criticizes our decision (to form a partnership with a group headed by Enron chief financial officer Andrew Fastow), but our business decisions can only be evaluated based on the facts known to us at the time when we made it," Winokur told an investigative panel of the U.S. House Energy and Commerce Committee.

The Powers report concurs that the board was not given crucial information that almost certainly would have led to sorely needed scrutiny of various partnerships engineered by Fastow. The report also agreed that auditing firm Arthur Andersen LLP and law firm Vinson & Elkins failed to warn the board of impending bookkeeping hazards.