The Committee’s Conclusion

When the Subcommittee (the Senate Permanent Subcommittee on Investigations) hearings were complete, the committee staff prepared an analysis, including findings and recommendations. We have reported some of those. Their own news release does a good job of summarizing the subcommittee’s conclusions.

NEWS RELEASE

United States Senate
Permanent Subcommittee on Investigations
Committee on Governmental Affairs

Carl Levin, CHAIRMAN
Susan M. Collins, Ranking Minority Member

July 7, 2002

Senate Subcommittee Report Charges
Enron Board of Directors with Contributing to Enron's Collapse

Permanent Subcommittee on Investigations Holds Board Accountable

WASHINGTON - Sen. Carl Levin, D- Mich., Chairman of the Permanent Subcommittee on Investigations (PSI), today released the Subcommittee's report, The Role of the Board of Directors in Enron's Collapse. The report examines in detail the role of the Enron Board in the company's bankruptcy and concludes that the Board saw but ignored numerous questionable practices by Enron management to the detriment of Enron shareholders, employees and business associates and contributed to the company's downfall.

The report cites numerous failures of duty by the Board including: the failure to stop Enron from using misleading accounting; the failure to protect Enron shareholders from unfair dealing in the LJM partnership in which an Enron officer had a personal financial interest; the failure to ensure adequate public disclosure of material off-the-books liabilities; the failure to ensure the independence of the company's auditor, Arthur Andersen; and the failure to monitor or halt abuse by Board Chairman and Chief Executive Officer Kenneth Lay of a company-financed, multi-million dollar, personal credit line.

"The Subcommittee does not accept the Board's claim that it was out of the loop and can't be blamed for Enron's collapse," Chairman Levin said. "The evidence shows that the Board knowingly went along with Enron's high risk accounting and off-the-books deceptions. This report shows how important it is for the Senate to pass legislation promptly to strengthen accounting oversight, toughen the laws that punish corporate misconduct, and send the message that honest accounting and responsible corporate conduct are critical to a strong economy."

Senator Susan Collins, the Subcommittee's Ranking Member said, "In today's report, we set out in detail what we could only discuss in very broad terms during our hearing on the failure of Enron's Board to play its required role in our shareholder protection system. As discussed at our hearing, the Enron Board had plenty of reasons to be concerned that the representations made to it by Enron's senior management and auditors did not adequately reflect the huge and unreasonable risks that the company was incurring for short term, paper gains. By ignoring these signs, Enron's Board missed the opportunity to set the company back on the path to an honest reflection of its corporate health. Ultimately, the Board's failure to act on the many warning signs detailed in our report was borne by the shareholders and workers of Enron."

The Subcommittee issued over 50 subpoenas, reviewed over 350 boxes of documents and interviewed 13 Enron Board members as well as representatives from Arthur Andersen, Enron, and experts in corporate governance and accounting. A Subcommittee hearing was held on May 7, 2002, with former and current Enron Board members and with experts in corporate governance.

"Not only has this Board failed the shareholders and employees of Enron, it shirked its duty by failing to acknowledge that it bears a share of the blame for Enron's collapse," Levin added. "Not one Board member said the Board fell short of carrying out its obligations. Such acknowledgment is the first and perhaps the most important step in changing a corporate culture where too many corporate officers and board members have forgotten that they serve as fiduciaries to benefit shareholders, not to enrich themselves," Levin said.

Collins added, "As the report describes, the actions and, in some cases, inactions of the Enron Board of Directors clearly contributed to the company's demise. The Board failed to exercise prudent judgment, failed to challenge management when necessary and, as a result, failed to adequately protect the interests of the shareholders. Specifically, the Board's ratification of business deals that were fundamentally flawed by conflicts of interest, its failure to monitor the outside auditor, and its approval of transactions designed to paint a false picture of Enron's financial health all had a hand in Enron's ultimate collapse and enabled a small number of individuals to enrich themselves at the expense of the corporation, its shareholders and, ultimately, its creditors."

[emphasis added]