The Directors State Their Opinions
(especially who shares the blame)

The following text is a transcript from the hearings.

1. Mr. Blake (video):

My personal focus as a member of the Board and its Finance Committee had been Enron’s liquidity and financial leverage in furtherance of this strategy. As a Board, we were attentive to and working with management and outside experts to realize this mission. We believed that the company was successful in moving in that direction. In late 2000 or early 2001, no one had predicted by the end of 2001, Enron would file for bankruptcy. In fact, as late as October 2001, we were informed by management that we were ahead of plan in terms of earnings and that creditworthiness and liquidity issues were manageable.

A central issue at hand involves Enron’s intentions in establishing SPEs. I would like to provide an opposing point of view to that held by many that the intention of Enron in establishing these partnerships was to manufacture earnings. To the contrary, it is my opinion that the primary purpose of these partnerships was to improve liquidity and get debt off our balance sheet. The LJM partnerships were specifically constituted for that purpose, and by the way, I would contend that many companies establish SPEs for exactly such a purpose.

Of course, now, with the benefit of hindsight, committees of Congress, the media, government officials, financial experts, and others have tried to dissect and examine what went wrong at Enron. Over the past several months, several questions have been raised with respect to the Directors as a group.

In particular, people ask if the Board failed in its oversight duty, whether Enron was moving so quickly that independent directors could not keep up. I think not. We worked hard. We worked very hard. We came prepared and we asked questions. We were sent materials in advance of meetings and it seemed that each Director reviewed them and came to the meetings prepared. Sometimes before a Board meeting, after spending many hours in preparation for these meetings, I would speak with Mr. Skilling about the balance sheet issues or with the Chief Risk Officer, Rick Buy, about liquidity, leverage, and credit issues.

I know that my fellow Director Pug Winokur, who is here today, spent time with Enron’s Chief Financial Officer, Andy Fastow, before meetings, asking him a variety of questions. And Dr. Le-Maistre, who is also appearing with us today, spent much of his time in advance of upcoming Compensation Committee meetings with Enron’s human resource and compensation staff, as well as external consultants, to ensure himself that he understood all the technical aspects of Enron’s compensation plans and to be in a position to evaluate recommendations made by management. He took his job very seriously, as we all did. In short, I believe, judged by any standard, that this Board executed its duties to the company [emphasis added]; and its shareholders but it doesn’t show.

During Board and committee meetings, we did, in fact, question management. For example, during October 1999 Finance Committee, in which we discussed the LJM2 partnership, the Board material discloses that I specifically asked whether Arthur Andersen had reviewed the partnership. We were told by the Chief Accounting Officer that Arthur Andersen was, ‘‘fine with it.’’ If we had been told that Arthur Andersen had not reviewed the structure or that Arthur Andersen had reservations, this Board would never have approved it.

The first Raptor transaction was brought to the Finance Committee, in May 1, 2000. The minutes reflect the Chief Accounting Officer told us that, “Arthur Andersen LLP had spent considerable time analyzing the Talon structure and the governance structure of LJM2 and was comfortable with the proposed transaction.” This advice was critical to our decision to authorize this transaction.

Some commentators have since suggested that the structure of this transaction was inappropriate on its face. This is not the advice that we received. My fellow directors asked questions pertaining to propriety and the oversight of these transactions. We did not rubber stamp management’s recommendations and requests.

Even with the benefit of hindsight, I cannot speculate as to what else we could have done to ensure that our controls and procedures were followed. We put the right controls in place and we asked the right questions. These directors were a smart and talented group of people who brought a diversity of experience and expertise to the Board. Unfortunately, I believe that we were uninformed because management and outside experts who reported to us failed in their jobs and did not give us full and complete information.

Again, I thank you for being here today. I welcome the opportunity to answer your questions. Thank you, sir.

2. Mr. Winokur (video):

In conclusion, what happened at Enron has been described as a systemic failure. I see it instead as a cautionary reminder of the limits of a director’s role. A director’s role, by its nature, is a part time job. By force of necessity, we could not know personally all of Enron’s employees.

As we now know, key managers and employees whom we thought we knew proved to disappoint us significantly, and outside advisors whom we believed to be critical components of an effective oversight role failed in their duty. Arthur Andersen’s failure to disclose its concerns to the Board, as well as management’s marked disregard for the required internal controls and lack of candor with respect to information owed to us deprived the Board and deprived me of the ability to deal proactively with these problems. We cannot, I submit, be criticized for failing to address or remedy problems that had been concealed from us.

Three months ago, days after the release of the Powers Committee report, I appeared before a House subcommittee. At that time, I was deeply disturbed and disappointed with what I had learned. I also squarely disagreed with certain conclusions, particularly about the directors’ judgment and oversight, presented in the report, which disagreement I expressed during my testimony.

Even with the benefits of a few more months to review these issues, I remain resolute in my belief that we were diligent and dedicated to our charge. Based on the recommendations, advice, and information we received from management and our advisors, we, the directors, acted in good faith and attempted to pursue the best interests of Enron and its shareholders. However, I deeply wish that at least one person in management, an employee, or an outside advisor, someone had come forward to the Board with his or her concerns when we could have addressed them.

3. Mr. Jaedicke (video):

Last February, Alan Greenspan testified before the Congress, ‘‘I have served on too many audit committees to know that even though I would consider myself independent, I would consider myself knowledgeable, I did not know what questions to ask the Chief Financial Officer during meetings to find out what it is that conceivably is wrong in the corporation, and he was not about to tell me.’’

I agree with Mr. Greenspan. We did everything possible to ensure that our controls and procedures were being followed. To my knowledge, we were one of the few major corporations that required Arthur Andersen or their outside auditor to give an attest opinion on the management’s assertions that our controls were adequate.

What happened at Enron, as my colleague has indicated, has been described as a systemic failure. I agree with him as it pertains to the Board. I see it as a cautionary reminder, also, of the limits of the director’s role. We served as directors of what was then the seventh-largest corporation, which required us to confine our attention to the broad policy decisions.

At meetings of the Board and its committee, in which all of us participated, these issues were considered and decided on the basis of summary reports, corporate records, upon which we were entitled to rely. We also relied on the honesty and integrity of management, their subordinates and advisors, and on the integrity of the information we were receiving. At the time, we had no doubt—we had no reason to doubt the integrity of either the management or the advisors. We did all this and more. Sadly, despite all that we tried to do in the face of all the assurances that we received, we had no cause for suspicion until it was too late.

Thank you very much, and I am prepared to respond to questions from the Subcommittee.

4. Dr. LeMaistre (video):

In conclusion, I believe that our Committee and the Enron Board endeavored to manage carefully and effectively Enron’s executive compensation while the company was rapidly evolving, growing, and undertaking new business opportunities. The Committee sought and relied on the advice of outside executive compensation experts to ensure our recommendations and decisions were consistent with the marketplace. Although the Board was willing to award compensation that was competitive and deserved, it certainly did not approve and was not made aware by management that some individuals reaped huge profits at the company’s expense or that others abused certain benefits in ways for which they were not designated.

Thank you very much for your attention. I will be pleased to answer your questions.

[emphasis added]

Read this transcript from the Hearings again and make notes about each Senator’s opinion and attitude.

Have you changed your opinion about the Enron collapse since listening to these five directors?

What questions would you now like to ask them?

Remember that you can go to your eLibrary for the complete testimony of any of the directors. Or you can find their prepared testimony. You can also find the Staff Report there.