Enron Corp.’s board of directors is directly accountable for the company’s collapse, a Senate subcommittee said Sunday.
“Much that was wrong with Enron was known to the board, from high risk accounting practices and inappropriate conflict of interest transactions, to extensive undisclosed off-the-books activity and excessive executive compensation,” the Senate Permanent Subcommittee on Investigations headed by Sen. Carl Levin, D-Mich., said in a 60-page report.
Last December, Enron became the biggest company bankruptcy in U.S. corporate history.
The Senate report said board members ignored “more than a dozen red flags” that should have caused them to ask “hard questions.”
“Those red flags were not heeded,” the report said.
It said that by failing to provide “prudent oversight and checks and balances” the “Enron board contributed to the company’s collapse and bears a share of the responsibility for it.”
Houston-based company filed for bankruptcy on Dec. 2 amid revelations of more than $500 million in losses from off-the-book partnerships. Its auditor Arthur Andersen LLP was indicted in March and was later convicted of obstruction of justice for shredding Enron audit documents.
No one from Enron has been charged with any crime, however.
But the report said though there were instances of board members being misinformed or misled, the company’s accounting practices “were not hidden from the board.”
The report also found that despite a conflict of interest, the Enron board:
— approved a deal that allowed its chief financial officer to set up and operate private equity funds that conducted business with Enron and profited at the company’s expense.
— knowingly allowed the company to conduct billions of dollars in off-the-book activities to make its financial health seem better than it was.
— “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.”
The report also said the financial ties between certain board members and the company compromised their independence.
“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,” it said.
The report summed up a May hearing and interviews with 13 past and present Enron board members.