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Enron's board helped company to bankruptcy: Panel

Susan Cornwell

Enron's board was a study in failure that facilitated the company's collapse by allowing high-risk business practices and giving free rein to the executives engaged in them, a US Senate panel said on Sunday.

Members of the board -- which was itself compromised by conflicts of interest -- let Enron move nearly half its assets off the balance sheet to make the company's financial statements look better, the Senate Permanent Subcommittee on Investigations said.

Board members were paid $350,000 a year but failed in their fiduciary obligations, looking the other way as accountants pushed the limits of accepted practice and executives enriched themselves at Enron's expense, the panel said in a new report.

"Much that was wrong with Enron was known to the board," concluded the report by the subcommittee headed by Sen Carl Levin, a Michigan Democrat.

"By failing to provide sufficient oversight and restraint to stop management excess, the Enron board contributed to the company's collapse and bears a share of the responsibility for it," the report said.

NO OTHERS INTERVIEWED BOARD MEMBERS

The subcommittee's report summed up a hearing held in May and extensive interviews with 13 past and present Enron board members.

It also noted that as of April, when the subcommittee's interviews took place, none of the board members had been questioned by federal agencies that had opened investigations into Enron, including the US Justice Department and the market-regulating Securities and Exchange Commission.

Houston-based Enron announced its bankruptcy on Dec 2, 2001, after its stock collapsed amid allegations that Enron accountants hid corporate debt to boost overall profits.

No one from the company has been charged with any crime, although three British bankers who dealt with its partnerships have been charged with wire fraud and Enron's auditor Andersen has been convicted of obstruction of justice.

An attorney for the board members, W Neil Eggleston, could not be reached for comment. But he told The New York Times the report unfairly criticised the board, which he said had been misled by management and outside auditors.

At the May hearing, board members said they had depended on Enron's management and Andersen to tell them the truth. "We had no cause for suspicion until it was too late," said Robert Jaedicke, who chaired the Enron board's audit committee and is a former dean of Stanford University Business School.

But the author of a Senate bill to improve corporate governance, Sen Paul Sarbanes, said the report was proof his legislation was needed to stiffen the spine of boards supervising management.

"You make $350,000 a year, you ought to have to work for the money," Sarbanes, a Maryland Democrat, told ABC's "This Week" program.

His bill would give a greater oversight role to the audit committees of boards, Sarbanes said. The measure is scheduled to be taken up by the Senate on Monday.

Since Enron's collapse, a string of corporate scandals have reignited interest in corporate reform, and US President George W Bush is to give a speech on the subject on Tuesday.

IGNORING RED FLAGS

The subcommittee report said the Enron board ignored numerous red flags and "knowingly allowed Enron to engage in high-risk accounting practices," even though Andersen itself said these methods "push limits."

According to the report, the board also:

"Knowingly allowed Enron to move at least $27 billion or almost 50 per cent of its assets off balance sheet" -- a percentage that even board members said was unprecedented among public companies.

Approved off-the-books partnerships involving conflicts of interest by Enron's former chief financial officer Andrew Fastow with few questions, then did not follow through with oversight while the deals made profits at Enron's expense.

Approved excessive compensation for company executives and failed to monitor or halt "abuse" by former Enron chairman Kenneth Lay of a multimillion-dollar personal credit line.

Was itself compromised by financial ties between the company and certain board members. For example, in the year 2000, Enron paid board member John A Urquhart $493,914 and Lord John Wakeham $72,000 for consulting work, in addition to their board compensation.

The report said that since 1996 Enron had paid a monthly retainer of $6,000 in consulting fees to Wakeham, a former Conservative minister in Britain. He left Enron's board in February.

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