Enron Directors Say Bankruptcy Was Not Their Fault

Directors of bankrupt Enron Corp., under scrutiny by a Senate investigative panel, said Tuesday that executives of the company and its auditor Arthur Andersen hid from them the information they needed to exercise oversight and deal with problems.

"We cannot, I submit, be criticized for failing to address or remedy problems that were concealed from us," Herbert Winokur, a director and chairman of the Enron board's finance committee, testified at a hearing by the investigative panel of the Senate Governmental Affairs Committee.

John Duncan, former chairman of the board's executive committee, said the directors "thoroughly executed their duties" and that management withheld significant financial problems from them.

"I do not believe that Enron's fall would have been avoided" if the directors had asked more questions, Duncan told the hearing.

But senators insisted that the directors shared responsibility for Enron's stunning collapse and failed in their duty to protect shareholders of the energy-trading company.

"The board must exercise independent judgment," committee chairman Sen. Carl Levin, D-Mich., told the five directors sitting before him. "The board is not supposed to be a rubber stamp for auditors or attorneys."

Levin produced a document presented to the board's audit committee in February 1999 by David Duncan, Andersen's lead auditor for Enron. Duncan, referring to a series of complex financial transactions, wrote by hand in the lower right-hand corner: "Obviously, we are on board with all of these, but many push limits and have a high ... risk profile."

Robert Jaedicke, who headed the audit committee, told Levin in response to questions that he did not recall seeing Duncan's note or his use of the words "push limits."

Duncan has pleaded guilty to ordering the shredding at Andersen of Enron-related documents and has agreed to cooperate with federal prosecutors in their criminal obstruction-of-justice case against the Big Five accounting firm. Opening statements in the trial were beginning Tuesday in federal court in Houston.

Levin said directors approved complex financial arrangements knowing that Enron's management "handed out bonuses like candy at Halloween" -- some $50 million for closing a deal for an electric power project in India that subsequently failed, for example.

In addition, many of the directors themselves had conflicts of interest, said Sen. Joseph Lieberman, D-Conn., citing consulting contracts worth millions that some of them had with the company and ties they had with charities that received large donations from Enron.

The directors "must accept some of the blame for failing to uncover the crookedness in the company's behavior and books," Lieberman charged.

The subcommittee was seeking to determine what the directors knew of Enron's complex financial dealings, including a web of thousands of off-balance-sheet partnerships used to hide some $1 billion in debt from investors and federal regulators.

Many of the directors, along with executives of Houston-based Enron, have been named in a lawsuit by shareholders.

The directors -- and top Enron executives -- have been criticized by lawmakers for reaping hundreds of millions of dollars from selling their company stock in 2000 and 2001. Many ordinary employees lost nearly all their retirement savings as Enron stock fell over a period of several months and they were blocked from selling it for about three weeks last fall.

Four of the five directors appearing at Tuesday's hearing -- Duncan, Winokur, Jaedicke and Charles LeMaistre -- headed, respectively, the executive, finance, audit and compensation committees of the board. Also testifying was Norman Blake, a member of the finance and compensation committees who is considered especially knowledgeable about the company's financial transactions.

Not appearing was Wendy Gramm, wife of Texas Sen. Phil Gramm, who sat on the audit committee.