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Sunday, June 11, 2006 - Page updated at 12:00 AM


Enron directors dodge scandal spotlight

The Washington Post

A week after a Houston jury convicted former Enron Chairman Kenneth Lay of fraud, one of the Houston oil company's former directors says he still can't believe Lay knew about accounting schemes that caused the firm's 2001 implosion.

"I'm convinced he didn't know what was going on. ... I just can't bear the picture of him going off to jail," said Charls Walker, a Potomac, Md.-based economist and lobbyist who joined the Houston energy company's board before it was known as Enron.

As for his own role as a member of the board from 1985 to 1999, Walker, 82, is regretful. "I was duped. Part of the problem was putting so much confidence in Ken's integrity and ability. ... We were taken for a ride."

Walker is unusual among the 18 former Enron directors in that he is still willing to talk about the company and the role he played. All of the others either declined or failed to return messages left at their homes and workplaces.

After enduring widespread criticism and congressional scrutiny in 2001 and 2002 for failing to see or stop Enron's mounting financial troubles, most board members have largely gone underground.

Many resigned from, or did not seek re-election to, a number of corporate boards. Those still in the public eye have largely removed references to Enron from their biographies.

"They have experienced an extraordinarily difficult couple of years," said Charles Elson, director of the University of Delaware's Center for Corporate Governance. "They've become the poster children of failed directors."

Compared with Lay and other top Enron executives who face lengthy prison terms, the directors got off lightly. They have faced no government sanctions, and their personal financial costs have been relatively small.

Yet outside directors are almost never held responsible for corporate malfeasance. The fact Enron's former directors paid any price at all is testament to the depth of public anger over the collapse of what was once the nation's seventh-largest company.

The Securities and Exchange Commission has taken no formal action against the former directors, but Enron investors sued them, alleging all 18 had engaged in insider trading by selling shares while they knew more than the public about Enron's complicated financial structures.

Last year, 10 directors agreed to pay a total $13 million out of their own pockets to settle the lawsuit. Each director's contribution was based on 10 percent of the profit he or she realized from selling Enron stock.

The largest share by far — more than $5 million — came from Rebecca Mark-Jusbasche, the former chairwoman and CEO of Enron International.

The overall settlement, shared by investors and Enron's creditors' committee, also included a payment of $155 million from Enron's insurance policy for officers and directors and covered the other eight directors — including Walker — who did not profit from personal stock sales during Enron's collapse and against whom claims were dismissed.

Personal payments by directors are extremely rare. The only other recent settlement of this size and type involved the WorldCom directors. William Lerach, the class-action attorney who represented investors, said the plaintiffs were trying to send a message to other boards.

"For those directors who sit on the boards of big companies where there is an egregious failure, they better be prepared to have their own pocketbooks hit," Lerach said.

Many Enron board members were prominent people, including academics, former government officials and top corporate executives.

Some of the best known were Wendy Gramm, a former chairwoman of the Commodity Futures Trading Commission; Robert Jaedicke, former dean of Stanford University's business school; and the current and former presidents of the M.D. Anderson Cancer Center, John Mendelsohn and Charles LeMaistre.

The directors were serving on the boards of nearly two dozen other public companies or mutual-fund families at the time of Enron's collapse.

Gramm resigned almost immediately from the Invesco Funds board, and Jaedicke stepped down from the California Water Service Board.

But efforts in 2002 by organized labor to get former Enron director Frank Savage, a professional money manager, booted off the boards of Lockheed Martin and Qualcomm did not immediately bear fruit. Only 28 percent of Lockheed Martin shareholders withheld their votes, and he remains on the board.

"He's a valuable board member and has a long and distinguished association with our company," said Lockheed spokesman Jeff Adams.

Savage resigned from the board of Qualcomm in 2004.

Similarly, Enron board member Norman Blake Jr., the former chairman of Comdisco, remains on the board of Owens Corning, where he has served as a director since 1992.

Company spokesman Jason Saragian said: "Our board reviews our directors' independence and effectiveness as a part of good-governance practices. Mr. Blake has capably met the requirements."

The union campaigns fell short in part because Enron was the first spectacular corporate collapse and shareholder activists were still feeling their way, said Richard Ferlauto, director of pension and benefit policy for the American Federation of State, County and Municipal Employees.

"This was before the use of the withhold vote as a tactic had really been refined. Enron gave the boost to all the reforms that followed," he said.

Over time, many of the former Enron directors have dropped off other boards. Currently, six of them sit on the boards of at least eight companies or mutual funds.

Analysts and even one of the Enron board members agreed the public scrutiny and vilification they endured had positive results.

"What the whole episode has done is to bring out corporate policies for a badly needed ventilation for the American people," Walker said.

Columbia University law professor John Coffee went further. "Directors are doing better. ... The audit committee is coming to learn a great deal more," he said.

"There is now the fear waking up and finding yourself on the bridge of the Titanic, and you've just hit the iceberg. The embarrassment cost has definitely gone up."

Washington Post staff researcher Richard Drezen contributed to this report.

Copyright © 2006 The Seattle Times Company




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