December 2 marks the 15th anniversary of the Enron bankruptcy—a near cataclysmic event that ultimately led to a series of significant legislative, regulatory and public policy developments that inform governance practices to this day. The entire board would be well served by a brief overview of the governance impact of Enron, particularly since many directors were not in board service 15 years ago.
The primary relevance of Enron to today’s corporate boards—including those of large nonprofits—is twofold. First, it provides jaw-dropping examples of problematic governance conduct from which no board, at any time, is safely immune. The Enron board—once acclaimed for its performance—committed a series of significant failures of oversight with respect to multiple fatal, related party transactions. These failures were grounded in the “flawed” decision to proceed with major transactions so complex that even the board lacked an understanding of their purpose and structure.
Second, it is, in essence, “where it all began” in terms of corporate responsibility. The staggering oversight failures of the Enron board helped give birth to the fiduciary guidelines and best practices that form the corridors of modern corporate governance. The board policies, procedures and codes of ethics to which today’s corporate directors are subject are the direct corporate descendants of the lessons learned from Enron.
Fifteen years later, Enron still matters. Current corporate controversies suggest that similar oversight failures could be occurring in some of today’s corporate boardrooms. There remains value in having a board discussion about the Enron board’s critical—and self-admitted—failures, together with some hypotheticals on how those failures might arise again in different circumstances and in different companies.