Now, they're the target of a campaign seeking to have them unceremoniously booted off other boards they serve -- and to have them declared unfit to serve on any public company's board ever again.
The AFL-CIO has called on the 20 public companies where 10 long-time Enron directors still hold board seats -- including Qualcomm, Lockheed Martin, Motorola, and Owens Corning -- not to renominate those directors for new terms this year. The federation is particularly concentrating on ex-CEO Kenneth L. Lay and members of Enron's audit committee, who have come in for the most scathing criticism so far.
TOUGH CASE TO PROVE. Not to take any chances, labor is also calling on the Securities & Exchange Commission to ask a federal district court to declare all of Enron's long-time directors "substantially unfit" to serve on a public-company board. That's not likely to happen easily -- or soon. The SEC won't decide whether to seek a lifetime ban for the Enron directors until its investigation of the company's collapse is complete.
However, even if the commission's Enforcement Div. thinks a ban is justified, it has to win the argument before a federal court. And courts generally won't bar individuals from serving on public-company boards unless investigators prove that the officer or director was responsible for, had knowledge of, and profited from the corporate breakdown they're probing.
The SEC already has 47 requests for "officer and director bars" pending before federal courts just for enforcement actions brought in 2000 and 2001. The most hard-fought case: Requests to bar former Sunbeam CEO Albert "Chainsaw Al" Dunlap and three of his fellow Sunbeam executives. Dunlap is vigorously contesting the SEC's charges of financial fraud at Sunbeam.
"IMMINENT DANGER." Despite the odds, the AFL-CIO is determined to push on -- to embarrass companies with Enron directors, to put pressure on investment managers, and to spotlight the damage done by Enron. Pension funds of the organization's members lost more than $1 billion on their 3.1 million Enron shares, and AFL-CIO Secretary-Treasurer Richard L. Trumka contends that billions more dollars in employee retirement savings are in "imminent danger" at companies where Enron directors serve. Beyond that, he says, "directors who permitted the accounting deception that led to the collapse of a company worth over $70 billion are not suited to serve on other boards."
For the labor federation's campaign, the Feb. 1 report of the Enron board's Special Investigation Committee couldn't have come at a better time. Its damning critique of the board's role in Enron's dramatic collapse, particularly the conclusion that the board failed in its oversight duties, provides ammunition for labor. The AFL-CIO's main argument: Any director who authorized Enron's earnings-inflating off-balance-sheet transactions despite the conflicts posed by the participation of then-CFO Andrew S. Fastow, not to mention the staggering financial risks, doesn't deserve the title of director.
Even before the AFL-CIO campaign began in late January, at least some Enron directors started dropping their coveted board seats. Lay has resigned from the boards at Eli Lilly, Compaq Computer, and i2 Technologies, as well as from Enron's board. Former Chief Executive Jeffrey K. Skilling recently stepped down from the board of the Houston branch of the Dallas Federal Reserve Bank. Director John Wakeham left his position as chairman of Britain's Press Complaints Commission for an unspecified period.
Since the campaign began, Robert K. Jaedicke, who chaired Enron's audit panel, has resigned from the board at California Water Service Group, while audit-committee member Wendy Lee Gramm has quit the board of Invesco Funds.
"NATURAL CHOICE." Elsewhere, directors are under pressure: A watchdog group called HarvardWatch wants Herbert S. Winokur Jr., a member of the Enron investigation committee, off Harvard University's executive governing board. And investors have called on Qualcomm to ask Enron board member Frank Savage to resign.
Even the AFL-CIO concedes that few of the remaining targeted companies are likely to force their directors to resign. Motorola says only that it hasn't yet decided whether it will ask Enron director Ronnie C. Chan to resign. Qualcomm says it's "continuing to monitor the situation," adding that Savage "has worked diligently on behalf of the company and has acted with integrity." And ImClone Systems -- itself under an SEC investigation for failing to disclose regulatory problems with its major product, a biotech cancer drug -- maintains that John Mendelsohn is "a natural choice" for its board, citing his groundbreaking cancer research and his position as head of the M.D. Anderson Center at the University of Texas.
Attempts to reach Enron board members for comment were unsuccessful, and W. Neil Eggleston, a Washington attorney representing the board's outside directors, did not return calls.
WITHHOLDING VOTES? If neither the directors nor the targeted companies act, the labor federation's campaign won't have much practical effect. Activists don't have enough time to push their own candidates to oppose the Enron directors before this spring's board elections. And most of these are uncontested (companies nominate one candidate for each open seat), so one vote for a candidate can be tantamount to winning the election.
Still, the AFL-CIO is hoping that anti-Enron sentiment among investors will prompt many to withhold their votes. And there are signs that some institutional investors who control the biggest blocks of votes may go along with that strategy. Sarah A.B. Teslik, executive director of the Council of Institutional Investors, says she expects to see institutions withhold "a fair amount" of votes when Enron directors come up for reelection at other companies.
Brad Pacheco, a spokesman for the California Public Employees Retirement System, which calculates its Enron losses at $40 million, says CalPERS may well be among those sitting out the vote. Says Pacheco: "If it comes to a vote, it's obviously going to receive extra scrutiny on our behalf."
"DEFINING ISSUE." Bill Patterson, director of the AFL-CIO's office of investment, says the outcome of the voting this spring will speak volumes about the importance investors place on corporate-governance rules, like those flouted at Enron, and about their willingness to go to bat for workers, who lost billions while Enron executives profited handsomely from selling overpriced shares in an unsuspecting market. Says Patterson: "This is going to be a defining issue for money managers. There's a clear line that's going to be drawn about how worker ownership gets represented in the capital markets."
Whatever their chances of escaping with their directorships intact, Enron's board members have surely damaged their credibility. The question going forward is: How long they will wear the scarlet "E"? By Louis Lavelle in New York