Towering collapse.

• Position: Letter from the Chairman - Enron Corporation bankruptcy - Brief Article

'IN REMEMBRANCE is an oft seen and heard refrain in New York City, but in mid-December, when I saw a huge banner emblazoned with that phrase draped inside Penn Station, I was struck by its irony: On the corner of the banner was the Enron emblem. When making its tribute to the victims of the September 11 terrorist attack, Enron did not realize it was announcing its own demise. The Enron bankruptcy, the largest in history, put thousands out of work and drained billions from investor portfolios. The September terrorist attack was horrific; the December Enron collapse is horrifying. The former engenders pain and revulsion; the latter, shock and repugnance.

Enron's board, in particular its audit committee, is filled with prominent members who have vast experience and talent, and who seem to have followed the rules and guidelines established by the regulatory agencies, stock exchanges, and governance experts. On paper, the six audit committee members have the requisite "financial literacy," most notably embodied by its chairman who had been a professor of accounting at Stanford for 30 years. Despite their credentials, they were confounded by Enron's financial sleight of hand, and thus were unable to decipher its highly complex and risky off-balance-sheet partnerships, which obscured its debt and inflated its earnings.

The Enron audit committee seemed also to have the requisite independence to be an effective watchdog. SEC disclosure rules required that Enron reveal some, but not all, financial ties between the company and individual directors. As a result, Enron disclosed only the financial ties of an audit committee member who received $6,000...