Probably the most important meeting in modern corporate governance took place on June 28, 1999. What made it so remarkable was that those present – the members of the Enron board of directors – did not have absolutely not understood its possible consequences.

If they had, they surely would have refused to waive the energy group’s code of conduct, allowing Andy Fastow, the chief financial officer, to set up and operate off-balance sheet vehicles that ultimately helped bring down the whole company. Enron filed for bankruptcy 20 years ago this week.

This collapse revealed a culture of sufficient neglect in American conference halls. At worst, such complacency has allowed excesses and fraud to flourish. Enron was the precursor to other US corporate scandals that I have covered from New York, including Tyco and WorldCom.

Three months before Enron’s bankruptcy, WorldCom’s board of directors notoriously approved a 35-minute, $ 6 billion deal with little notice and without any written documentation. “Forgive me while I throw up,” replied a director when asked to remember that moment.

The balance between the animal spirit of company directors and the measured prudence of the board of directors is delicate. Nothing would be done if risk-averse directors spent every meeting battling nausea. But it’s worth reminding directors of Enron and other disasters today, even if it triggers nausea, because as the scandal fades into memory, the risk of them repeating old errors increases.

The scandals at Wirecard, German payments group Greensill and Theranos, whose disgraced founder Elizabeth Holmes is currently on trial, bear the hallmarks of Enron. Theranos’ board, for example, like that of Enron, was a dazzling array of top names.

Some elements of governance, however, have changed for the better.

The “you scratch my back, I’ll scratch you” approach to board appointments is largely complete. Many cross mandates, where individuals sat on top of each other, have been removed. Investors now disapprove of “overboarding” or holding multiple positions on the board of directors. The Sarbanes-Oxley Act, requiring executives to sign accounts, has become standard, though companies decried it as an unacceptable burden when it was approved in 2002.

“There’s no question that boards are more focused, more independent, more focused and more engaged,” says Nell Minow, vice president of ValueEdge Advisors and longtime bad governance critic and shareholder rights activist.

However, since 2001, the message of the Enron case on compliance and good governance “may have lost its intensity,” warned lawyer Michael Peregrine and professor of governance Charles Elson in an article for Harvard. Law School. The pendulum risks to return towards too powerful frames.

Minow likens regulatory attempts to improve governance to a race between vault makers and vault hackers: “Every time you make a better vault, they come up with better tools. Structural solutions also take time to implement. The United States Securities and Exchange Commission has just approved the rules for access to proxies, simplifying the election of directors, which have been the subject of ad hoc discussions since before the fall of Enron.

The gap between rhetoric and reality remains a danger. Enron was conspicuously a blue ribbon model. The head of its audit committee was, for example, Bob Jaedicke, professor of accounting at Stanford. Although the reputations of the board members were indelibly damaged and some had to help settle a $ 168 million shareholder lawsuit in 2005, the damage was limited. Returning from New York to UK in 2003, I gave a talk on governance at a dinner hosted by a parliamentary group. To my amazement, the vote of thanks was given by the former minister and former director of Enron, Lord John Wakeham.

Board membership is still viewed by too many future directors as a comfortable path from leadership to retirement, rather than a vital public duty with serious responsibilities.

In 1999, Kenneth Lay, then CEO of Enron, who died before going to jail for his role in the scandal, praised the importance of “strong, independent and competent counsel” in a speech at a conference on ethics. He pointed out how Enron looked for “principle-oriented directors” with “independent and curious minds”. He continued, “We want board members whose active participation improves the quality of our decisions.

The directors of Enron were confronted with a fraud of disconcerting complexity. But all the rules and codes in the world should not relieve today’s administrators from the obligation to challenge the exaggeration of the leaders, for they are the ones who are present when such decisions are made. To put it another way, if the post-Enron sizzle is not to be lost and the public’s trust maintained, then it is the board members who must continue to feel and apply its warmth.

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