The tenth anniversary of the release of the so-called “Powers Report” (the report of the Investigative Committee of the Enron Board) provides a powerful governance “teaching moment” for corporate counsel and their clients. The scope and breadth of the report established a new standard for precision in internal board investigations and reports. It unequivocally assigned responsibility within the organization—including the board—for the harm caused by the Enron meltdown. It identified problematic governance conduct from which no board is safely immune. And it served as the spark that led to the enactment of the Sarbanes-Oxley Act and the corporate responsibility movement that followed. As such, it remains a highly relevant corporate governance reference point.

The internal board investigative committee continues as a reliable means for governance to evaluate allegations that threaten significant legal and reputational organizational exposure. The Enron board was certainly not the first body to apply this approach, and the Powers Report was certainly not the first of its kind to be released for public review. Nevertheless, that report served to “raise the bar” in terms of its focus on the independence of investigative committee composition; the use of independent outside legal counsel as a primary resource; strict impartiality; the extent of committee diligence concerning the complex underlying facts; and its willingness to view individual conduct—senior management as well as the board—with a critical eye. To the external audience, the Powers Report charted a navigable and understandable course through highly complicated waters—the notorious “related party transactions”—and pulled no punches in attributing blame to individual executives, to the board, and to board committees.

But the real—and lasting—value of the Powers Report is the extent that it “calls out” the board for specific oversight failures. And these were failures that are not unique to the Enron circumstances and could certainly reoccur in the modern boardroom; e.g., allowing the organization to proceed with fundamentally flawed business transactions; excessive deference to executive management; failure to appreciate the significance of particular matters coming before the board; an inability to recognize “red flags” when they arose; imprecise delegation to committees and cursory review of delegated matters by the committee; inadequate controls over conflict of interest transactions authorized by the board; and incuriosity with respect to positions taken by professional advisors. These failings were not legislated out of existence by Sarbanes-Oxley. They represent just as much a governance risk in 2012 as they did in 2002.

This critical focus of the Powers Report was a major reason for its subsequent influence on legislative and public policy action. Its credibility was such that it served as a major foundation for the governance findings of the U.S. Senate subcommittee that conducted a separate investigation of the Enron collapse. Those findings ultimately served as building blocks for the subsequent Sarbanes-Oxley Act, and indirectly led to the development of several important governance “best practices” compilations, including those prepared by the American Bar Association and the Bar Association of New York City. The report’s imprint can also be seen in the governance-related amendments to the Federal Sentencing Guidelines’ “Effective Compliance Plan” provision, implemented in 2004.

Corporate counsel are well positioned to provide board members with this important governance “history lesson” on how a series of profound oversight failures by the board contributed directly to the collapse of what was, at the time, the seventh-largest U.S. corporation.

Such a lesson is made particularly relevant by three simple but critical factors: first, the Enron board was not a “slouch operation,” but rather was composed of distinguished individuals with extensive corporate and related backgrounds. It was an “all-star squad”.

Second, while the nature of the problematic related party transactions may have been unique, there was nothing particularly unique about the oversight duties required by the circumstances—attentiveness, inquisitiveness, constructive skepticism, and reasonable reliance. And the board was found to have failed in each of these respects.

Third, what happened before can certainly happen again. The Enron C-suite did not have a monopoly on “the smartest guys in the room”. They’re still around and always will be.

In every kind of business, pushing the edge of the envelope—and frequently with the best interests of the company in mind—remains a common practice. The ability of the board to provide appropriate “checks and balances” when megotiating those edges will be enhanced from the kinds of lessons provided by the Powers Report.

The tenth anniversary of the Powers Report provides a valuable board education opportunity for corporate counsel—both with respect to examples of highly problematic oversight weaknesses, and on the effective use of the investigative committee. This is especially the case given the natural level of board turnover since 2002 and the likelihood that, for many directors, the important governance lessons of Enron have grown very dim.

Michael Peregrine, a partner in the law firm of McDermott Will & Emery LLP, advises corporations, officers, and directors on issues related to corporate governance, fiduciary duties, and internal investigations. The views expressed by Mr. Peregrine in this column do not necessarily represent those of McDermott Will & Emery or of its clients.

See also: “A Corporate Compliance (Officer) Lesson From MF Global,” CorpCounsel, December 2011.