Corporation Member in Spotlight for Enron Board Seat

The ever-expanding investigations and government probes into last fall’s surprise collapse of energy giant Enron Corp. has highlighted the role played by one member of Harvard’s Corporation in the management of the company.

Herbert S. “Pug” Winokur ’64-’65, a member of Enron’s board of directors and the chair of its finance committee, is one of seven members on Harvard’s highest governing board.

Winokur received a subpoena last month from a Senate subcommittee investigating Enron.

While lawsuits and investigations have brought to light a history of insider trading, mismanagement and misleading accounting practices by Enron, Winokur’s role remains unclear.

One of the most significant revelations is the $1.2 billion in Enron stock sold off by company insiders before the collapse last fall.

To date, no evidence has emerged that Winokur was involved in any of the massive stock sell-offs.

Enron’s filings with the Securities and Exchange Commission (SEC) in March 2000 and 2001 show Winokur owned more than 100,000 shares of Enron stock, which would have been worth between $8 and $9 million one year ago—before the value of the company’s stock plummeted to virtually nothing.

Since the March 2001 report, there have been no further reports listing Winokur’s Enron holdings—leaving the effect of the collapse on Winokur unknown.

“Short of subpoenaing [Winokur] and his stock broker, he doesn’t have an obligation to report his sales. There really is no other way to know,” said Francis Karam, a lawyer handling one of the largest lawsuits against Enron insiders.

Many of the plaintiffs in these lawsuits are businesses and unions whose employee’s retirement funds were depleted by Enron’s collapse.

Although the class action suit does not currently name Winokur, Karam said the firm is continuing to investigate.

“We will undoubtedly file an amended complaint and that will probably include the names of other defendants,” Karam said.

But Winokur is named as a defendant in a number of lawsuits filed by investors who lost money when Enron’s stock collapsed and charge the defendants with misleading investors about the company’s financial status.

Winokur’s role in Enron’s collapse as chair of the financial committee is also difficult to discern.

According to Harvard Business School professor Samuel L. Hayes, a board’s finance committee is generally in charge of approving recommendations from the company’s chief financial officer.

Hayes said this is not necessarily a sign of impropriety on Winokur’s part.

“The most we can say is he and other members of Enron’s board essentially failed in their duty of oversight. That is obviously an embarrassment, but it doesn’t suggest any activity that is shady,” Hayes said.

Additionally, the connections of Enron board members with outside companies have drawn widespread scrutiny in recent weeks.

Karam noted Winokur’s status as the former chair of the board of directors and a current board member of DynCorp—a subcontractor for the federal government with ties to the SEC.

“DynCorp interestingly runs the information systems for the Department of Justice and the SEC, the very people Enron is under investigation by,” Karam said.

Karam said DynCorp could access e-mails, digital communications and other sensitive information about the ongoing investigation.

“Not to say [Winokur’s] doing anything, but his people could easily get him access,” Karam continued.

However, the Business School professor said that such a connection could be trivial.

“It would depend on how important that client [the SEC] was,” Hayes said. “If it’s 1 percent of [DynCorp’s] business it probably isn’t, but if it’s 10 or 15 percent that could be more of a problem.”

Beyond Winokur’s involvement with DynCorp, the New York Times uncovered proxy statements filed by Enron with the SEC that fail to list Winokur as a board member of the NATCO Group, a producer of gas and oil equipment that did $1.5 million in business with Enron.

Under federal law, Winokur is obligated to disclose his relationship to NATCO since it is a publicly traded company.

While connections like these are relatively common, they are drawing special attention in the Enron case.

According to Hayes, the sheer size of Enron, the billions of dollars investors lost and the potentially fraudulent financial and accounting practices of the company may make this case different and tarnish the reputations of board members.

“I think it’s going to be a real problem for directors,” Hayes said. “They are likely to be sued by any number of parties with grievances, and the other thing that is troublesome is the reputational cost of this debacle, because the board’s role is to provide comprehensive oversight of [Enron’s] operations.”

Winokur could not be reached for comment for this story. University spokesperson Joe Wrinn also declined to comment for this story.

—Staff writer Joseph P. Flood can be reached at flood@fas.harvard.edu