Characteristics of a Rubber Stamp Board: The Curious Case of Enron Lucy F. Ackert, Amine Khayati, and James G. Tompkins
Coles Working Paper Series, SPRING24-02, March 2024
OVERVIEW
To empirically identify a board as a rubber stamp board, we reason that two conditions must exist. First, the board must have a very high percentage approval voting record, and second, board votes must include one or more proposals that can reasonably be judged as poor decisions on an ex-ante basis. Through an in-depth examination of the Enron corporate records between 1997 and 2001, evidence provided by public reports, and a behavioral study we conduct with 94 graduate students, we conclude that Enron operated with a rubber stamp board. We examine characteristics of the Enron Board and its processes and find that Enron had a rubber stamp board despite having directors who were highly qualified and leaders in their field, routinely questioned management, and were financially incentivized to engage in diligent monitoring. We find that the combination of accomplished directors driven to finish crowded meeting agendas and directors’ lack of healthy skepticism of management provided a perfect storm for rubber stamping. Rubber stamping by the Board was prevalent during times of rising and/or high stock prices, and less so as Enron was collapsing. This highlights the importance of director vigilance during both good and bad times. We offer implications for corporate governance and avenues for future research.
54 | Working Papers
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