A choice had to be made. Skilling had walked away from a job before, leaving McKinsey. Maybe he should again—at least partway. He laid out a plan to Sue: he would work at Enron part-time. She seemed gratified by the proposal. After days of mulling it over, Skilling headed to Kinder’s office. Everything about his demeanor spelled trouble.
“Okay, Jeff,” Kinder said, “what’s the problem?”
“Look, Rich,” Skilling said, “my family matters to me and it’s falling apart. The company is doing great, and I’m not needed as much around anymore.”
“What are you talking about, Jeff?”
“I want to go part-time.”
Kinder sank back, as though he’d taken a sock in the gut. For a moment there was only silence. Then Kinder rested his arms on the desk. “You are out of your fucking mind.”
“I may be,” Skilling said. “But I have to do this”
“You’re head of your division!” Kinder sputtered. “Why would anyone walk away from that? You don’t do that!”
“Well,” Skilling said, “yeah, you do, Rich.”
Unable to change Skilling’s mind, Kinder caved. He rewrote Skilling’s contract, allowing him to work two weeks on, two weeks off, starting October. Ron Burns was assigned the other half of the job. Burns wasn’t the strategist Skilling was, but his management skills were sharper, with a delicate touch that left employees feeling respected rather than belittled.
Once all the pieces were in place, though, Skilling was besieged with second thoughts. Two weeks on, two weeks off—and then what? What were they going to do with the time? Go sailing? Homeschool the kids? He had no idea.
Skilling’s distress reached a boiling point that summer during a Nantucket vacation. He and his wife were lying in bed; Sue was reading, Jeff was going crazy. Months had passed, and he still didn’t know how he was going to spend all the free time. He didn’t like giving up power; he had to figure out what he was getting from all this.
“Listen, Sue,” he said, “we’ve got to talk about how we’re going to work this out. What are we going to do? I’m giving up my company, and I don’t know what I’m giving it up for. What am I moving over to?”
Sue closed her book and set it on the nightstand. She switched off the light before rolling over on her side.
“You figure it out,” she muttered.
Darkness surrounded Skilling. He lay on his back, eyes wide, as he stared at a ceiling he could no longer see. Oh, shit! What have I done?
The Enron corporate jet banked over the Gulf of Mexico, winging its way to Buenos Aires. Inside, James Alexander ignored the roar of the engines as he readied himself for what was sure to be a battle.
Months before, Alexander had been brought in as chief financial officer of Enron Global Power and Pipelines, the now-public company formed to purchase international assets from Enron. At first Alexander had been excited about the opportunity. But his exuberance quickly faded, replaced by a cold dread.
The international project development business, despite all its public accolades, was a disaster. Developers, he thought, were setting project values at absurdly high levels, just to increase their bonuses under Enron’s bizarre compensation system. Worse, they used improper accounting, refusing to immediately book the costs associated with bids on projects that they lost; instead, they created a rolling, growing long-term expense item known internally as “the snowball.”
Topping it all, Enron seemed to have no idea that EPP was obligated to act on behalf of its public shareholders. Too many people at Enron viewed EPP as the company’s back pocket—a place to stuff junk, at ridiculous prices. Pressure was already being exerted for EPP to pay an off-the-charts price for a project in the Dominican Republic—one that had already destroyed a hotel, for heaven’s sake.
Now, as he rode in the corporate jet alongside Rich Kinder, Alexander decided to raise some of his concerns.
“Rich,” he said, “from the point of view of EPP—”
Kinder slammed down an open hand. “Me! My! That’s the problem with this company! Everybody’s saying, ‘Me! My!’ ”
The tongue-lashing lasted another hour, with the flight ending before Alexander could speak his mind. All right then, he would go to Ken Lay instead and expose all of the abuses he had witnessed.
Alexander arrived in Lay’s office on a sunny May afternoon. He spoke carefully, laying out his concerns in slightly more than ten minutes. The pressure to overpay for projects. The perverse compensation system. The snowball.
Lay nodded seriously. “Well, gee, Jim, I guess I’m going to have to call Rich about this,” he said.
Within minutes, Alexander found himselfushered out the door. He never heard anything back. Lay, he feared, had been lulled by the overly rosy assurances from underlings, who themselves had embraced fundamental fallacies as truth.
Not only was nothing fixed, the problems worsened. Weeks later, Alexander was informed that Enron had decided to enter a cost-sharing arrangement with EPP, resulting in the elimination of certain staff members.
Alexander’s finance team and his accountants—the ones who might be willing to battle on behalf of EPP’s public shareholders—from now on worked for Enron, the company on the other side of the bargaining table.
In late July 1995, the elite of German society jammed the stately Max Joseph Platz in Munich, buzzing about the production opening that evening at the Bavarian State Opera House. A swirl of tuxedos and formal gowns painted the plaza, lit up amid the popping flashbulbs of photographers gathered near the performance center’s pillared entryway.
A black Mercedes pulled in, joining a line of luxurious automobiles dispatching passengers. A regal-looking man with chiseled features stepped out, crossing over to open the car door for a lovely young woman. Some in the crowd recognized the man as Herbert Henzler, chairman of McKinsey & Company’s German office, who had recently married the woman accompanying him. The couple strolled up the sweeping stone steps of the opera house, turning to wave amid a torrent of flashes.
A few feet away, a pale, overweight man hobbling on crutches watched the moment and seethed. It was Skilling, who had broken his leg just before leaving Houston and had refused to postpone his business meetings to give his doctors time to put on a cast. He knew Henzler from McKinsey and for a moment saw the life he had abandoned. Henzler was in the bright lights, with a pretty young wife and the world at his feet. Skilling shook his head.
That’s the picture of bliss. That’s success. And here I am, with a broken leg and everything falling apart.
Skilling tottered his way back to his nearby hotel. There, a message was waiting from Ron Burns, the man taking over half his work. He headed to his room and dialed Enron.
“Hey, Ron. It’s Jeff. I got your message.”
“Jeff, thanks for calling. Listen, I have something I have to tell you.”
“Yeah?”
“I’m leaving the company. I’m taking a job as president of Union Pacific.”
“Really?”
“I hope this doesn’t leave you in the lurch, but I really think this is the right thing for me.”
Skilling felt a wave of anger. His shoulders tensed, his first clenched. For a moment he sat absolutely still.
“Okay,” he finally said. “Thanks for calling.”
Then he hung up.
Over the weeks that followed, Skilling stopped functioning. He was unable to make decisions, uncertain of what he should be doing. His depression was as dark and overpowering as ever. He was weeks from starting his part-time schedule, but now no one was there to pick up the slack. Worse, he still had no idea what he was going to do at home. There had been no planning, no organizing, nothing. Finally, by late August, he found a new resolve; he couldn’t be depressed the rest of his life. Before Labor Day, Skilling appeared in Kinder’s office.
“Hey, Rich,” Skilling said from the doorway. “Deal’s off. I’m back full-time. Forget everything I said.”
Kinder broke into a wi
de smile. “Great.”
Somebody. Skilling needed somebody to shepherd his newest idea into a fully functioning business, one sure to bring Enron big profits. Somebody. But who?
The idea had kind of leaped off the page. Ken Rice was building a wholesale-electricity business dealing with utilities and was going great guns. But Enron was virtually ignoring the retail market. With deregulation spreading—cutting direct ties between utilities and the users of power—every customer could soon be up for grabs.
Enron already had a foothold in the business, thanks to Cliff Baxter. Years back, Baxter had engineered the purchase of an Ohio power company called Access Energy for corporate pocket change. But what caught Skilling’s attention was Access Energy’s direct-energy sales business to industrial customers; he had long ago assigned the Ohio executives the task of using that base to build a broader retail effort. But they had failed to deliver, and Skilling was tired of waiting. Enron needed to start this in Houston, he decided, under someone who wouldn’t take any nonsense from Ohio.
Skilling turned in his chair, his hand on his chin, as he considered possible candidates. A thought came to him.
What about Andy Fastow?
Fastow had done a hell of a job in finance, getting Cactus going, pulling together JEDI. And Fastow made no secret that he considered himself underpaid; he griped about the huge paychecks going to those money losers in international development, when here he was, bringing real profits into Enron and not getting enough reward for it. The path to the big money was on the commercial side, and Fastow wanted to be there. He had appealed to Skilling repeatedly for his chance. Maybe this was the solution for everybody.
Skilling made an appointment with Fastow. On the designated day they met in Skilling’s office.
“Andy,” Skilling said, “we’re getting ready to launch a significant effort in retail. It’s an important business for us, one that I think really holds promise for us.”
He smiled. “And I’d like you to head it up. Would you do that for me?”
Fastow’s face lit up. “Yeah, Jeff,” he enthused. “Gee, thanks for showing the confidence in me.”
Skilling nodded. “Okay, well, here’s what I need from you. We need a business strategy for this. Who are our customers? What’s our approach? I want you to think it through and line it all up.”
Fastow said he would take on the job quickly. Some things in finance needed to be wrapped up. But by December he’d be ready to go. That strategy would be on Skilling’s desk early in the New Year, he promised.
A throng of beggar children swarmed a chauffeur-driven sedan, tapping on the car’s windows as it inched forward in midday traffic. Hardened to the emotional battering that accompanied travel in India, Ken Lay and Rebecca Mark did their best to avoid reacting to the drumbeat of pleas. Slowly negotiating the sedan forward, the driver pulled away, leaving the children to flock to the next car.
Through the sedan’s passenger windows, overpowering, contradictory images came into view. Animals wandering the streets. A vibrant city skyline. Impoverished merchants hauling pushcarts. Here and there, games of street cricket. Every vivid sight, every blaring sound engendered a disquieting sense of a city bordering on chaos.
In recent weeks even the city’s name had become part of the disarray. The nationalists who won office the previous February had ordered the colonial “Bombay” to be abandoned in favor of “Mumbai,” in honor of the area’s original Koli inhabitants. Even so, by this time, November 1, 1995, all but a handful of road signs still read “Bombay”; few outside the government uttered the new name in anything but the most formal conversations.
For Mark and Lay, the uncertainty about the name of India’s largest financial center captured their own predicament. Would decisions of this new government stick?
After taking office, the nationalists had wasted little time in scrapping the Dabhol project. Enron was now on the hook for more than $116 million in loans—not including the tens of millions already spent—for a project that by all rights seemed dead.
As their car approached suburban Bandra, Lay and Mark felt hopeful Dabhol could get back on track. Mark had relentlessly pursued an effort to revive the project. She had spent weeks visiting dignitaries, practically begging for support, building to this day, this trip. She had secured an audience with Bal Thackeray, the extremist who controlled the nationalists. Lay and Mark could only hope that after today’s meeting, the demagogue would smile on them and salvage their struggling investment.
The sedan turned onto the final stretch of road leading to Matoshri, Thackeray’s suburban home. Outside, a phalanx of guards stood watch, protecting against potential reprisals against the Shiv Sena leader for the violence inflicted on Muslims by his followers.
“All right, Ken,” Mark said, wrapping up her briefing. “Just remember, everything today is scripted. There shouldn’t be any surprises.”
“Fine,” Lay replied.
The sedan pulled to a stop. Mark picked up a small bag containing an original Walt Disney animation; she knew Thackeray still had a love for his original career as a cartoonist. A gift of the animation, along with flowers she brought, would start things off on just the right tone.
Mark stepped out of the car first. She wore a formal salwar kameez—a traditional long dress with pants underneath—sandals, and no makeup. Lay followed, dressed in a formal business suit. A young woman answered the door. Once inside, Lay and Mark removed their shoes in a symbolic gesture of respect, and the young woman escorted them into a modest living room.
Minutes later, Thackeray appeared, wearing his trademark dark-rimmed glasses. Mark and Lay stood.
“Mr. Thackeray,” Mark said, “good to see you again.” Thackeray nodded. “Yes, hello.”
Mark motioned toward Lay. “I’d like to introduce you to Ken Lay, the chairman of Enron. We’re here to visit you today and hear your views about the Dabhol project.”
Mark presented her gifts to Thackeray’s apparent delight. Afterward, he invited everyone to sit. An assistant wandered into the room, dispensing cups of tea.
Mark almost held her breath. Lay was old-school, with a gregarious personal style that often led him to engage in animated banter. But deference was critical today. She had told Lay during the car ride that he needed to stay quiet. This would be Thackeray’s show. Thackeray sipped his tea, placing the cup on a small table beside his chair.
“Your company made mistakes,” he finally said. “You have come in telling us what to do, rushing through without respect. You have demanded terms in your favor and not in the favor of this country.”
Lay and Mark listened, saying nothing.
“We are not against Enron. We are against the Dabhol project in the form passed by the previous government. But the last few weeks you have come far. You have made clear your desire to work with us, to more fully take our interests into account. That is an important step.”
Thackeray looked Lay in the eyes. “We have to do something to improve the electricity situation in our country. I know this.”
For several minutes, Thackeray questioned how long it would take to get the power-plant deal back together. Then, glancing at a nearby table, he nodded toward a white-framed photograph of an older Indian woman.
“That is my wife, Meena,” Thackeray said. “I am in mourning for her. She died in September.”
“I’m so sorry,” Lay said softly.
Thackeray nodded, then continued. “We were at our home outside of Bombay, in the evening, and she had a heart attack. The doctor had given her medicine, but the power was out. We looked for the medicine, but it was too dark. We could not find it”
Lay expressed condolences again, understanding the message. Thackeray had learned from personal experience the human toll of his country’s electricity shortage.
The conversation continued for more than an hour, at which point Thackeray led the executives to the front of his house. Outside, reporters had gathered; the fate of the plant was
big news in Maharashtra, and everyone knew this meeting was key. At the doorway, Thackeray turned to Lay.
“What would you like us to say?” Thackeray asked. “How can I be helpful getting this project going again?”
Lay glanced at Mark, suppressing a smile. Those words sealed it; they had again transformed setback into victory. Now—in part because of the death of an elderly woman whose name was unknown to almost everyone at Enron—the project that had seemed doomed was back in business.
November 22 dawned clear and cool in Washington, D.C., the rising sun bathing the city’s landmarks in a golden glow. Inside the White House, Bill Clinton scanned a lengthy article in The New York Times. The previous day, it reported, the state of Maharashtra had reached a tentative pact allowing Enron to proceed with its Dabhol power project. Clinton thought the situation might call for additional attention from his Administration.
He picked up a pen, scribbling the letters “FYI” across the article. He then forwarded it to his chief of staff, Thomas “Mack” McLarty III, who once ran an Arkansas energy company. McLarty jumped on the assignment, contacting Lay to find out if the Administration could help. The government’s international apparatus was put into play, with Frank Wisner, the Ambassador to India, visiting government officials to stress the White House’s interest in seeing Enron treated fairly.
Final negotiations between Mark and Maharashtra had been intense, dispensing with the cautious structure of the first agreement. The original deal called for construction in two stages, with the first generating just 695 megawatts of power through the burning of fuel oil. India then had the option to commission the second phase—involving construction of the far more expensive liquefied-natural-gas facilities, which would generate an additional 1,300 megawatts.
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