Back in Houston, the Puerto Rican explosion sent Enron into crisis mode. Within a few hours Puerto Rican officials had zeroed in on a gas leak as the likely cause, and if they were correct, Enron’s subsidiary could well be held accountable. The company set up a war room at the Houston headquarters, filling it with insurance professionals, lawyers, public-relations specialists, and operations executives. Nobody knew at that point if Enron was responsible, and a decision was made for the company to start its own investigation.
Suddenly David Haug, a project developer with the international division, phoned into the room, demanding to speak to somebody.
“Look,” Haug said. “I’ve got a deal under way to build a power plant in Puerto Rico. This thing is going to impact our ability to get it done. We just need to accept the blame and move on. We need to get my deal done.”
The room descended into a screaming match. Enron’s lawyers weren’t going to allow the company to just blindly take the blame. Haug fought back, yelling about his deal.
Over at the conference table, Mark Palmer, a newly hired public-relations executive, listened to the back-and-forth as he manned the phones. Haug hung up, and a number of people began bad-mouthing him and his project. It was a lousy deal anyway, they said. The prices were crazy; there was no telling if Enron would ever get paid. One of the golfers in the room called the proposal “a long putt”
Palmer didn’t get it. “So why don’t we just not do the deal if it’s lousy?”
One of his new colleagues looked at Palmer knowingly. He explained the compensation system for the international division, detailing how developers gained huge bonuses if the financing and other paperwork on a project was signed.
“So you’re telling me,” Palmer said, “it doesn’t matter if it’s a good deal, so long as it gets done?”
There were nods around the room.
On November 26, Enron’s directors reached their decision about the succession. Lay and Kinder would be offered extensions of their contracts. No one was under the illusion that Kinder would accept. After being informed of the vote, Lay sought out Kinder, finding him in his office.
“Rich, the board has met, and they considered the issues related to future leadership,” Lay began.
Enough. Kinder knew the result.
“They think you’ve done a fabulous job as COO,” Lay went on. “And they’d like you to continue in that position. They’re still not comfortable, at this point in time, with moving you up to the CEO’s job.”
Kinder looked calm and contemplative. “I’m disappointed. I think it’s a mistake. So it’s probably in everyone’s best interest that I leave at year-end.”
Lay watched Kinder carefully. He had expected that. “I’m sure the board will be disappointed,” he said. “They’d love to keep the team together.” Kinder shrugged. “It’s what I have to do.”
“I’m sorry it’s worked out this way, Rich,” Lay said. “You’ll be badly missed.”
Later that day, the fiftieth-floor receptionist peered over her desk, watching as Amanda Martin dashed from the elevator banks toward the security door leading to the executive offices. She released the electronic lock just before Martin darted inside, headed to see Kinder.
She had just heard the news. She adored Kinder and thought he had one of the best minds in the building. But there he sat at his desk, looking calm and relaxed.
“Rich, how could this happen?” she gasped as she walked into the room. “You are getting screwed!”
Kinder didn’t rise to the bait. “It’s just time to move on. This is how things worked out.”
“Oh, come on, Rich! This is wrong!”
“But this is how things are. It’ll be for the best.”
His serenity pushed Martin to the edge. “Rich, you can’t just take this! You’ve got to do something!”
Kinder raised his index finger. “I’m going to tell you something, girl”
He paused. “The best revenge is always living well.”
The simplicity of Kinder’s words, the stillness of his demeanor, brought Martin up short. Kinder was going to stay above the fray. It was really over. He was gone.
Skilling could barely control his anxiety. With Kinder leaving, somebody else would be chief operating officer, would dictate Enron’s future. If not Skilling, then who?
By that point the board had decided to turn Kinder’s responsibilities over to Lay, but Skilling knew that couldn’t last long. Lay was nice enough, but that was the problem. He was too nice. He wasn’t the type to pound his hand on the table and kill a stupid proposal. Everybody who pitched an idea to Lay seemed to think they had his approval—even executives with contradictory ideas.
Unless he moved quickly, Skilling figured, somebody else would snag Kinder’s job. He called Lay and made an appointment. The two got together two days later.
Lay welcomed Skilling warmly. This was his most talented executive, critical to Enron’s future. He couldn’t afford to lose him. The two sat at the conference table, and Skilling leaned his arms against the granite top.
“Ken, with everything that’s going on, I want to tell you what I think about all of this,” Skilling began.
“All right.”
“Okay, well, at some point, somebody’s going to be the new COO. And it strikes me there are three alternatives for that job: me, Rebecca Mark, or somebody from outside.”
Lay’s face revealed nothing. Not true, he thought.
So many people believed Mark was in line to succeed Kinder. Lay had heard lots of speculation about her favored status but considered it a corporate myth. He thought Mark showed talent in international. But operations weren’t her strong point. Enron’s backbone was still the pipelines, and she knew little about that. She wasn’t deeply knowledgeable about domestic gas and electricity markets, either. In short, she didn’t have a shot at number two.
Lay did have a fallback lined up: Forrest Hoglund, head of Enron’s oil-and-gas division. A longtime Exxon executive, Hoglund impressed Lay, who had long ago told directors that if he was ever hit by a truck, Hoglund would be the best person to run the place.
But Skilling didn’t know any of that. So Lay just listened as he ripped into his imagined rival.
“I just want you to know, Ken,” Skilling said, “that if Rebecca’s chosen, I’m leaving. And I guarantee you half of my people would leave, too. They don’t respect her.”
Lay said nothing.
“And if it’s somebody from outside,” Skilling continued, “I’m willing to work with somebody, but they’re probably going to see things differently from me. My company is kind of my company. And if they want to change it, I’m not going to want to stick around for that”
Skilling took a breath. “I just want you to know that,” he continued. “I’m not asking for any action now. I just want you to be aware of my thinking.”
Lay nodded. “I understand,” he said.
On a Monday night in downtown Houston, Enron’s directors walked with their spouses through the chilly wind toward the Museum of Natural Science. Once inside, they made their way to the second floor, then down a long hallway decorated like a cave. Around them, a rainbow of crystals sparkled in the Gem Room, where Ken and Linda Lay were hosting their annual board Christmas party.
It was December 9, 1996, the night before the directors’ final meeting for the year. As they arrived, guests were instructed to reach into small baskets for their seating assignments. This was a night of traditions, a celebration that never failed to delight. There would be carols around a piano—brought in specially—and Santa, loaded with presents for the directors and their spouses.
After all the guests had found their seats, tuxedo-clad waiters moved about the room serving dinner. Lay walked to the front, where he gave his traditional dinner blessing. Afterward, he smiled to the assembled crowd.
“I just wanted to thank all of you for joining us,” he said, “and to wish you a Merry Christmas and express our hopes for a Happy N
ew Year.”
Before Lay finished, Kinder signaled he wanted to speak. It was his last company Christmas party, and the discomfort in the air was palpable. He stood at his table.
“I wanted to take this opportunity to let everyone know how much I’ve enjoyed Enron,” he began. “It’s been a great opportunity, and I’ve really grown over the years.”
Kinder launched into an analysis of the company, describing its improvement in earnings, revenues, everything. The speech was nothing but gracious; still, the words left some directors uncomfortable. It sounded too much like Kinder was defending his tenure, sending the subtle message that his accomplishments hadn’t been appreciated.
Kinder wrapped up his speech to polite applause. As the evening went on, Lay worked the room, mixing banalities with serious discussions about Kinder’s successor.
As the hours rolled by, an unspoken understanding emerged. There was no hurry. Lay should take his time to get to know his division heads better. A slow, steady selection process was probably the best path. The candidates in the wings would just have to wait.
The next day, Lay called Skilling and asked him to drop by. He wanted to break the news personally of the directors’ decision. Maybe, he thought, that would soften the blow.
“Jeff, I know you’re eager to find out what we’re doing regarding the COO spot,” Lay said. “The board and I have decided that rather than rush to fill that position, we’re going to leave it open for a while.”
Skilling’s face fell. “Why? Why can’t we do it now?”
Such a change. Not long ago, Skilling had been uninterested in top management, wanted to work half-time. But now, moving up right away had become critical to him.
“The board and I think it would be better if I get time to deal with the CEOs of each major profit center. We’re going to wait a few months, then make a decision.”
Skilling protested, dredging up one argument after another. But Lay wouldn’t budge. Sullen, Skilling thanked Lay and left. On the elevator he hit the button for the lobby. He had to get out. He needed to think.
Skilling gripped the steering wheel as he veered around a curve on Loop 610, speeding toward Houston’s Galleria area. It was about five o’clock that same day.
He had been driving for more than an hour on 610, the outer loop surrounding the city. He was angry, frustrated, scared. This could be a turning point for Enron. He had to make sure that Lay understood that. He had to take Kinder’s job. His vision for the company might die if he didn’t.
He glanced at the car-phone console and dialed Lay’s office. A secretary patched him right through.
“Ken? It’s Jeff. I’m out of the office, but I was wondering if you would be able to come over and meet with me. In the lobby of the Four Seasons”
The Four Seasons. Lay’s favorite hotel.
“Sure, Jeff. I’ll head over there right now.”
Half an hour later, a uniformed employee held open the door of the Four Seasons. Lay nodded his thanks as he walked into the thirty-story hotel. Inside, Venetian chandeliers illuminated an assortment of antiques around the lobby. The place was quiet and luxurious, a comfortable combination of urban elegance and easy southern charm.
Lay spotted Skilling near a grand staircase. He crossed over and shook hands. Skilling led the way to the lobby lounge, and they took seats at a table against the wall. Anxiety creased Skilling’s face. Lay waited.
“Ken, I know I reacted pretty badly in our meeting this afternoon, and I needed to get my head clear afterward. So for the last few hours I’ve just been out driving around 610 and thinking”
“All right.”
“And basically, I just want to stress that I think it’s a big mistake if you don’t go ahead and make me chief operating officer now. It will send a very negative signal to my group. With no full-time replacement, it will be pretty obvious that succession is wide open.”
He took a breath. “My whole group is going to feel that maybe we’re not as important as in the past. And given their contribution to the bottom line, it just seems like a mistake to leave our people vulnerable to being picked off by other companies, simply because they’re nervous. We don’t need to do it. You need to name me to the job, just to ensure we can keep up our past performance.”
The two men spoke for another hour and a half as the bar began to fill with evening customers. Skilling’s words were calm but passionate, and Lay was impressed. This wasn’t some “I want the job” argument; Skilling had thought through his position and was presenting a strong case.
Finally, shortly before seven, Skilling was spent. The men stood and headed to the lobby. Outside the doorway, Lay turned to Skilling.
“All right, Jeff,” he said. “Let me think about it. I’ll talk with some of the directors, and I’ll get back to you probably in the next twenty-four hours.”
Skilling nodded. “Okay. Thanks for hearing me out”
The valet pulled up in Lay’s Mercedes 600. Lay handed the man a tip, climbed into his car, and drove away.
The next morning at dawn, Lay pushed his hands against a tree in his front yard. Wearing shorts and a sweatshirt, he leaned forward, stretching the muscles in his legs. After the short warm-up, he headed out for his morning jog. As he huffed down Looscan Lane, Skilling’s words from the previous night echoed through his mind.
Skilling had certainly painted a bleak picture of Enron’s future if the lines of power were left in limbo. What was really the downside of just going ahead and anointing Skilling as the heir apparent?
Probably the best thing to do is move him in now.
As the morning sun drifted past the horizon, Lay made his decision. Skilling could move up. But until everybody got comfortable with the new team, he would just be responsible for the marketing and trading groups while Lay handled everything else. It made a lot of sense.
By 6:30 Lay was back home. After getting ready, he telephoned John Duncan, chairman of the executive committee. Duncan was still at home when Lay reached him.
“John, after our meeting yesterday, I met with Jeff,” Lay began.
Later that day, Skilling was holding his emotions in check when he reappeared in Lay’s doorway.
“Ken, you wanted to see me?”
Lay smiled. “Sure, Jeff. Come on in and sit down.”
The two took their usual spots at the table. Skilling already figured that this was it, all or nothing.
“I want you to know I listened to you very carefully last night,” Lay said.
He pulled himself forward in his chair, smiling. “I’ve thought about it overnight, and I’ve decided we should move you into the position now,” he said. “I’ve talked to the board, and they’re delighted. They fully believe you are my likely successor. So we’re just going to get on with it.”
Skilling’s face showed no reaction. “Thanks, Ken. I’ll do everything I can to make sure it’s the right decision.”
Then Lay put down some ground rules and sounded a cautionary note. Skilling was going to be president of the whole company, not just trading. He needed to let employees in other divisions know that he appreciated their work. There should be no more feuding with the international division. Lay said he would meet with the management team, let them know his decision. Then, when everything was set, they would announce his elevation to the world.
By next morning, the necessary meetings had been held, all the important people informed. Skilling’s power was finally beyond question.
Rebecca Mark stormed into Lay’s office almost as soon as she heard the news.
“Ken, you’ve got to be kidding me!” she blurted out. “You cannot make Jeff Skilling the COO of this company!”
Mark was beside herself. Kinder had never been easy on her, but she always thought him fair. Then, when Lay and Kinder went into that weird breakup, she had cast her lot with Lay because of his commitment to turn over the number-two job to a team of managers. Almost any of those managers would have been fine with Mark. But Skill
ing?
“He has no respect for the other businesses,” she railed. “He wants to tear us apart and throw us away. He has no respect for the pipelines. Why would you put someone like that in charge of the company?”
Lay gave her a placid look. “I had to make a decision that I felt was in Enron’s best interest. Jeff has been—”
“Oh, come on, Ken,” Mark interrupted. “He has no leadership experience, other than his trading business. He doesn’t have a leader’s psychology. Every other word is a profanity, everything is always chaos. Look, you may think he’s brilliant, but his leadership skills just suck!”
“Now, Rebecca—”
“And, Ken, something I don’t think you realize,” she continued. “I don’t think Jeff Skilling has the same ethical bearing as the rest of the company. He and his people march to a different drummer.”
Mark stared Lay hard in the eyes.
“I think you’re going to find that their way of viewing the world is very different from yours.”
“I’ve talked to Jeff,” Fastow said to Martin over the phone. “He says we’re going to do my deal.”
Months into the battles over the co-generation deals, Fastow showed no sign of backing off. Now he was saying that he had gone around Martin, undermined Baxter, and persuaded Skilling to sign off on his monstrous proposal.
Was Fastow bluffing? Had he even talked to Skilling? Did they understand this deal would cheat the partnership? She needed help. She scouted out Baxter and Rice.
“Guys, I’m in a pickle here,” she said. The deal they thought they had killed had risen from the grave.
“All right, even if Andy’s deal is good for Enron, it screws the partnership,” she said. “We can’t do that.”
Baxter agreed to lead the charge against Fastow. He and Martin went up to Skilling’s office to make their case.
“This is just bullshit, Jeff,” Baxter raged. “We already have a reputation for screwing our partners. We’re not going to do that here. We’re doing Amanda’s deal.”
Conspiracy of Fools Page 18
