A study of Enron before the fall
Do you think Skilling and Lay are guilty?
I'm going to let the courts settle that.
What were they like?
Jeff Skilling is a kinetic personalityvery bright, highly articulate, highly energetic. His [ideas] will probably go on to stimulate further innovation in the way firms do business. But he was guarded in his self-presentation in small ways: He was reluctant to talk about matters in personal life. Obviously, he had a strong opinion of himself and the role that Enron was playing in the larger business economy. He was a creation of his own enterpriseaggressive, forward-thinking, an apostle of momentum.
And what about Ken Lay?
Ken Lay was avuncular, folksy, and more approachable but had a real toughness as well. He spoke with almost religious fervor about the deregulation of energy markets and how this was necessary to stimulate economic growth. He brought a very macro view of Enron's role and the role of energy markets.
Did you trust them?
They were plausible and winning personalities. Trust would be too strong a word. We heard what was a very energizing line. They could point to tangible accomplishments, processes currently underway that would lead to future accomplishments. Beneath all of this, of course, were practices, policies, that put the firm at great risk.
In 2001, when the company was unraveling, could they have done anything to avoid bankruptcy?
It's like defusing a very big bomb. But if Ken Lay had gone public and said I've received this note from Sherron Watkins and we will unwind the special purpose entities, we will clean up the balance sheet, we will separate from the company those individuals who are responsiblewe adhere to these core values and I will clean houseI could imagine that in August or September of that year it might have been early enough to save the company. Not without a serious fall in share price, of course.
Why didn't he do that? What do you think he knew at the time?
Well, two observations on that: One is that it's awfully easy in a large corporation for some employees to do things that are not in the interest of the corporation. The second point is that the CEO ought to know what's going on within the organization. The defense of simply not knowing or not being aware is insufficient. But, there's no substitute for integrity. The large lesson is that creating a culture that results in various heady percentage increases in earnings stretches integrity internallyand ultimately, it pushes people beyond what is acceptable behavior.