Conspiracy of Fools (74 page)

That, Lay said, meant that the oversight of the grid ought to go to federal regulators. “And we ought to have larger regional transmission grids, not so many chopped up transmission grids making coordination so difficult. Those chopped-up grids are used to give monopoly utilities first shot at their own markets and keep out competitors.”

“Well,” Cheney interrupted, “what part of the country are you getting the most opposition from?”

At about the same moment, “hold” music played as Wall Street analysts waited for Enron’s quarterly conference call to begin. An operator came on and introduced Skilling.

“I hope you all heard that music that was on before,” he said. “We’re all dancing here; it’s pretty good stuff.”

The numbers were sure to pump up the analysts—an 18 percent increase in earnings, a 281 percent increase in revenues. Skilling announced them with excitement in his voice. A number of other Enron executives were in
the room, listening in. Causey was just one seat away. No one mentioned anything about the Raptor losses.

As Skilling spoke, Ray Bowen was down in his office, playing to the conference call over his computer.

“So in conclusion, first-quarter results were great,” he heard Skilling say. “We are very optimistic about our new businesses and are confident that our record of growth is sustainable for many years to come.”

Great. Great
. Everything was great. The claim left Bowen uneasy. He was hearing rumblings in the company about troubles in Broadband, about the India project possibly being worthless. But everything was great.

In a conference room in another part of the building, Mark Palmer, the head of corporate communications, was also listening in on the call along with members of his department. Just in case something important came up.

Lay’s conversation with Cheney weaved through an array of issues, from supply questions to concerns about price caps in California. After thirty minutes, an aide reminded the Vice President of his next appointment.

Lay took the hint. “Dick, we appreciate your time,” he said, standing. “We wanted to be sure you heard firsthand what we’re thinking should be the priorities for your energy plan. And obviously, we want to keep in touch.”

Cheney shook his hand. “Well, we want you to,” he said. Before leaving, the Enron executives turned over a lengthy position paper. Then Cheney excused himself.

As Lay and his colleagues walked out of the White House, Colin Powell, the Secretary of State, was just arriving. Spotting Lay, Powell broke into a smile. The two had known each other since the first Bush Administration. “Hi, Ken,” Powell said. “Good to see you.”

Lay offered his greetings, and Powell mentioned that he was heading inside for a Cabinet meeting.

“Well,” Lay joked, “maybe I’ll stand here for a few minutes and talk to the whole Cabinet.”

But he wasn’t going to let this opportunity slip away with nothing more than a wisecrack to show for it.

“Listen, Colin,” Lay said. “I may need to come see you or one of your senior people about the power project we have in India. We’re having some real problems there.”

Powell already knew about it. India had agreed to make good on any
obligations owed under the power contract but was trying to wriggle out of the deal. Powell urged Lay to contact one of his deputy secretaries, Alan Larsen. “I’ll let Alan know that you’re going to call,” Powell said.

The short discussion gave Lay comfort. The Administration was foursquare behind Enron in its showdown with the government of India.

The conference call was dragging on, with Skilling still trumpeting the quarter’s performance. After that came the question period. It started predictably enough, with requests for information about run-of-the-mill operating matters. Then the operator called on the next questioner. “Richard Grubman, of Highfield Capital.”

As Skilling stared at the speakerphone, Mark Koenig, the investor-relations chief, began scrawling a note. Grubman asked what the balances of assets and liabilities were in the trading business at quarter’s end.

“We do not have the balance sheet completed,” Skilling replied. “We will have that done shortly.”

No sooner had he spoken than Koenig slipped him the note. Grubman, it said, was a short seller, one of the money managers betting that Enron’s share price would fall.

“I’m trying to understand why that would appear to be an unreasonable request,” Grubman responded, “in light of your comments about daily control of all your credits.”

Yeah
, Ray Bowen thought.
Good question
.

Whoever this guy Grubman was, he was asking a key question. The balance sheet—and its lesser-known cousin, the statement of cash flows—would let investors know if Enron had enough money on hand to finance growth. It might give hints about how much of Enron’s earnings came from fancy accounting rather than the true generation of cash.

He hoped Skilling was ready with a good answer.

“I’m not saying we can’t tell you what the balances are,” Skilling replied. “We clearly have all those positions on a daily basis, but at this point we will wait to disclose those until all the netting and the right accounting is put together.”

The nonanswer annoyed Grubman. “You’re the only financial institution that cannot produce a balance sheet or a cash-flow statement with their earnings,” he said.

Skilling was furious. This guy was stirring up controversy, trying to talk down his company. “Thank you very much,” he said. “We appreciate that.”

“You appreciate that?”

Skilling glanced up, looking around at the others with him in the room. He wanted the last word. “Asshole.”

Palmer almost fell over. Did he hear that right? Enron’s chief executive had just called someone an asshole? On an open line?
On an analysts’ call?
He jumped out of his chair. He needed to get upstairs.

Bowen stiffened.
Asshole?
He called the guy an asshole? His phone rang. It was Billy Lemmons, a friend from Enron.

“Did you hear that?” Lemmons asked, laughing. “What do you think
that
means?”

“I don’t know,” Bowen said. “But I thought it was a good question.”

Upstairs, the conference call continued, with everyone in the room now jolted wide awake. Palmer rushed in while Skilling was taking a question from the analyst from First Boston. He slipped Skilling a note on a piece of yellow legal paper, saying he should apologize before getting off the line. Skilling read the note, then slid it under a pile of papers on the table.

Lay was still making the rounds in Washington when his phone rang. It was Steve Kean, who had just heard from Palmer. Lay was perplexed. He had just parted ways with Kean. What was the problem?

“Ken, since you’re meeting with a lot of people today, we thought you should know about the analysts’ call this morning,” Kean said. “Jeff, well, I don’t know if it was inadvertent or if he just said it.”

Kean was stumbling over his words, sounding uneasy. That wasn’t like him. “But Jeff, in response to a comment, called one of the analysts an asshole,” Kean said.

Lay was silent for a moment.

“Well, that’s not very nice,” he said finally.

The “asshole” comment hit the newswires and soon was all over Wall Street. Outside of Enron, reaction was bad. This just wasn’t appropriate behavior for a Fortune 50 company. Executives of Skilling’s rank had to deal with verbal potshots from short sellers all the time. Besides, Grubman’s sally barely qualified as harsh. How would Skilling hold up if the fire really turned hostile?

When Lay came back to Houston two days later, Skilling appeared in his office, hanging his head. Lay let him know that he could not lose control like
that again. But the controversy didn’t end there. Some directors complained to Lay about the episode. Skilling acknowledged to friends that he had overreacted but defended the name-calling, saying that Grubman was trying to drive down Enron’s stock price.

Even so, the tempest he had created bothered Skilling.

He was being criticized. Again.

Wildly swinging, but ever increasing, prices of electricity in California were taking a toll on Enron’s trading desk. The traders were restricted by a complex formula that determined the maximum possible losses they could risk. The result was, if the possible loss grew, the traders might have to sell positions for cash even if they were making money. Now, the fluctuations in California were playing havoc with the formula, known as value at risk, or VAR. One perverse effect was that even if the traders stopped trading, they still might hit the risk limits.

Whalley called Skilling to let him know the dilemma. The directors would need to kick up the VAR limit by about 30 percent to maintain current positions, he said.

“No problem,” Skilling said. “I’ll take care of it.”

This was just administrative, Skilling figured. He telephoned Pug Winokur, the head of the finance committee.

“We’re going to need to make a request to the board for additional VAR,” Skilling said, giving the 30 percent estimate.

“Well,” Winokur said, “we’ll have to talk about this at the board meeting.”

Skilling paused. “What’s to talk about?”

“This is a significant increase,” Winokur replied.

“It’s just mathematical, Pug. It’s not a big deal.”

“Well, you’ll have to make the case for the board.”

Skilling didn’t argue and called Whalley to let him know what was up. Whalley was furious about the demands but said he would get a presentation put together.

Not long after, Lay appeared in Skilling’s office.

“I just got a call from John Duncan about you wanting to get a VAR increase,” he said. “What’s going on?”

John Duncan?
Why was the head of the board’s executive committee calling Lay? “I don’t know what’s going on, Ken,” Skilling said. “I told Pug we were going to ask for an increase in VAR. It’s just a mathematical function, because of the increase in volatility.”

Lay sat down. “Well, there’s something else going on. I mean, the directors are all talking among themselves.”

This is ridiculous
. “Ken, the position we have in VAR is just one-tenth of the risk we were taking in India. We’ve gone through hoops to tell them how VAR works. But they can approve a project in India in a twenty-two-minute phone call. There’s something
wrong
here.”

Skilling set his jaw. He knew what this was about. It wasn’t VAR. It wasn’t risk. It was
him
. The board was taking out its unhappiness on him, probably for that “asshole” comment. They were dinging him.

Billows of cigarette smoke wafted over the deck behind Rebecca Carter’s house. Night after night, she and Skilling had come out here as he griped about his new job. He hated it—putting out fires while everyone scrutinized his every move. This wasn’t building a business, it was babysitting.

The market obviously didn’t like him. The stock price had been falling ever since he took over. And now
—and now
!—the board was coming after him. Maybe, Skilling thought, Lay was getting ready to stab him in the back and take over again. Hell, maybe
Winokur
had designs on coming in. He was spending lots of time with Fastow. And John Duncan! Skilling and Duncan had never hit it off.

“I don’t know,” Skilling said. “What’s Winokur’s objective? What’s Duncan’s? Where are they all coming from? And I think I see a shift in Ken’s attitude.”

Carter nodded. “Yeah, I kind of think so, too.”

That stopped Skilling short. “Why?”

“Well, the ‘asshole’ comment didn’t help you.”

As they talked late into the night, Skilling sank deeper into depression. “I don’t need this,” he said. “I really don’t need this. I’ve got plenty of money. I’ve got lots of things I’d rather be doing. Why am I here?”

Carter felt terrible. Skilling had wanted out in November, said so right on this porch, and she had pushed him to take over the chief executive’s job.

Skilling puffed his cigarette. He was sure his enemies at Enron were mounting a coup against him. It was obvious. The directors and Lay were planning to push him out. Well, he wouldn’t let them. He’d get them before they got him.

On April 30, Skilling sat on a stool in Carter’s kitchen, a pad of paper on the counter in front of him. He had come to a decision. He wasn’t having fun, the board was undermining him, his family was suffering. He was quitting.

Pen in hand, he considered how to write his resignation letter. Maybe something flowery, listing his grievances and complaints. No, that would look bad. Why kick them on the way out the door?

Maybe … maybe …

Dear Ken and the board of directors, Because you guys are a bunch of idiots and assholes …

No, no. He started writing. He scratched out a few words. Start again. “I hereby resign my position as Chief Executive Officer of Enron Corp.,” he wrote.

Good. Right to the point. He scribbled a couple of more sentences, saying nothing much. His resignation, he wrote, was effective immediately.

Carter came inside. Skilling handed her the note. “I need you to type this up,” he said.

She read it, then looked up. “Don’t show this to anyone until you’ve thought about it some more, until you spend some time with Ken.” Skilling reflected for a moment. “Okay,” he said. “I’ll see Ken first.”

Skilling left the letter inside his briefcase. When he was ready to see Lay, he wandered down the hall. Lay greeted him cheerily, and Skilling took a seat.

“Ken, I don’t know what’s happening, but something weird’s going on,” he said. “I don’t like being second-guessed by Pug, and he’s calling Duncan? If they have a problem, why don’t they call me? What are they doing?”

Lay listened impassively, masking his alarm. Skilling was reacting far too strongly to something of little real consequence. He sounded … well, almost paranoid.

“I don’t know where you come out on this,” Skilling continued. “But I’m not happy. I am not happy.”

Lay didn’t know what to say. He made a mental note; he needed to speak to the directors about his protégé’s emotional reaction. But this wasn’t the time to go into that.