Conspiracy of Fools (80 page)

Kean and Palmer were in an office on the second floor of Kean’s house, cobbling together the materials for the big announcement. “Personal reasons” wasn’t cutting it, so they were trying to guess what might fly with Skilling. In the draft press release, they had written “spend more time with his children” and “concentrate on his family,” but those were knocked down. “Personal reasons” or nothing.

It was getting ridiculous. Kean phoned Skilling and spoke with him for a few minutes. Finally, Skilling suggested that he come over and help on the release. Kean agreed.

The knock on the front door came ten minutes later. Kean headed partway down the stairs, calling to Skilling to come in. The door opened. “Is Mark here?” Skilling asked.

“Yeah, he’s upstairs, too,” Kean said.

Skilling hustled up and strode into the office, in obvious high spirits. He was wearing green hiking shorts and boots, with a few days’ beard growth shadowing his face.

“Hey!” he said, looking at Palmer. “How you doing?”

Palmer furrowed his brow. “I am
pissed.”

Skilling froze. “You’re pissed?” he repeated. “Well, I guess I can see how you might be pissed.”

How could Skilling be surprised? This was going to be hard enough, particularly with Palmer’s secretary now on leave. If Skilling went into this with some rose-colored view of how things would play, it would make it worse.

“Jeff, you need to be prepared for a lot of people being angry,” Palmer said. “You’re our leader, and a lot of people are going to feel like you’re abandoning us.”

Skilling raised his eyebrows. “You really think so?”

“
God!”
Palmer exclaimed.

“Guys,” Skilling said, “I had to do this. I had to.”

Case closed. There was no discussing this.

The next morning, the senior executives on Enron’s management committee had just finished discussing the last item on the agenda. Skilling looked around the room as his fellow executives gathered up their things.

“I have one more announcement,” he said.

Everyone settled back down.

“I proposed to Rebecca,” Skilling said, smiling at Carter, who was sitting in a chair near the conference table. “And believe it or not, she said yes.”

Around the room, executives stood and rushed over to Skilling to offer their congratulations. But they pretty much ignored Carter. She considered the reaction bizarre.

“Now we’ll turn to the chief financial officer’s report,” Pug Winokur said. “Andy?”

It was minutes before six that evening. Fastow clicked up his first slide. Nothing about Skilling had been announced yet; that would come after the committees concluded their work. For this meeting no one expected fireworks. But this time the directors were going to hear the unvarnished truth about Enron’s condition. Until now, Fastow was just the CFO, always presenting the most comforting portrait of Enron’s finances. Never before had he clearly explained the financial condition of the company, created by his years of incompetence and venality.

This day he was speaking not only in his role as CFO but also as head of
corporate development, in charge of selling large assets. The board wanted the full picture. Now it was time to tell them in no uncertain terms the financial virtues of an aggressive campaign to rid Enron of its mistakes.

“Enron’s total outstanding financings and debt, on and off balance sheet,” he said, “totals $36.3 billion.”

In truth, Fastow was wrong; he was overstating the numbers. The totals had been assembled sloppily, double counting some $2 billion in debt. But even the correct amount of $34 billion was staggering, almost three times the $12.8 billion that appeared on Enron’s balance sheet.

And the situation was climbing out of control. Fastow clicked up another slide, showing that in just twelve months, debt had ballooned by over $14 billion, an increase of more than 62 percent. To pay the interest on debt, a company needed real, hard cash. Enron
had
been reporting cash on deposit from its trading partners as cash flow from operations. But now that the energy markets in California had turned, money was flying out the door—to the tune of some $2.3 billion in just six months, or half the previous year’s total cash flow.

Huge, growing debt. Rapidly falling cash flow. This was corporate nitro-glycerin, an explosive mix capable of blowing any business apart. The directors had every detail they needed. Fastow finished his presentation.

“All right,” Winokur said. “Thank you, Andy.”

They went on to the next topic.

At 8:10 that evening in the Austin Room at the Four Seasons, Lay tapped a glass with a spoon. The full board had been meeting for forty minutes, listening to the usual reports. Now it was time for the most important part.

“At this point I’m calling an executive session of the board,” Lay said. “So if everyone would excuse us.”

Several executives stood to leave. Rebecca Carter, the corporate secretary and Skilling’s fiancée, was shaking as she moved toward the door. In the hallway she saw Sherri Sera, Skilling’s secretary, seated on a couch. Carter sat down beside her and began to cry.

Back inside, Lay looked at the assembled group.

“As I’ve told most of you,” he began, “Jeff has notified me that he wants to resign and leave the company.”

Skilling glanced around. Some mouths were dropping.

“I’ve tried to talk him out of it, and I believe some of you have, too,” Lay continued. “So far we’ve failed in that effort. But I do think it’s appropriate now for Jeff to have some time to explain his reasons for leaving.”

Lay turned the floor over to Skilling, who seemed shaky and uncertain. “This is a decision that has been very painful for me,” he said. “But I think it is appropriate, a necessary one for me and my family.”

He rattled off the reasons he had given Lay: the prospect of his children heading to college, his desire to be around them more. He paused with tears in his eyes.

“If I’ve disappointed some of you, I’m very sorry.”

After repeatedly losing his composure, Skilling stopped speaking. Then questions—mostly from John Duncan and Norm Blake. Were there other reasons for this?

“I’m feeling a lot of pressure,” Skilling said. “I’m having trouble sleeping. I think it’s harming my health. But, primarily, I need to spend more time with my kids.”

Blake bore in. Were there problems at Enron they needed to know about, anything that might be prompting this?

“Not causing this,” he said. “But I’ve made no secret about my feelings about the international assets. We’ve wasted billions of dollars, and that still upsets me. And I’m not interested in being the one to fix that problem.”

Of course, there was California, where they were still owed north of $600 million. And then Broadband.

“But is there anything
else?”
Duncan asked.

Skilling shook his head. “No,” he said softly. “Just all the things I’ve told you about.”

They came at him time and again, posing the question different ways. But the answer never changed.

“All right, Jeff,” Lay said finally. “Now, if you’ll excuse us, I need to have a few words with the board, and I’ll see you in the morning.”

Skilling nodded, wiping his eyes on the back of his hand. Then tears again. “I just want to thank everybody,” he said as he stood. “I’m sorry I’ve disappointed you. But I think it’s the right thing to do, and I hope it doesn’t have serious consequences on the company.”

He lingered for a moment. Then he turned to leave.

Outside the room, he saw Carter and Sera on the couch. He sat beside Carter. “How’d it go?” Carter asked.

Skilling sniffed. “I got a little too emotional,” he said. “But it’s done. It’s over.”

“Anything further that any of you think we ought to talk about tonight?” Lay asked.

The directors were ready to move past astonishment. Before the meeting, a few ofthose who knew what was coming had spoken to Lay and received assurances that he would return as chief executive for as long as he was needed.

“I’m sorry this happened,” Blake said. “But, Ken, I’m delighted that you’re here to pick up the pieces.”

Lay had their support, the directors said. They would get through this. It was best, they decided, not to announce the resignation until the market’s close the next day. They would formally accept it just before telling the world.

The meeting ended twenty minutes later, but no one quite wanted to leave. Directors gathered in small groups, gossiping. Lay glanced over at Mickey LeMaistre, a doctor and president emeritus at Houston’s M. D. Anderson Cancer Center. The two approached each other. “Mickey,” Lay said softly, “I’m very concerned about Jeff.”

“I am, too,” LeMaistre said. “I made notes while we were listening to him, and I didn’t like how he sounded. I’ll try to call him tomorrow and talk to him.”

They paused. They didn’t want to say the words. “I’m worried about his mental health,” Lay admitted.

“Me, too,” LeMaistre said.

The next day, a group of executives gathered in the small conference room off Ken Lay’s office. They were reviewing all the final documents for the press announcement, making sure everything was in order.

The air in the room was heavy with unanswered questions. Mark Palmer glanced at Skilling. This wasn’t the breezy, cheerful Skilling he saw Sunday; he looked terrible. His eyes were puffy, exhaustion drained his face; he seemed incapable of a smile. Palmer felt terrible for him.

It’s going to be so ugly
, he thought.

Suddenly, Skilling leaped up. “Wait a minute,” he said, heading to the door. “I forgot something.”

In a flash he was back with a piece of Enron stationery in his hand. On it he had written his sentence-long resignation from Enron. He held it out to Lay.

“Here,” Skilling said. “I think you need this.”

Lay took the piece of paper and glanced at it. An expression flashed across his face. Disgust? Disapproval? Annoyance? No one could quite tell.

For a moment, Skilling stood in the room, seeming out of place. Finally
he turned to leave. The meeting quickly broke up, with Lay and Palmer lingering behind. Palmer decided to use this moment to push for the truth.

“Ken, do you know why Jeff is leaving?” Palmer asked. “Can you tell me, is he sick? I just want to know if he’s sick because, frankly, he looks sick.”

Lay’s face hardened. “It depends how you define sick,” he said, his voice icy.

Lay grabbed the letter, holding it by the edge like a used air-sickness bag. Then he left without another word.

Rumors flew through the building. Whalley and some others had been given the heads-up by Lay, and word spread quickly: Skilling was leaving. And no one was sure why.

Then a call went out to the top executives from Lay’s office. An urgent management meeting had been scheduled for 3:30 in the Enron boardroom. Everyone should be there.

That same day, Sherron Watkins went out for lunch with two friends. At one side of the table sat Kathy Lynn, a Fastow favorite who worked with LJM2. They, too, tossed around gossip over the meal; even at their level, there were rumors that a big departure was coming.

Watkins mentioned that she had heard Kopper was buying out Fastow’s interest in LJM2. “Michael must not have paid him very much with all those Raptor losses,” Watkins said.

Lynn shot Watkins a cocky look. Whatever happened to the Raptors didn’t matter to LJM2, Lynn said. “Andy put it together so that LJM2 got its money out first.”

An amount equal to Fastow’s full investment, plus profit, had been distributed to LJM2 before the Raptors hedged anything. Technically, Lynn said, LJM2 still had equity in the deal, but that was just more potential profit. If the Raptors blew up, LJM2 wouldn’t lose anything.

Watkins was horrified. If LJM2 had nothing at risk, then Enron was hedging with itself. Enron would pay Enron to make up for its merchant-investment losses. No one could
ever
think the accounting rules allowed for that.

She had to step up her job search. Then, before she left, Watkins decided she would sit down with Skilling and tell him everything she had learned.

When 3:30 rolled around, not a seat was empty in the boardroom on the fiftieth floor. Skilling and Lay arrived and sat on the far side, their backs facing the windows.

“By now, all of you probably know that Jeff has decided to resign,” Lay said. “He’s doing it for personal reasons. We tried to talk him out of it, with
no success. I’m not going to tell you I’m happy about this, but the board has asked me to step in as CEO, and I’ve agreed.”

He turned to Skilling. “Jeff, do you have anything you would like to say?”

Skilling swallowed. “It’s been really hard,” he said. “And even though I’ve got to go, I’m still with you guys.”

Distress washed over the room. Janet Dietrich, a top executive in Enron Energy Services, wasn’t satisfied. “Jeff, what’s going on?” she asked. “Are you sick?”

“No, I am not personally ill,” he said. “I’m okay. I don’t have a disease. It’s just personal reasons.”

The questions kept coming, but again and again, Skilling insisted there was nothing wrong with the company, that his departure was purely personal, and that no, he wasn’t going to give details. His voice cracked.

“I want to thank you guys,” he said. “It’s been a tough decision, but it’s the right thing to do.” With that, Skilling bid everyone good-bye and walked out, leaving Lay behind to deal with his confused and angry executives.

“Ken, what is going on?” Dietrich said almost as soon as Skilling departed. “Why is Jeff leaving?”

Lay held up his hands. “He’s explained his reasons to me. I respect his decision, the board respects his decision, and we’re just going to have to move ahead without him.”

For now, Lay repeated, he was going to be back in the driver’s seat. “I know I’ll have to change how I handle the job day to day,” he said, “but I’m prepared for that.”

Fifteen minutes later, the meeting was over. Small groups of executives huddled around the room and out in the hallways. There was a lot of bitter gallows humor.

Well, the forty-five-year-old quarterback couldn’t handle the job anymore, one executive joshed, so Lay was coming off the bench. It was like calling Johnny Unitas, a star quarterback from the 1960s, in to play at the 2001 Super Bowl. The game had passed him by a long time ago. Few expressed confidence that Lay was up to the task.