Copyright New York Times Company Feb 4,
2002
Linda Richardson was in her office at Enron one day
in February 1999 when her secretary, Marie Thibaut, came in with an open
interoffice envelope and a look of concern on her face. ''Linda, are you
quitting?'' she asked.
The envelope contained a severance agreement. As Ms.
Richardson, a vice president for information technology, looked at the papers,
the realization dawned. ''Marie, they're firing me!'' she exclaimed.
By that point, Enron, which had once prided itself on
its intense team spirit, had become the kind of place where someone could be
dismissed in such an impersonal way -- a company so bent on success that it did
not always observe the basic human niceties. Many former employees and
executives say the atmosphere became so intensely competitive that people often
did not feel secure enough in their jobs to question irregularities, if they
were aware of them at all.
In recent years, a steady stream of Enron employees
made their way to the exits, whether by choice or by force. Some, including J.
Clifford Baxter, who was a vice chairman, left after it became known within the
company that they were troubled by the network of partnerships that concealed a
flood of red ink on Enron's balance sheet. Others, like Rebecca Mark-Jusbasche,
a prominent executive who signed deals to build and buy power plants around the
world, lost internal corporate battles and moved on. Indeed, of the 34 senior
executives listed in the company's 1999 annual report, only 11 remain.
But departures occurred on all rungs of Enron's
ladder. Many of those who left -- whether voluntarily or not -- say part of the
reason was that Enron had metastasized into a more ruthless, less humane
place.
Many who left say that much of the change in Enron's
culture coincided with the rise of Jeffrey K. Skilling, whom many called a
brilliant visionary; he was promoted to president and chief operating officer in
1996. It was Mr. Skilling -- the company's chief executive when he resigned last
summer -- who was largely responsible for Enron's transformation. He helped turn
Enron from a large but unglamorous natural gas company in the mid-1980's into a
kind of hedge fund that created and ran markets in energy and a dizzying array
of commodities, including high-speed Internet access and even weather risk.
Ultimately, the company gambled away its own future.
Mr. Skilling was singled out for criticism in the
internal investigation that was released by Enron on Saturday. The report said
of the partnerships that he ''certainly knew or should have known of the
magnitude and the risks associated with these transactions.'' It concluded that
Mr. Skilling ''bears substantial responsibility for the failure of the system of
internal controls'' to reduce the risks in the partnerships. Through a
spokeswoman, Mr. Skilling declined requests for an interview.
Whatever Mr. Skilling's eventual failings as a chief
executive, a zealous approach to business was there from the start.
Professors at Harvard Business School recalled that
even in that rich pool of future business titans, Mr. Skilling stood out as a
student at the school in the late 1970's. Jeffrey A. Sonnenfeld, an expert in
corporate leadership, recalled an argument he had with Mr. Skilling one day at
the Galley, a student grill in the school's Gallatin Hall.
''I had the foolish temerity to argue with him about
energy deregulation,'' the hot business topic of the day, Mr. Sonnenfeld
recalled, and he was soon overwhelmed by the student's passionate and relentless
arguments on behalf of free markets.
Mr. Sonnenfeld recently asked his Harvard Business
School colleagues about Mr. Skilling and found that ''everybody remembered him,
and I don't think anybody remembered an unpleasant thing about him.''
Once out of business school, Mr. Skilling rose
quickly in the energy world and made his way to the consulting firm McKinsey
& Company, where he ultimately became head of its energy and chemical
practices. In 1982, he began advising Enron; seven years later, he helped the
company devise a complex transaction that offered the customer the equivalent of
a safe, fixed-price contract in a deregulated natural gas market, where prices
fluctuated.
It was a defining moment for Mr. Skilling and for
Enron. At the time, the old-line gas companies were being hammered by
deregulation. The deal proved that Enron could surf the waves of change instead
of drowning in them. In 1990 Mr. Skilling joined Enron as head of trading.
The Enron that Mr. Skilling joined was very different
from the one that he would eventually run. Under the chairmanship of Kenneth L.
Lay, the company's divisions had enjoyed so much autonomy that they were
referred to as stand-alone silos. Each had its own system for determining
salaries and bonuses and its own culture. But despite their differences, all the
units were big on risk and reward. And they were arrogant, thinking themselves
invincible.
''There were no grown-ups at Enron,'' a former
executive said.
At Enron International, which built power plants
around the world, the culture was especially freewheeling. Ms. Mark-Jusbasche
and Joseph W. Sutton, another top executive at the unit, once made a grand
entrance on roaring Harley-Davidson motorcycles at a meeting for the group's
thousands of employees. One presentation included a live elephant.
''It was a hoot,'' said Connie Castillo, a former
legal assistant with the group. But it was fun with a purpose, Ms. Castillo
recalled. ''It made everybody a part of something.''
Mr. Skilling's trading operation, however, had a more
cutthroat reputation, and it was suffused with Mr. Skilling's particular
buzzwords -- like ''loose-tight,'' which he used to describe his management
style.
The tight side was managing risk in every
transaction. The company was loose when it came to managing creativity, Mr.
Skilling told researchers from the Darden Graduate School of Business
Administration at the University of Virginia. ''You wanted to have an
environment that weird people liked operating in,'' he said, adding, ''It's the
weird ideas that create new businesses.''
More and more, Mr. Lay and Mr. Skilling saw the
company's future in the lucrative world of trading -- not in hard assets like
power plants and pipelines. By the time Mr. Skilling became president and chief
operating officer of the entire company in early 1996, his traders were the
in-crowd.
He quickly started shaking things up. In an
videotaped interview with the Virginia researchers, Mr. Skilling's eyes danced
as he recalled a confrontation with the managers of the office tower that is
Enron's headquarters. The managers bore detailed manuals describing the number
of square feet allotted to a senior vice president, a vice president and so on,
Mr. Skilling said.
''I want to get rid of all the walls,'' he recalled
telling a person he referred to as the ''building Gestapo.'' He wanted a big
open room where ''people will talk and throw things at each other and get all
excited and creative.'' The ''building Gestapo,'' he said, ''didn't get
it.''
After a big struggle, Mr. Skilling said, he simply
''hired contractors and had them start ripping the walls out.'' Under Mr.
Skilling, the old rules no longer applied. Literally and figuratively, the walls
were coming down.
A former Enron lobbyist said employees could could
see the differences between Mr. Lay and Mr. Skilling in how the men walked
through the company's crowded lobby. Mr. Lay worked the room, shaking hands,
patting backs and pulling out photographs of his grandchildren to share with
secretaries.
Mr. Skilling, by contrast, exuded an intensity,
marching through with his eyes straight ahead, his body language radiating
importance and urgency and making clear that few should dare to take a moment of
his time.
As Mr. Skilling brought the silos under a more
unified management, functions like accounting and compensation were made more
consistent. But the most troubling part of Mr. Skilling's rise for many at Enron
could be expressed in a buzz phrase: ''rank and yank.'' That was the informal
name for a performance review process in which employees were evaluated at
regular intervals by management groups and the lowest-ranked were purged.
''If you were ranked high and well thought of, you
made a beaucoup amount of money,'' recalled Ms. Richardson, the ousted
technology executive. ''If you disagreed with anything, if you spoke what you
thought was the truth, you didn't fare too well.''
Ms. Richardson said she had been fired because she
had spoken out against a decision to invest tens of millions of dollars in new
software and had ridiculed the cost-benefit analysis. ''If this is the kind of
process that we use to justify projects, then we're in trouble,'' she recalled
saying. She now works as an independent software consultant.
Rank-and-yank cast a pall over the company, said Ms.
Castillo, the legal assistant, who said she had gone from the top of the scale
to the bottom after she filed a harassment complaint, accusing another woman on
the staff of hostile actions. She was fired in mid-2001.
Prof. Robert F. Bruner, a co-author of the University
of Virginia study of Enron, said that while that kind of performance review
could help build a company, ''if it's just a front for cronyism, rank-and-yank
can be extremely destructive.''
Over time, the culture that Mr. Skilling cultivated
''just swamped the other parts of the business,'' said a former executive from
the international side, who added, ''We became an open target.'' Many began to
see rank-and-yank as a tactic in Mr. Skilling's fight for supremacy.
Members of the international team, while
acknowledging a number of very expensive mistakes, argue that most of the
financial drag on the company from projects like the $3 billion Dabhol power
plant in India could be corrected with further investment. But they say the
Skilling team wanted to get out of capital-intensive assets as quickly as
possible.
Prof. Samuel E. Bodily, the other author of the
Virginia study, said that although the environment at Enron had been genteel,
compared with that at a New York investment bank, the review process had
accelerated a trend toward shortsightedness. Employees gravitated toward
projects that could show results within the six-month review cycle, an attitude
that he described as ''if it's not going to happen by then, don't talk to me
about it.''
Or, as Michael J. Miller, a manager in the company's
ill-starred venture to provide high-speed Internet services, put it: ''Get it
done. Get it done now. Reap the rewards.'' Whether the deal made money, or even
made sense, was somebody else's problem, he said.
A clear plastic block from 1998 -- one of a seemingly
endless series of commemorative objects that the legal department handed out --
testified to the company's hang-10, toes-over-the-edge attitude. It gave the
department's mission statement this way: ''To provide prompt and first-rate
legal service to Enron on a proactive and cost-effective basis.''
Underneath was a tongue-in-cheek addendum.
''Translation: We do big, complex and risky deals without blowing up
Enron.''
And then, in 2001, it all did blow up. Mr. Skilling
resigned in August, and before long the series of devastating financial
restatements and revelations about Enron's hidden debt crushed the once
highflying company.
The Virginia professors warn against looking for
simplistic reasons for the collapse. They quote a passage from the novelist
Victor Hugo, translating it as, ''Great blunders, like large ropes, have many
fibers.''
The question has often been asked lately: Why didn't
more people speak up about the problems they saw at Enron? Some say that they
heard rumors of irregularities but that the company was so vast that they had no
firsthand evidence. Some said they feared that spreading rumors might cause the
damage they would have hoped to avert by blowing the whistle.
It was clear, too, that Enron had become a company
where dissent was tolerated less and less over the years.
When people came to Mr. Sutton to complain about
unfairness they perceived in the company's compensation system, they would be
rebuffed, according to a former employee who was present for one such dressing-
down. ''He'd scowl and say, 'Are you making more money than you ever expected to
make in your whole entire life?' '' the former employee said. '' 'If you keep
whining about everything else and everybody else in this company,' he would
warn, 'You're never going to succeed.' ''
Most important, said another departed senior
executive, employees tended to trust Mr. Lay. If they heard of a problem that
seemed to flunk the ''smell test,'' the former executive said, ''I think they
questioned their own nostrils more than they questioned the company.''
Now many former employees feel betrayed. ''The core
values of the company were 'Respect. Integrity. Communication. Excellence,' ''
said Sue Vasan, reciting the much repeated list from memory. She worked in the
company's corporate risk assessment department but was laid off in December, the
day after Enron filed for bankruptcy. ''The people preaching those values were
the ones most violating them,'' she said. ''I think it's appalling.''
[Photograph] |
Many executives who left in recent years, like Linda
Richardson, above with her daughter Lucy, say Enron's culture became less
welcoming with the rise of Jeffrey K. Skilling, right. He became president
and chief operating officer in 1996. (Paul Hosefros/The New York Times);
(James Estrin/The New York Times) |
[Chart] |
''Exiting Early'' |
Enron's 1999 annual report listed 34 senior
executives. Many are identified informally; for example, Lawrence G.
Whalley is listed as Greg Whalley. Most departed last year as the company
began to collapse. |
When the executives left |
2000 |
Harrison |
Hirko |
Huneke |
Mark-Jusbasche |
Sutton |
2001 |
Izzo |
Bhatnagar |
Christodoulou |
White |
Bannantine |
Baxter |
Haug |
Pai |
Skilling |
Rice |
Hannon |
McDonald |
Fastow |
Sherriff |
Enron files for bankruptcy |
McConnell |
Kean |
Frevert |
2002 |
Whalley |
Lay* |
*Still a director |
(Source: Enron)(pg. C2) |