Skilling departs:
redherring.com
Skilling bids farewell to Enron
By Christopher Locke
Red Herring
August 16, 2001
Enron (NYSE: ENE), the energy and gas wholesale giant that once could do no wrong, released some
surprisingly bad news Tuesday.
In a 10-Q filing, the Houston, Texas-based company reported a substantial negative cash flow in the
June quarter. At the same time, it announced that president and CEO Jeffrey Skilling had voluntarily
resigned from his positions. Kenneth Lay, Enron's chairman of the board, has assumed the CEO and
president duties on an interim basis. Mr. Skilling will continue to serve as a consultant to the company
and its board of directors.
Mr. Skilling's resignation, which came only six months after he assumed the CEO post, could be a big
blow for Enron, since he was the key architect in helping convert the company from a gas-pipeline
business into the dominant online energy trader in the industry.
THE POWER'S STILL ON
During a conference call to announce the news, Mr. Skilling said his choice to leave was "purely a
personal decision -- it has nothing to do with Enron." He also said that he "feels bad" that this move
might be construed as a sign of some type of negative relationship between himself and the company.
Though Mr. Skilling, 47, was president and CEO for less than a year, he had been with the company
since 1990. By voluntarily resigning and voiding his contract, which was to end in 2003, he will not
receive a severance package, and his "no compete" clause will be enacted through the end of that
contract period. Mr. Skilling did not return a call placed to his office.
One source at Enron who asked not to be named said that the general mood at the company is
relatively sad but that Mr. Lay is a "beloved figure" and people have confidence in his leadership skills.
Mr. Lay was Enron's CEO from 1985 until Mr. Skilling's appointment earlier this year.
During the conference call, Mr. Lay said that although he regrets Mr. Skilling's decision, he has never
felt better about the company. "We have the strongest and deepest talent we have ever had and our
growth prospects have never been better," he stated. Mr. Lay added that he expects no changes in
Enron's earnings outlook and that the talent in the company is so deep that any slot for CEO will be
filled internally. After the announcement, Enron's stock dropped 6.2 percent to $40.25, a 52-week low.
UNDER PRESSURE?
The most intriguing aspect of this unexpected move is Mr. Skilling's assertion that the choice was made
solely for personal reasons, though during the conference call he asked not to be pressed about what
those reasons were. Some sources suggest that the recent spate of criticism Enron has endured over a
variety of issues might simply have been too much for Mr. Skilling to handle during his brief tenure as
president and CEO.
Recent allegations against Enron have ranged from charges of market manipulation and price gouging to
wielding too much influence in Washington, D.C. The price of the company's stock has dropped by more
than half since this time last year, and there are rumors of substantial layoffs.
In addition, Enron -- which has blazed a trail in energy and natural gas wholesaling -- has hit its first
major snag: its broadband project has, up to now, been a complete failure. The Broadband Services
division accounted for just 0.12 percent of the company's $50.1 billion in revenue for the second
quarter of 2001; that division lost $137 million before interest and taxes in the second quarter. In its
latest 10-Q filing, the company states: "Enron is significantly modifying the cost structure of Broadband
Services to correspond to slower market development and the associated lower revenue outlook....
Enron expects losses to continue through at least 2001 in the Broadband Services segment. Future
profitability is dependent on the recovery of the broadband and communications sectors." |
