Hard Money, Strong Arms And 'Matrix' How Enron
Dealt With Congress, Bureaucracy
"The ingrained philosophy was, me first, money
counts and the government should eliminate
my taxes," said another former manager.
"That's all they cared about -- what
impacted them personally."
By Joe Stephens
Washington Post Staff Writer
Sunday, February 10, 2002; Page A01
They called it "the matrix" -- a computer program that brought a scientific
dimension to Enron's effort to seduce politicians and sway
bureaucrats.
With each proposed change in federal regulations, lobbyists
punched details into a computer, allowing Enron economists
in Houston to calculate just how much a rule change would
cost
If the final figure was too high, executives
used it as the cue to stoke
their vast influence machine, mobilizing lobbyists and
dialing up politicians who had accepted some
of Enron's millions in campaign contributions.
"It was a new thing to be able to quantify the
regulatory risk," said economist Gia Maisashvili,
who helped Enron develop the system.
"We were the pioneers."
The matrix illustrates the brash, calculating methods
that Enron managers used to play Washington politics.
The company that made
headlines by erasing rules and ignoring convention
in the business world applied the same principles in
Congress, state capitals and the
administration, bragging that its shrewd political
tactics blew past customary constraints.
Enron's lobbying techniques grew so aggressive
that a key member of Congress reportedly exploded
in anger when the company's chief
executive pressed him on deregulation matters.
They began, however, with a vigorous application
of the most time-proven method: lavishing
campaign money on politicians.
At Enron, it was understood that executives
receiving astronomical salaries would turn part
of the money back to the company's smooth
political operation.
Executives raised vast sums through tactics that
some considered subtle coercion; the cash went to the
campaigns of Republican nominee George W. Bush
and a slew of Republican and Democratic lawmakers
willing to help Enron bulldoze regulatory
barriers.
Other strategies were more imaginative. As one participant
described it, Enron "collected visible people" by gathering
up pundits, journalists and politicians and placing them
on lucrative retainers. For a couple days spent chatting
about current events with executives at Enron's
Houston headquarters, advisers could walk away
with five-figure payments.
In Washington, Enron relied on high technology
while planning its attacks on Capitol Hill
and executive agencies.
To gauge a particular bill's effect on the company's
bottom line, Washington staffers spent hours filling in
boxes in the matrix. Maisashvili
and his fellow economists projected the costs of any rule
change into the future, adjusting for inflation
and growth. "I would tell [senior executives],
'This is your exposure. You decide whether it is worth
it to use the lobbying machinery,' " Maisashvili said.
But Enron's tenacious approach ultimately
backfired with many key figures inside and
outside corporate headquarters, according to
interviews with more than two dozen former
and current Enron executives and with Capitol Hill
staffers. The rise and collapse of Enron's
political machine parallels the arc of the corporation's
financial fortunes.
Maisashvili blames Enron's political arrogance
for his decision to leave the company last year.
"They could have cared less if that was a good
thing [for the public] or not. They cared only
if this was good for Enron," he said.
The Key Is Cash
Sally Ison didn't realize the presidential race
had begun until April 1999, when a letter arrived
bearing the signature of Enron Corp.
Chairman Kenneth L. Lay.
The letter asked for contributions
to the Bush campaign and included what
she recalls as a menacing reference
to her husband Jerry's compensation
as a highly paid vice president.
"We didn't even know if we liked this guy,"
she said of Bush. "I didn't know if I was
going to vote Republican."
Yet there was no debate. Nearing 50, Jerry Ison
felt vulnerable in Enron's crushingly competitive culture.
The Isons gave $2,000.
More than 100 other Enron executives,
and many spouses, also gave "hard money"
contributions to Bush, much of it during the campaign's
critical early money phase. Some acknowledged in
interviews that they gave solely because they got Lay's
pointed letter.
An Enron spokesman said there was nothing
unethical in the solicitations. Fred Wertheimer,
head of a nonpartisan watchdog group,
Democracy 21, disagreed, saying such a
pitch left workers and their spouses little choice.
"It is symbolic of the incredibly aggressive approach
that Enron and Ken Lay took to playing the political
money game -- and to building
influence," Wertheimer said. "It is wrong.
You are crossing the line from voluntary contributions to implicit coercion."
The contributions helped Lay fulfill his commitment
as a Bush "Pioneer," the campaign's term for its top
rainmakers. Bush collected nearly
$114,000 in individual and political action
committee contributions from Enron in 1999-2000,
according to an analysis by the nonpartisan
Center for Responsive Politics.
At Enron, senior managers understood that
"donations mean access," acknowledged one
former Enron executive who contributed to Bush.
Said another: "Everybody knows that's what
you make contributions for."
Lay had cultivated access since founding the company
in 1985. He was a top fundraiser
for President George H.W. Bush and chairman of the
Houston host committee for the GOP convention
where Bush was nominated for reelection.
When Bill Clinton bested Bush, Lay began working
on a new friendship and the company greased the way
with political contributions to Democrats.
Lay was a longtime pal of Clinton's first chief of staff,
Thomas F. "Mack" McLarty, according to former Clinton administration
officials. Seven months after the inauguration, Lay had
found a place in the commander-in-chief's golf foursome
(along with golf legend Jack
Nicklaus and former president Gerald R. Ford) in Vail, Colo.,
where Clinton first vacationed as president.
To raise campaign cash, Enron relied not just
on individual contributions but also on a well-funded
political action committee that
distributed money to candidates from both parties.
The committee supported candidates who vowed
to champion deregulation and leaned toward
incumbents and conservatives, insiders said.
Since 1990, Enron's political committees have
given federal candidates and parties more
than $1 million.
"It was more or less required that you participate
in the political action committee if you were an officer,"
said former Enron executive Alberto
Gude Jr.
"You would do it, period."
Pundits for a Fee
Lay's strategy of bringing influential public figures into the
company's fold was resisted by some of the company's own
executives, who feared it could backfire and lead to
public embarrassment.
To earn their $50,000 annual retainers,
the company's clutch of pundits and commentators
only had to make two brief visits a year to
Houston, an arrangement that some Enron
officials privately suggested did not pass the smell test.
Among those agreeing to the arrangement were pundits William Kristol,
editor of the Weekly Standard, and Paul Krugman,
now a New York Times columnist.
Lay called the group his advisory council, and he
and then-chief executive Jeffrey K. Skilling attended
their gatherings, held in a boardroom
adjacent to Lay's office on Enron's 50th floor.
"These are exciting times, and we need all the
ideas we can get," Lay wrote to council members
in December 2000.
Commentator Larry Kudlow of CNBC and the National Review
said he attended one council session as a guest, and received a $15,000
payment, in addition to a $20,000 consulting fee to his firm.
The company hired Republican pollster Frank Luntz
after an executive saw him on MSNBC and thought he looked smart,
according to a former Enron consultant.
Ralph Reed, the former Christian Coalition executive director
and now chairman of the Georgia Republican Party, worked for
the company for about 18 months, spread out between 1997
and 2001. He was brought into the Enron fold on the advice
of Bush strategist Karl Rove, an Enron stockholder.
Most of Reed's work -- in Pennsylvania and two or
more other states -- was for direct mail and telephone banks to
promote greater choice in electricity service, a source said.
Lawrence B. Lindsey, Bush's chief economic adviser,
also was a paid consultant.
Enron approached James Carville, the
Democratic strategist,
in 1997, after his Cajun shrewdness had helped
return Clinton to the White House. But
Carville was interested in campaigns and
Enron wanted him to lobby for electricity
deregulation in Pennsylvania, where he had
masterminded an upset Senate victory.
Carville rejected the job.
Less well known is that Enron, which has at times
sparred with environmentalists, extended a retainer to
the head of a Washington think
tank that focuses on energy and the environment.
Paul Portney, president of Resources for the Future,
said he attended five council sessions.
Also participating, he said, was the foundation's
vice chairman, Robert Grady, a senior aide to
the first President Bush and a drafter of the
1990 Clean Air Act amendments.
In June 2001, Grady wrote a column for Time magazine
that endorsed the trading of greenhouse gas emissions rights,
a business from which Enron hoped to profit.
Grady did not respond to requests for an interview.
Enron gave Resources for the Future annual gifts of up
to $45,000, and Lay's family foundation pledged $2
million to endow a research chair.
Portney called the stipend granted to advisers a "dream,"
but said the money did not influence his views -- or his
foundation's decision in April 2000 to name Lay
to its governing board. "I am pretty cantankerous;
I say what I want," Portney said.
The advisory panel fed Lay's ego and
was "consistent with the idea that you buy
your way to success," said a former Enron political operative.
"It was clumsy and the joke was these people
took the money and ran. They accomplished little."
Kristol said he saw no conflict in collecting
$100,000 from Enron, likening it to pocketing
a "regular and generous" honorarium for speaking
before a trade association.
"Enron senior executives wanted to broaden their
horizons and hear about interesting trends," Kristol said.
"In late 1999, I explained how [Sen. John] McCain had
a real shot at beating Bush. I think Ken Lay winced a little bit at that."
A council meeting scheduled for October 2001
was to include an expense-paid trip to London.
But as the date drew near, Enron reported a
third-quarter loss of $618 million and the
Securities and Exchange Commission opened an inquiry.
The advisers' free tickets never arrived.
'I Am Not an Idiot'
Enron's tough approach to Washington evolved
as Skilling and his lieutenants ascended, insiders
said. It was during Skilling's tenure that
the matrix was devised.
Known for his abrasive style, Skilling and those
around him stepped up lobbying and sought
out creative strategies.
Historically, Enron operated with a lean Washington
staff. It had two full-time senior employees
in the capital for years and used relatively
few outside consultants. That changed in
the late 1990s, and by last spring Enron's
directory listed more than 150 staffers working on state
and federal government affairs.
In recent years major decisions -- including
which public figures to approach and hire -- were made
in Houston without direct input from the
Washington office, former executives said.
"I don't think anybody in Washington came in
contact with these advisory boards," said Tom Briggs,
a former Enron staffer in Washington.
"Ken Lay often came to town, and we didn't even know it."
Instead, he said, the Washington office dealt with Capitol Hill
staffers, dissecting the finer points of energy regulation.
Tales of dust-ups with lawmakers and their aides have
circulated since Enron's collapse. Most notably,
during an October 1999 meeting on
an energy deregulation bill, Rep. Joe Barton (R-Tex.)
reportedly exploded in anger at Skilling, saying,
"I may not have your millions of
dollars, but I am not an idiot."
"They were sophisticated enough to hire good people
but then not disciplined enough to hide their disdain
for policymakers who did not
agree with them from the beginning,"
one lobbyist said. "When Enron executives
were advocating a certain policy and a member of Congress
tried to explain the votes weren't there, they became very
frustrated that he wasn't smart enough to understand the
wisdom of their policy."
Enron staffers in Texas pushed the Washington
office to abandon its Beltway manners in favor of
a more creative style. One former executive
recalls being chided to adopt a "South Park attitude,"
in reference to Comedy Central's animated series
populated with profane and irreverent third-graders.
The idea, the executive said, was to push hard and
not worry about making friends.
"The ingrained philosophy was, me first, money counts and
the government should eliminate my taxes," said
another former manager.
"That's all they cared about -- what impacted them
personally."
Staff writer Mike Allen, database editor Sarah Cohen and researcher Lucy Shackelford contributed to this report.
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