Enron's No. 2 man to quit Says 'outside leadership is required' by company
April 19, 2002, 11:02PM
By LAURA GOLDBERG
Copyright 2002 Houston Chronicle
Jeffrey McMahon, Enron's president and chief operating officer since
January, said Friday he is leaving the company so he will not be a
distraction as it tries to regain viability.
McMahon, 41, will step down June 1. Enron stressed that his resignation
was his choice.
Until recently, McMahon had been unscathed by Enron's problems and
was often cited as one of the few who had questioned some of the
company's financial practices.
But McMahon has been criticized recently by some creditors and drawn
negative attention for actions he took before its collapse and subsequent
bankruptcy filing in early December.
In a statement, McMahon said Enron should become a new company
centering on pipelines and other assets "apart from the litigation and
diversions of bankruptcy."
"For that effort to have every chance of success, it became clear to me that
outside leadership is required," he said. "I believe that making room for
new leadership before we announce the plan for the new company is best
for Enron's stakeholders and for me."
One of Enron's more vocal creditors has been demanding McMahon's
firing. Andrew Entwistle, an attorney for the Florida State Board of
Administration, which lost $334 million when Enron's stock price
collapsed, described McMahon as one of the "bad actors" at Enron.
McMahon wasn't available for comment Friday night.
Stephen Cooper, Enron's interim chief executive officer, said he accepted
McMahon's decision, but praised him as a true leader who "worked
tirelessly to create value for the company and as an advocate for
employees."
Enron doesn't plan to fill McMahon's position until after it files a
reorganization plan. An initial blueprint is expected to be released in three
to four weeks.
Cooper has also asked that McMahon be available after June 1 to help
form the new company.
McMahon doesn't qualify for severance, according to Enron. But he was
among those who got a retention bonus right before Enron's bankruptcy
filing -- $1.5 million.
McMahon, a certified public accountant who graduated from the University
of Richmond in Virginia, started his career with Arthur Andersen in
Houston where he was an audit manager in the energy division. In 1989,
he became chief financial officer of MG Natural Gas Corp. in Houston.
He left that job to join Enron in 1994, where he spent three years in
London as chief financial officer for European operations.
Later jobs included Enron's treasurer; president and chief operating officer
of e-commerce unit Enron Net Works; and president and CEO of Enron
Industrial Markets.
McMahon also served as Enron's chief financial officer after Andrew Fastow
was removed from that job in October.
McMahon was reportedly often in opposition to Fastow, who created and managed some of
the partnerships that did business deals with Enron. Fastow is believed to have made at least
$30 million for himself in the process.
In her now-famous memo to then-Chairman Lay about problems at Enron, Vice President
Sherron Watkins said:
"Jeff McMahon was highly vexed over the inherent conflicts of LJM. He complained mightily
to (President) Jeff Skilling and laid out five steps he thought should be taken if he was to
remain as treasurer."
Three days later, Skilling offered him another job at the company, she wrote. Skilling has
said it was a promotion.
According to Enron, McMahon went from corporate treasurer to the No. 2 spot at Enron's
e-commerce unit.
In February testimony before a congressional panel, McMahon said he raised several issues
about Fastow's activities to Skilling.
At the same hearing, Skilling later told lawmakers a different version of the same meeting.
"Mr. McMahon was concerned that his conflict with Andy would hurt his compensation,"
Skilling said.
The next month, officials of Wall Street credit-rating agencies testified to a Senate panel that
Enron executives -- including McMahon -- had purposely misled them as far back as 1999 in
an effort to boost the company's credit standing.
Enron has denied the accusations.
In January 2000, McMahon, then treasurer, made a major presentation in Houston to
convince the agencies that Enron was "underrated."
McMahon, according to an Standard & Poor's official, promised to provide the "kitchen sink"
in its presentation, but he failed to discuss several off-the-books partnerships.
Among the items in McMahon's "kitchen sink" documents was a list of the Top 10 reasons
Enron's rating should be upgraded, including, "Communication with analysts, investors and
credit officers is direct and candid -- No Secrets Policy."
Earlier this month, a Wall Street Journal report said McMahon was involved in the sale of
several Nigerian barges to Merrill Lynch. That, the report said, helped Enron artificially raise
profits.
Entwistle, the lawyer for the Florida State Board of Administration, said he will press for
McMahon to return the $1.5 million bonus.
"Whether they call it a resignation or a termination, as long as he's not part of the company,
then we think that's appropriate," he said.
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