In Houston, the Lines Dividing Politics, Business and Society Are
Especially Blurry
The New York Times
January 20, 2002
BACKDROP
By THE NEW YORK TIMES
This article was reported and
written by Don Van Natta Jr.,
John Schwartz and Jim Yardley.
HOUSTON, Jan. 18 — On the day
that Enron Field
made its debut in April 2000, its
"Diamond Club" was a portrait in
power.
In the state-of-the-art baseball
stadium's most exclusive section,
behind home plate, there were
the George Bushes — a former
president and a president to be
— along with the younger Mr.
Bush's running mate, Dick
Cheney, and his successor as
governor, Rick Perry. Nearby was
Senator Kay Bailey Hutchison,
whose husband, Ray, is a lawyer
with Enron's chief law firm,
Vinson & Elkins. And then came
the executives of Houston's biggest companies, who had
vied to become the younger Bush's most prominent
fund-raisers, just as they had jockeyed to buy the prized
luxury seats.
And at the center of it all, down on the pitcher's mound,
was Kenneth L. Lay, the man responsible for building
Enron into an American powerhouse, throwing out the
first ball.
If the cozy intertwining of business and politics at Enron
Field is not unique to Houston or to Texas, it is
pronounced here, and it was starkly visible that day. Now,
in the company's spectacular collapse, the relationships
are starkly visible once more, as Congress and the Justice
Department ask whether that closeness, a part of the
city's heritage, was at least partly to blame.
"It's a classic example of the circle of influence and inside
connections that this entire case typifies," said Scott
Harshbarger, president of Common Cause. "And it's not
only about these guys. It's what has been happening in
Washington for so long now."
Investigators are questioning whether Enron's outside
auditors and lawyers abandoned their function of
providing checks and balances against corporate excess.
They are looking at Arthur Andersen, which so thoroughly
blended its corporate DNA with its client's that a steady
stream of Andersen employees came to work for Enron at
the trading company's futuristic downtown tower. Similar
questions are being asked of Vinson & Elkins, another
recruiting depot for Enron, which reviewed internal
accusations of wrongdoing and cleared the company.
Enron paid its lawyers $30 million last year; it paid
Andersen $52 million.
The culture in which Enron flourished blends politics,
business and social relationships so thoroughly that the
distinctions sometimes lose their meaning. The internal
pressure applied to employees at Enron, at Vinson &
Elkins and at Arthur Andersen to contribute to the
companies' political action committees was heavy,
according to interviews and documents. Each of the
companies ranked among the Bush presidential
campaign's 10 largest contributors.
According to one employee, when a participant in Enron's
official online chat room brought up the support for Mr.
Bush, Mr. Lay responded that Enron would do well with
or without George W. Bush, but that the corporation
would benefit from his election.
For Mr. Lay, that day at Enron Field, when his company
stood at the center of power and influence, was especially
sweet, because just a few years earlier, he was an outsider
planning a revolution.
"They kind of burst on the scene in the 90's," said Bob
Lanier, who was Houston's mayor from 1992 to 1997. "It
was a sharp rise."
Mr. Lay started in Houston with an unglamorous natural
gas pipeline company. In moves that are now well known,
he hired a brash young consultant, Jeffrey K. Skilling,
away from McKinsey & Company to transform the energy
business from a sedate, regulated world of public utilities
to a more free-for-all market.
"This is the future," Mr. Skilling told The Houston
Chronicle at the unveiling of the company's trading floor
in 1994. "The utilities don't have this. This is what the
utilities fear. "
A bitter rivalry took shape here between Mr. Lay's Enron
and the old energy establishment, most prominently
Houston Lighting and Power (news/quote), the local
utility, led by Don Jordan. The enmity between the two
men was known from Houston to Washington, where they
testified on opposite sides of the deregulation debate.
Enron won those fights to open up natural gas and
electricity to competition, and it became Houston's
signature company. Mr. Lay, in turn, became Mr.
Houston, leading the influential business association, the
Greater Houston Partnership. Along with former President
George Bush and former Secretary of State James A.
Baker 3rd, he became one of Houston's leading
statesmen. He helped raise more than $100 million for his
alma mater, the University of Houston, and pushed for
new stadiums for Houston's professional sports teams.
With his wife, Linda, he supported the symphony, the
ballet and seemingly every other institution in town. He
also opposed efforts to roll back affirmative action
programs.
"He did so many things that were helpful to the city —
that's a hell of a way to get some followers," said Mr.
Lanier, himself independently wealthy. "My experience is
they laugh at your jokes more the richer you get."
Mr. Lay was only the city's latest kingmaker. A generation
before, the leadership had been a close-knit group of
financiers and businessmen known as the 8F Club
because of their meeting place at a local hotel. These were
the executives whose companies helped NASA put a man
on the moon and built the stadium of yesterday's future:
the Astrodome.
"Ken Lay came as close to being the 8F Club and having
the room to himself as anybody I know," said Rodney Ellis,
a local state senator.
As Enron took the lead in the deregulation movement, the
company showered millions of dollars on state and federal
politicians in both parties whose support was critical in
forcing open the energy markets. Foremost among the
beneficiaries was George W. Bush, whose presidential
campaign was taking public shape in early 2000.
As far back as February 1998, Mr. Lay was among the two
dozen wealthy and influential Texas fund- raisers who
gathered for a get-acquainted session with Mr. Bush on a
10,000-acre ranch outside the small town of Wheeler. Mr.
Lay would later be considered among the most important
of Mr. Bush's financial supporters, along with Joe B.
Allen, a partner at Vinson & Elkins. They would be among
the first of Mr. Bush's "pioneers," the fund-raisers who
each raised more than $100,000 for his campaign.
"Ken and Joe were some of the earliest supporters, and
their support was crucial because they lined up others in
Houston and Texas to give and to raise money," said a
longtime Republican strategist. He described how
Houston's political and fund-raising community adhered
to the principle of "if I was going to help you with this
political effort, or this charitable effort, you'd be willing to
help mine."
If Houston does not rival New York or Los Angeles as a
source of political dollars, it is still considered a big pot of
riches, and one where nearly all the major corporations
play the game. One prominent fund- raiser, Sue Walden,
who in the last eight years has raised nearly $50 million
from Enron and other energy companies, said elected
officials often courted the companies to play host to
$1,000-a-plate dinners at the Four Seasons Hotel. No one
was in greater demand than Mr. Lay.
"Sometimes we would say Ken is overused and let's not do
any for a while," Ms. Walden said.
Inside both Enron and Vinson & Elkins, political giving
often seemed voluntary in name only. On June 15, 2000,
Enron's political action committee sent a memo to
employees suggesting "voluntary" contributions for Enron
employees, from $500 for a low-level manager to $5,000
for a top executive. The memo said the money would assist
the company as it faced numerous legal and regulatory
challenges and a variety of environmental and tax issues.
One Enron employee, a Democrat, said the company's
aggressive canvassing of employees helped explain why
the company gave money to three-fourths of the senators
and half of the House members for a total of more than $6
million since 1989. Enron and its political action
committee contributed $113,800 to Mr. Bush's
presidential campaign.
"The request is given to you by the managing director,"
the employee explained. "He encourages you to do it,
knows if you've done it. The higher you go, the more
pressure there is to give. I think it's distasteful."
A few blocks away at Vinson & Elkins, Mr. Allen, one of
three "pioneers" among the firm's partners, led the
political action committee. He is known at the firm for
keeping careful track of the partners' and associates'
contributions in what is called "the mystic book," a fund-
raising ledger that got its name from Mr. Allen's
predecessor, a man who had a ponytail and a tiny earring.
Joe Householder, a spokesman for the firm, said he was
unaware of intense pressure brought to bear for
contributions, noting that Mr. Allen "doesn't like to talk
about it in great detail." As for the $202,850 that the firm
gave to Mr. Bush's campaign, an amount trailing only
MBNA (news/quote) America, the credit card bank in
Wilmington, Del., Mr. Householder said such support
should not be considered surprising.
"There is a lot of hometown pride here," he said, "and a lot
of people in the firm thought he was a fine governor and
he'd make a fine president."
Less conspicuous than the aggressive political
fund-raising was the cross-pollination of employees
between Enron and its lawyers and accountants. One
Enron vice president, who was laid off in December, said
Andersen often had as many as 250 employees working
inside Enron's 50-story skyscraper. "They were involved in
about everything there," the vice president said.
This physical proximity was accentuated by the fact that
so many Enron employees had once worked at Andersen;
at Mr. Skilling's old firm, McKinsey; and to a lesser degree
at Vinson & Elkins. Enron's general counsel, James
Derrick, had once been a Vinson & Elkins partner. The
company's chief accounting officer, Richard A. Causey,
had started at Andersen.
"I remember them saying that once you got to a certain
level at Andersen, they would suggest you tried to get
hired by a lot of clients like Enron," the former Enron vice
president said. "This would provide them with access to
more accounting jobs."
Well beyond Enron's circle, the company's fall is painful
for Houstonians, said M. Ray Perryman, an economic
consultant. For self-conscious residents of this city, the
nation's fourth largest, Enron offered a new kind of
thinking that had an innate appeal: it was an
entrepreneurial, high-tech company of the future in a
town eager to grow beyond the booms and busts of its oil
industry past. If Houston business leaders loved the
technology gloss that the hometown computer maker
Compaq gave to the city, Enron was loved even more.
"Enron was a real symbol to the city of the best of what
Houston wanted to be," Mr. Perryman said. "It's starting
with the old, taking the new, and you're building
something huge and, seemingly, fantastic."
The rise of Mr. Lay and his company, Mr. Perryman said,
typified the changeable nature of power in Texas, where
old money does not have the monopoly on influence, and
even outsiders like the older George Bush and Kenneth
Lay, who is from Missouri, can rise rapidly to become part
of the elite.
"People," he said, "do judge you more by your actions than
by who your daddy was."
Most Texans would argue that the intermingling of politics
and business here is typical. One attorney for Vinson &
Elkins argued, "Do you think it's any different from
anything going on in L.A., or in Reagan's crowd? Or in
Clinton's crowd?
"Folks are folks," he said.
But the story does have a larger- than-life local flavor, said
Paul Burka, the senior executive editor of Texas Monthly
magazine. "Maybe it's a classic Texas story," he said, "to
push things to the limit."
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