Calling Inquiries a Distraction, Enron Chief Quits Under Pressure
By JIM YARDLEY and JOHN SCHWARTZ
The New York Times
Thursday January 24 09:22 AM EST
HOUSTON — Kenneth L. Lay resigned on Wednesday evening as chairman and chief executive of the Enron Corporation (NYSE:ENE - news) under pressure from outside creditors.
Mr. Lay, 59, suggested in a statement that he had decided to resign "in cooperation" with the court-appointed creditors committee that is overseeing the bankruptcy proceedings. He said the various federal inquiries into Enron's collapse were too large a distraction as he tried to resuscitate the company he has led since 1986.
"I want to see Enron survive, and for that to happen we need someone at the helm who can focus 100 percent of his efforts on reorganizing the company and preserving value for our creditors and hard-working employees," he said in a statement released by the company.
"Unfortunately," he added, "with the multiple inquiries and investigations that currently require much of my time, it is becoming increasingly difficult to concentrate fully on what is most important to Enron's stakeholders."
Mr. Lay will remain on Enron's board. The creditors committee is searching for a specialist in reorganizing companies to join Enron and serve as acting chief executive as soon as possible.
Thomas A. Roberts, a lawyer for Enron in New York, said that Mr. Lay had been discussing the possibility of resigning since early December. Mr. Roberts said that a representative of the creditors committee had called him Tuesday night. "The creditors committee really thinks Ken should think about stepping down as an officer and employee of the company," he said.
Mr. Roberts then called Mr. Lay at his home about 10 p.m. Tuesday. "I passed that along and said, `We probably need to think about this.' We talked about it awhile, and he said he was going to get something to eat and talked with his wife," Mr. Roberts said.
The two men talked again the next morning; Mr. Lay said that he would convene a conference call among the directors later that morning. Mr. Roberts was included in that call.
During the call, Mr. Lay gave a synopsis. "He said the time had come for him to resign as an officer of the company so that somebody could get in there and work on rebuilding it because his time was going to have to be dedicated to all of these investigations that were taking place," Mr. Roberts said.
Mr. Roberts said that it was very important that Mr. Lay was staying on as a board member because "he will continue to be available to advise the company."
The resignation of Mr. Lay comes after a string of recent revelations that have raised questions about the conduct of Enron's top executives, including Mr. Lay himself. Disclosures by Congressional investigators have shown that Mr. Lay helped create and oversee some of the financial arrangements that helped lead to Enron's collapse.
In August, he was warned in a private memorandum from a company vice president that Enron's accounting practices could bring down the company.
Yet even as he was selling his own shares of Enron stock in September and October, he was reassuring employees that the company would rebound and encouraging them to buy. His lawyer has said Mr. Lay was selling not because of lack of confidence in Enron but because he faced margin calls as investments in his personal portfolio declined in value.
Mr. Lay will now face scrutiny for his role in Enron's collapse from federal investigators and Congressional committees. On the day he resigned, the company that he had once helped develop into the nation's largest energy trader was instead a half-empty tower in which two floors were secured by federal agents.
A White House spokeswoman, Jeanie Mamo, said, "This doesn't change the president's focus, which is on the ongoing criminal investigation and on the policy reviews to protect people's pensions."
Mr. Lay had been a popular leader as Enron grew the last 15 years into an energy giant that he transformed, Cinderella style, from an unglamorous gas pipeline company. He was considered by peers as a man of big ideas, a crusader for free markets and a risk taker in the Texas wildcatter tradition. But while he was busy befriending the nation's most powerful politicians, erecting one of the tallest buildings in Houston and pledging $100 million to put Enron's logo on the city's new ballpark, the little things were turning out to be Mr. Lay's big problems.
One after another, disclosures spilled out of his company in recent months: off-balance-sheet partnerships had hidden billions in debt; years of Enron's reported profits had been exaggerated. The stock price, once at more than $90 a share, tumbled to less than a dollar. A flood of lawsuits resulted as retirement systems, shareholders, former employees and others said that Enron's failure to disclose its accounting flaws amounted to a violation.
"He fell on his sword," said John Olson, an energy industry analyst here who was a lone skeptic about Enron when the company was flying high. "It was probably the right thing to do. Given the climate of opinion in Houston, and where the company is in attempted recovery, this is probably in the best interests of everybody."
Mr. Lay hoped at first that he could avoid filing for bankruptcy when he entered into merger talks with Dynegy, his Houston rival. But that deal fell apart, spawning more lawsuits and hard feelings, and leaving Enron with little choice but to file for Chapter 11 bankruptcy. On Dec. 3, the company laid off more than 4,000 workers and was vilified in the hometown where he was once thought to be a mayoral candidate.
There is no question that Enron employees did benefit over the years when the stock price soared, as did Mr. Lay. He has collected more than $300 million since 1989, mostly through exercising stock options.
In Texas, he was first known as a friend and supporter of former President George Bush. But when George W. Bush ran for president in 2000, Mr. Lay gained a national reputation as one of the "pioneers," the top fund-raisers who gave more than $100,000 to Mr. Bush's presidential campaign. In all, Enron along with Mr. Lay have given more than $600,000 to Mr. Bush's political campaigns dating back to his first failed run for Congress in West Texas.
Enron did not limit its contributions to Mr. Bush. The company has made donations to nearly two-thirds of the members of Congress and much of the Republican establishment in Texas. |
