The rise of Ken Lay was as dramatic as his fall
By LAURA GOLDBERG and MARY FLOOD
Copyright 2002 Houston Chronicle
Feb. 3, 2002
One day last August, Ken Lay faced more than 1,000 Enron employees in the grand ballroom at the Hyatt Regency downtown.
The crowd, anxious over the sudden resignation of Jeff Skilling as chief executive officer two days earlier, seemed comforted by the mere fact that Lay, still chairman of the board, was returning to his old job as CEO.
Before the 59-year-old Lay uttered a word, his employees gave him a spontaneous standing ovation. Some who were there said it was almost religious in nature. He had to motion with his hands to calm the din.
That was before.
Before he became fodder for late-night comedians and mocked on T-shirts. Before the broadcast images of crying ex-employees. Before the company that he built -- and that built him -- spiraled into America's largest bankruptcy. Before he was forced out as CEO and into court.
Should those same people gather in the ballroom now, on the eve of Lay's scheduled testimony before one of almost a dozen congressional committees investigating him and his company, there would be little or no adoration. More likely a tsunami of rage.
"The employees loved him. He walked the floors. ... He gave this warm, fatherly figure," said a former longtime senior executive. "That's why they hate him so much now. They trusted him."
Many in Houston, especially those in corporate, political and charitable circles, are struggling to reconcile the two images of Ken Lay.
The first was a personable, powerful, civic-minded multimillionaire who took the lead in project after project, charity after charity, generously contributing time and money. He enjoyed the spotlight, but those who know him well say his desire to help was genuine.
The latter reigned over a company that attracted the very brightest and rewarded cutting-edge creativity, but also spawned an atmosphere of arrogance and greed that spun out of control. His creation ultimately ruined reputations, destroyed families, evaporated retirement nest eggs and shamed the city it calls home.
"Personally, Ken is not arrogant. But he bred a culture that was," said a person who knows him well.
His defenders insist that Lay wasn't deeply involved in Enron's questionable financial practices. His critics say he was, and if he wasn't, he should be ashamed.
A devotee of free markets, Lay has preached deregulation like pastors preach salvation. He built first an academic career, then a professional one, on his faith in free enterprise. And in the end, it was the market that turned on him and the company he created.
People describe Lay as neither colorful nor colorless; as having a huge ego but always under control and reserved. He is competitive and aggressive but almost always described as a nice guy and good listener.
He can get testy when results don't match his expectations, and he can come across as greedy in negotiations. Yet his reputation is as a man who goes out of his way to make others at ease. One person who flew with Lay on a private plane for Enron business noted he would play steward, offering others wine.
Despite a stutter, Lay's Missouri twang can command a room. He's been called brilliant and pragmatic.
Though he has been listed by Business Week just under Disney's Michael Eisner as one of the top-paid executives in the nation, and his company was No. 7 on Fortune's list of the top U.S. corporations, Lay doesn't flaunt his wealth. But he clearly enjoys it, buying the finest if not the gaudiest. He lives in a tony River Oaks high-rise. He drives a Mercedes or LandRover, and vacations with his family in his Aspen and Galveston homes.
A family man, his office is adorned with pictures of his wife, Linda, and the five children they have between them. Even his ex-wife comes on some Lay family vacations.
He is at the center of a vast web of friends, colleagues and business associates. He built, as one observer noted, a business, civic and social empire.
He is not only friends with the nation's first family, the Bushes, but is among the biggest supporters of their charities and political campaigns. One year he contributed $28,900 to the Barbara Bush Foundation for Family Literacy.
"He does a marvelous job of being a public person for someone who's really a private person," said Jack Rains, a lawyer who worked closely with Lay on several civic projects.
Lay, even before his fall from grace, has also made more than a few enemies, mostly competitors who will not talk about him now on the record. In private, however, they are gloating.
Born in Tyrone, Mo., to a rural family, Kenneth Lee Lay was always ambitious. Even as a teen, he daydreamed of being like J.P. Morgan and John D. Rockefeller.
"I spent a lot of time on a tractor and had a lot of time to think," Lay told the Chronicle in 1991. "I must confess, I was enamored with business and industry. It was so different from the world in which I was living."
Lay's father, Omer, was a Baptist minister who held down many other jobs, from selling farm equipment to working at a department store.
"I never can remember a time when my father didn't have two or three jobs to support the family," said Bonnie Bourne, Ken's older sister by three years.
Though the family didn't have much, they regularly opened its doors to hobos who rode the trains through Rush Hill, where the Lays moved when Ken was 6.
"There was always food for one more person," said Bourne, who still lives in Missouri and holds a Ph.D. in organizational psychology. She recalled her dad fixing meals for those who came to the door in need.
That sense of charity, she said, helped form her brother's later commitment to helping others.
Lay's parents had little formal schooling, but they believed strongly that education opened the way to a better life.
When Lay was in high school, the family moved to Columbia so Ken and younger sister Sharon could later attend the University of Missouri while living at home.
At Columbia's Hickman High School, Lay accomplished quite a bit for a new kid on the block, said Charley Blackmore, who graduated from Hickman with Sharon, three years behind Ken.
Blackmore, on his alumni Web site, kewpie.net, named for the school mascot, notes that Lay participated in band and several singing groups, was elected to the National Honor Society, named homecoming chairman and received the American history award. He graduated 10th in a class of 276.
At the University of Missouri, Lay joined the Beta Theta Pi fraternity, known for attracting scholars and intramural athletes. He became president as a junior, which was unusual.
In college, Lay formed the ideals and principles he would use to achieve the wealth and power he dreamed of.
"He took every course I taught," said Pinkney Walker, a one-time professor of economics, now 84 and retired in Florida. "He understood that an unregulated market with free choice, where market forces can work, will create greater incentives and maximize the well-being of many."
Lay's upbringing ingrained in him a drive to rise above his beginnings, Walker said, but it was his brilliance that made him stand out.
When Lay earned his bachelor's degree, Walker asked him what he planned to do next. "He told me, `I've got to get out of here and make some money,' " Walker said.
Walker persuaded him to stay on and earn a master's, finagling enough of a salary to make him a teaching assistant. When he earned the master's, Walker asked his plans again: "Again he told me, `I've got to get out and make money.' "
Lay took a job in Houston in 1965 as a senior economist at Humble Oil, a company of international reach with ties to government and lots of promise.
"All I knew about the industry was that there was a filling station down the street where you put gas in your car," Lay has said. "I knew it was pretty dirty and the people there were pretty surly, but that's about it."
In his first year at Humble, later to be called Exxon, Lay grew close to the company president, who asked him to write his speeches and represent Humble before the Wharton Business School group that crafted the university's famed econometric models.
The Vietnam War then interrupted Lay's career. Expecting to be drafted, he joined the Navy in November 1967 and was assigned to Newport, R.I.
Initially a supply officer, he moved fairly quickly to a more lofty position at the Pentagon.
There, he led a group doing an in-depth study designed to gauge the impact of a Vietnam pullout on the national economy -- work he would build on later to earn a doctorate in economics at the University of Houston in 1970.
The group included Marine colonels and retired Navy admirals. To help smooth the way with so much brass, Ensign Lay recruited George E.R. "Gus" Kinnear II, assistant to the chief of naval operations. Lay has told the Chronicle that Kinnear "was there to open doors and keep things under control."
The study, which tracked defense spending through different sectors of the economy, was widely hailed in Washington and ultimately adopted by the White House's Council of Economic Advisers. Kinnear, who later retired as a four-star Navy admiral and U.S. representative to NATO, lauded Lay's talents for managing groups and understanding organizations.
"He's been a leader since his early days," said Lay's sister Bourne. "I think he can manage. I see his real strength in leading."
When released from the Navy in 1971, Lay was supposed to return to Humble, but professor Walker, tapped by President Nixon to serve on the Federal Energy Regulatory Commission, intervened and took Lay on as his executive assistant.
"As it turned out, he'd get to work about 6 a.m. and have the (work) done before I got out of bed," Walker said. "In a sense, he was the power commissioner."
After a little more than two years, Walker and Lay returned to their professions.
Lay, in 1973, had sought out the head of a company that his commission regulated -- Jack Bowen of Florida Gas, who hired him as vice president for new energy ventures. Later, Lay became president.
When Bowen became Transco's chairman in 1981, he brought Lay to Houston. Four years later, Lay was president, but ready to be No. 1 somewhere.
In 1984, he become chairman and CEO at Houston Natural Gas, a Houston pipeline company. Within a year, he merged it with Nebraska rival InterNorth. The new company was given a new name, one that would project a modern, up-and-coming image -- Enron.
Lay began recruiting the brightest people he could find and encouraged them to push the business envelope.
George Strong, who spent 20 years lobbying for Enron, said Lay wasn't just a dreamer, he was a pragmatist, building his and Enron's influence by showering money on politicians.
He knew, Strong said, that "if they didn't get elected, they weren't going to help you any."
Clearly enjoying being Enron's public face, Lay left more of the company's day-to-day affairs to Richard Kinder, president and chief operating officer from 1990 to 1996.
"My sense was Ken's job was Mr. Outside. Mr. Kinder was Mr. Inside," said Jim Barnhart, a former senior vice president at Enron who retired in late 1996 and who has known Lay for 30 years. "Ken would be off doing the marketing and political things, and Rich would be running the show at home."
But Lay, he said, always returned for meetings of Enron's operating committee and to make the big decisions.
Lay frequently said Houston had to be a world-class city, with opera, sports and other amenities -- if for no other reason, to help Enron attract ambitious high achievers.
Putting his time and money on the line, Lay took leading roles in Houston's 1990 Economic Summit of Industrialized Nations and the 1992 Republican National Convention, both at the behest of his friend then-President George Bush. He also served as chairman of the University of Houston System Board of Regents and chairman of the Greater Houston Partnership.
In the last decade, Lay was heavily involved with passing two referendums for sports facilities.
In both campaigns, said political consultant Dave Walden, Lay may have made the difference because of his powerful presence, and his ability to drum up corporate money and enlist the help of the minority community -- in general, "just do what needed to be done."
Walden recalled that in 1996, with the Oilers gone, Astros owner Drayton McLane Jr. was hinting about leaving unless his team got a new stadium.
"We were having fruitless meetings; there was a gap in financing. Then Lay read about it in the paper," Walden said. "He didn't just ride in on a white horse, it was a white chariot with many horses."
Lay took over, raising corporate money, debating the opposition publicly, writing opinion pieces, and rallying the minority community. The referendum passed.
When a later referendum for a new basketball arena failed to pass, Walden said, Lay came in a year afterward and led the campaign that got the second one passed.
And, Walden said, it wasn't just because of the political and charitable contributions: "His sphere of influence goes beyond money."
His money did, however, go a long way. Ken and Linda Lay have their own charitable foundation, mostly built on donated Enron stock, which listed $52 million in assets in 2000. The foundation made about $3.6 million in charitable contributions that year to churches, museums, universities, hospitals and various charities.
Those familiar with Lay's civic work are loath to blame him for Enron's demise.
"Ken Lay may have made a mistake of the head but surely not a mistake of the heart. And I'm not prepared today to say he made a mistake of the head," said Rains, former member of the sports authority that built Enron Field.
Former Houston Mayor Bob Lanier said he's surprised by the overwhelming support Lay is getting, even from colleagues who lost money.
"I would not expect that people who lost their jobs feel anything but deep resentment. Normally people who can afford the loss are still not charmed by losing," Lanier said. "But the level of support and affection for him is unusual, even for a town that's used to wildcatters whose fortunes rise and fall."
His defenders are quick to point out that he had entrusted the company to Skilling, who became president and chief operating officer in December 1996, shortly after the vote authorizing construction of the stadium that was to be called Enron Field.
By early 2000, Lay had become convinced that Skilling was the right man to lead the company after he moved on. Wall Street analysts "just loved Jeff Skilling" after a meeting in January of that year, said the source who knows Lay well.
Lay, still chief executive and chairman of the board, grew more disconnected from the company's day-to-day affairs, many people in and outside the company say. In December 2000, Lay announced that Skilling would take over as CEO in February 2001. Lay held on to the chairman's job but clearly planned to yield even that ultimately to Skilling.
The two men were markedly different. Skilling has often been described as arrogant and hyperaggressive. Some present and former employees say Enron's culture replicated his personality, most notably the annual "rank-and-yank" evaluations in which the worst performers were fired.
Lay, however, was the one who recruited Skilling from the consulting firm of McKinsey and Co., kept him at his side and promoted him. Lay was drawn to winners, smart people and those who could think outside the box. Skilling was three-for-three.
The contrast in personalities also proved an effective tool for dealing with analysts, investors and others, said a Wall Street analyst who has followed Enron. Lay "tried to be the good cop as opposed to the bad cop with Skilling," he said.
The two promoted Enron with relentless hype -- and maybe began to believe it themselves. The former longtime senior executive recalled something Kinder used to say: "Let's make sure we're not smoking our own dope."
"Ken Lay started smoking his own dope," the person said. "Ken just got caught up in it. Like a bobsled out of control."
Until recently, the impending crash was invisible from the outside. Lay had even been touted as recently as July as mayoral material.
Lanier, who used to live in the same River Oaks high-rise where Lay still lives, talked with him several times about running for mayor.
"About the time he gave the reins (of Enron) to Skilling, he talked about entering a new phase of life, and the idea of public service interested him," Lanier said.
"His questions about being mayor focused on how much good a person could do, on what impact you could have," Lanier said. "I thought he was electable. He had ties to minorities, was respected by business, had ties to civic groups and at the time was well-regarded by the media."
The regard has vanished, except from his many close friends. After building a huge company, leading an industry into a new era where energy can be freely bought and sold, and helping lead Houston's efforts to be a world-class city, his reputation is in tatters.
Instead of a legacy of great civic, corporate and charitable works, Ken Lay's might be one of stronger accounting procedures, closed loopholes, restrictions on campaign finance and -- most notably -- tightened regulation of the free market he has believed in fervently. |
