As Enron Purged Its Ranks, Dissent Was Swept Away
The New York Times
February 4, 2002
By JOHN SCHWARTZ
HOUSTON, Feb. 3 - Linda
Richardson was in her office
at Enron (news/quote) one day in
February 1999 when her
secretary, Marie Thibaut, came in
with an open interoffice envelope
and a look of concern on her face.
"Linda, are you quitting?" she
asked.
The envelope contained a
severance agreement. As Ms.
Richardson, a vice president for
information technology, looked at
the papers, the realization
dawned. "Marie, they're firing
me!" she exclaimed.
By that point, Enron, which had
once prided itself on its intense
team spirit, had become the kind
of place where someone could be
dismissed in such an impersonal
way - a company so bent on
success that it did not always
observe the basic human niceties.
Many former employees and
executives say the atmosphere
became so intensely competitive
that people often did not feel
secure enough in their jobs to
question irregularities, if they
were aware of them at all.
In recent years, a steady stream
of Enron employees made their
way to the exits, whether by
choice or by force. Some,
including J. Clifford Baxter, who
was a vice chairman, left after it
became known within the
company that they were troubled
by the network of partnerships
that concealed a flood of red ink
on Enron's balance sheet.
Others, like Rebecca
Mark-Jusbasche, a prominent
executive who signed deals to
build and buy power plants
around the world, lost internal
corporate battles and moved on.
Indeed, of the 34 senior
executives listed in the
company's 1999 annual report,
only 11 remain.
But departures occurred on all
rungs of Enron's ladder. Many of
those who left - whether
voluntarily or not - say part of
the reason was that Enron had
metastasized into a more
ruthless, less humane place.
Many who left say that much of
the change in Enron's culture
coincided with the rise of Jeffrey
K. Skilling, whom many called a
brilliant visionary; he was
promoted to president and chief
operating officer in 1996. It was
Mr. Skilling - the company's
chief executive when he resigned
last summer - who was largely
responsible for Enron's
transformation. He helped turn
Enron from a large but
unglamorous natural gas
company in the mid- 1980's into a kind of hedge fund
that created and ran markets in energy and a dizzying
array of commodities, including high-speed Internet
access and even weather risk. Ultimately, the company
gambled away its own future.
Mr. Skilling was singled out for criticism in the internal
investigation that was released by Enron on Saturday. The
report said of the partnerships that he "certainly knew or
should have known of the magnitude and the risks
associated with these transactions." It concluded that Mr.
Skilling "bears substantial responsibility for the failure of
the system of internal controls" to reduce the risks in the
partnerships. Through a spokeswoman, Mr. Skilling
declined requests for an interview.
Whatever Mr. Skilling's eventual failings as a chief
executive, a zealous approach to business was there from
the start.
Professors at Harvard Business School recalled that even
in that rich pool of future business titans, Mr. Skilling
stood out as a student at the school in the late 1970's.
Jeffrey A. Sonnenfeld, an expert in corporate leadership,
recalled an argument he had with Mr. Skilling one day at
the Galley, a student grill in the school's Gallatin Hall.
"I had the foolish temerity to argue with him about energy
deregulation," the hot business topic of the day, Mr.
Sonnenfeld recalled, and he was soon overwhelmed by the
student's passionate and relentless arguments on behalf
of free markets.
Mr. Sonnenfeld recently asked his Harvard Business
School colleagues about Mr. Skilling and found that
"everybody remembered him, and I don't think anybody
remembered an unpleasant thing about him."
Once out of business school, Mr. Skilling rose quickly in
the energy world and made his way to the consulting firm
McKinsey & Company, where he ultimately became head
of its energy and chemical practices. In 1982, he began
advising Enron; seven years later, he helped the company
devise a complex transaction that offered the customer the
equivalent of a safe, fixed-price contract in a deregulated
natural gas market, where prices fluctuated.
It was a defining moment for Mr. Skilling and for Enron.
At the time, the old-line gas companies were being
hammered by deregulation. The deal proved that Enron
could surf the waves of change instead of drowning in
them. In 1990 Mr. Skilling joined Enron as head of
trading.
The Enron that Mr. Skilling joined was very different from
the one that he would eventually run. Under the
chairmanship of Kenneth L. Lay, the company's divisions
had enjoyed so much autonomy that they were referred to
as stand-alone silos. Each had its own system for
determining salaries and bonuses and its own culture.
But despite their differences, all the units were big on risk
and reward. And they were arrogant, thinking themselves
invincible.
"There were no grown-ups at Enron," a former executive
said.
At Enron International, which built power plants around
the world, the culture was especially freewheeling. Ms.
Mark-Jusbasche and Joseph W. Sutton, another top
executive at the unit, once made a grand entrance on
roaring Harley-Davidson (news/quote) motorcycles at a
meeting for the group's thousands of employees. One
presentation included a live elephant.
"It was a hoot," said Connie Castillo, a former legal
assistant with the group. But it was fun with a purpose,
Ms. Castillo recalled. "It made everybody a part of
something."
Mr. Skilling's trading operation, however, had a more
cutthroat reputation, and it was suffused with Mr.
Skilling's particular buzzwords - like "loose-tight," which
he used to describe his management style.
The tight side was managing risk in every transaction. The
company was loose when it came to managing creativity,
Mr. Skilling told researchers from the Darden Graduate
School of Business Administration at the University of
Virginia. "You wanted to have an environment that weird
people liked operating in," he said, adding, "It's the weird
ideas that create new businesses."
More and more, Mr. Lay and Mr. Skilling saw the
company's future in the lucrative world of trading - not
in hard assets like power plants and pipelines. By the
time Mr. Skilling became president and chief operating
officer of the entire company in early 1996, his traders
were the in- crowd.
He quickly started shaking things up. In an videotaped
interview with the Virginia researchers, Mr. Skilling's eyes
danced as he recalled a confrontation with the managers
of the office tower that is Enron's headquarters. The
managers bore detailed manuals describing the number
of square feet allotted to a senior vice president, a vice
president and so on, Mr. Skilling said.
"I want to get rid of all the walls," he recalled telling a
person he referred to as the "building Gestapo." He
wanted a big open room where "people will talk and throw
things at each other and get all excited and creative." The
"building Gestapo," he said, "didn't get it."
After a big struggle, Mr. Skilling said, he simply "hired
contractors and had them start ripping the walls out."
Under Mr. Skilling, the old rules no longer applied.
Literally and figuratively, the walls were coming down.
A former Enron lobbyist said employees could could see
the differences between Mr. Lay and Mr. Skilling in how
the men walked through the company's crowded lobby.
Mr. Lay worked the room, shaking hands, patting backs
and pulling out photographs of his grandchildren to share
with secretaries.
Mr. Skilling, by contrast, exuded an intensity, marching
through with his eyes straight ahead, his body language
radiating importance and urgency and making clear that
few should dare to take a moment of his time.
As Mr. Skilling brought the silos under a more unified
management, functions like accounting and
compensation were made more consistent. But the most
troubling part of Mr. Skilling's rise for many at Enron
could be expressed in a buzz phrase: "rank and yank."
That was the informal name for a performance review
process in which employees were evaluated at regular
intervals by management groups and the lowest- ranked
were purged.
"If you were ranked high and well thought of, you made a
beaucoup amount of money," recalled Ms. Richardson, the
ousted technology executive. "If you disagreed with
anything, if you spoke what you thought was the truth,
you didn't fare too well."
Ms. Richardson said she had been fired because she had
spoken out against a decision to invest tens of millions of
dollars in new software and had ridiculed the cost-benefit
analysis. "If this is the kind of process that we use to
justify projects, then we're in trouble," she recalled
saying. She now works as an independent software
consultant.
Rank-and-yank cast a pall over the company, said Ms.
Castillo, the legal assistant, who said she had gone from
the top of the scale to the bottom after she filed a
harassment complaint, accusing another woman on the
staff of hostile actions. She was fired in mid-2001.
Prof. Robert F. Bruner, a co-author of the University of
Virginia study of Enron, said that while that kind of
performance review could help build a company, "if it's
just a front for cronyism, rank-and-yank can be extremely
destructive."
Over time, the culture that Mr. Skilling cultivated "just
swamped the other parts of the business," said a former
executive from the international side, who added, "We
became an open target." Many began to see
rank-and-yank as a tactic in Mr. Skilling's fight for
supremacy.
Members of the international team, while acknowledging
a number of very expensive mistakes, argue that most of
the financial drag on the company from projects like the
$3 billion Dabhol power plant in India could be corrected
with further investment. But they say the Skilling team
wanted to get out of capital- intensive assets as quickly as
possible.
Prof. Samuel E. Bodily, the other author of the Virginia
study, said that although the environment at Enron had
been genteel, compared with that at a New York
investment bank, the review process had accelerated a
trend toward shortsightedness. Employees gravitated
toward projects that could show results within the
six-month review cycle, an attitude that he described as "if
it's not going to happen by then, don't talk to me about
it."
Or, as Michael J. Miller, a manager in the company's
ill-starred venture to provide high-speed Internet services,
put it: "Get it done. Get it done now. Reap the rewards."
Whether the deal made money, or even made sense, was
somebody else's problem, he said.
A clear plastic block from 1998 - one of a seemingly
endless series of commemorative objects that the legal
department handed out - testified to the company's
hang-10, toes- over-the-edge attitude. It gave the
department's mission statement this way: "To provide
prompt and first- rate legal service to Enron on a proactive
and cost-effective basis."
Underneath was a tongue-in-cheek addendum.
"Translation: We do big, complex and risky deals without
blowing up Enron."
And then, in 2001, it all did blow up. Mr. Skilling
resigned in August, and before long the series of
devastating financial restatements and revelations about
Enron's hidden debt crushed the once highflying
company.
The Virginia professors warn against looking for simplistic
reasons for the collapse. They quote a passage from the
novelist Victor Hugo, translating it as, "Great blunders,
like large ropes, have many fibers."
The question has often been asked lately: Why didn't
more people speak up about the problems they saw at
Enron? Some say that they heard rumors of irregularities
but that the company was so vast that they had no
firsthand evidence. Some said they feared that spreading
rumors might cause the damage they would have hoped to
avert by blowing the whistle.
It was clear, too, that Enron had become a company where
dissent was tolerated less and less over the years.
When people came to Mr. Sutton to complain about
unfairness they perceived in the company's compensation
system, they would be rebuffed, according to a former
employee who was present for one such dressing- down.
"He'd scowl and say, `Are you making more money than
you ever expected to make in your whole entire life?' " the
former employee said. " `If you keep whining about
everything else and everybody else in this company,' he
would warn, `You're never going to succeed.' "
Most important, said another departed senior executive,
employees tended to trust Mr. Lay. If they heard of a
problem that seemed to flunk the "smell test," the former
executive said, "I think they questioned their own nostrils
more than they questioned the company."
Now many former employees feel betrayed. "The core
values of the company were `Respect. Integrity
(news/quote). Communication. Excellence,' " said Sue
Vasan, reciting the much repeated list from memory. She
worked in the company's corporate risk assessment
department but was laid off in December, the day after
Enron filed for bankruptcy. "The people preaching those
values were the ones most violating them," she said. "I
think it's appalling."
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