ON THE HORIZON HISTORY LESSONS
BY GLENN RIFKIN The Man Behind the Crooked E
Enron’s Jeffrey Skilling made everyone more skeptical of ‘great’ leaders.
n February 2019, with little of all organizations something everyone. (Fortune named it fanfare, Jeffrey K. Skilling more valuable: credibility. “America’s Most Innovative Com- likely will walk out of a It didn’t start out that way, pany” for six straight years.) “We IMontgomery, Ala., federal of course. Skilling graduated in are no longer an energy company. prison a free man. Skilling, the the top 5 percent of his Harvard We are a company that makes former CEO of Enron Corpora- Business School class in 1979 markets,” Skilling said in 2000. tion, will have served 14 years of and eventually became one of By then Enron was the a 24-year sentence for master- the youngest-ever partners at seventh-largest US corporation minding one of America’s costli- the consulting giant McKinsey & by market value trading paper, est corporate frauds. Company. His consulting work coal, metals, plastics, chemicals, The Enron saga may have faded for Enron so impressed company even Internet bandwidth. Skilling a bit from memory given the Wall founder Kenneth Lay that, in called ExxonMobil a dinosaur Street meltdown in 2008 that 1990, Lay hired the young Skilling and boasted that there was a triggered the Great Recession and as CEO of Enron’s Capital and “very reasonable chance” that nearly collapsed the global econ- Trade Resources division. Skilling Enron would become the largest omy. But in 2002, Enron and its foresaw massive potential not in corporation in the world. “He was “crooked E” logo were symbols of producing energy or moving it the smartest guy in the executive corporate America gone wrong—a from place to place but in trading suite and the least reluctant to phantom business run by leaders securities based on the energy’s let you know it,” the Houston who cared about only their own value. By the late 1990s, the Chronicle wrote of Skilling. finances. Skilling’s actions cost once-sleepy Houston firm was a But Enron’s rise was based on investors and Enron employees bil- $100 billion trading juggernaut, vastly inflated profits and a busi- lions, but it may have cost leaders making it the darling of nearly ness structure so opaque that few
The Smartest Guy in The Room
1990 2000 February 2001 August 2001 Enron founder Kenneth Lay Enron Skilling becomes Skilling resigns, hires Jeffrey Skilling reaches CEO, gets $132 million citing personal No. 7 pay package reasons on the Fortune 500 list
16 Briefings On Talent & Leadership people outside a handful of senior executives really knew what was happening. In early 2001, some analysts, investors and journalists became skeptical of Enron’s seem- ingly magical ability to produce bil- lions in profits while owning few assets. More people started asking questions, and soon investors learned about Enron’s accounting practice of hiding losses in special accounts that didn’t appear on the firm’s financial statements. It wasn’t necessarily the com- pany’s accounting that made Skill- ing so reviled, however. It was his
/Getty Images; Jeffrey Skilling in 2000. actions as the scandal unfolded. AFP Throughout 2001, Skilling and Lay publicly stated that every- second only to Bernie Madoff on and rampant self-delusion; of thing was fine and that Enron’s a 2009 list of the Top 10 Crooked ambition run amok,” McLean and share price would rebound. At the CEOs. Skilling long maintained Elkind wrote. same time, the duo sold tens of his innocence, saying that Enron Stakeholders were disgusted millions of dollars of stock based was “complicated,” and there had by the Enron scandal and similar on insider information about the never been criminal intent behind high-profile frauds of the early company’s actual losses. Outside his actions. A succession of judges 2000s, and the United States investors lost billions while many and juries didn’t believe him. In enacted stricter regulations and of Enron’s 20,000 employees lost 2013, he agreed to pay $45 million financial reporting requirements their jobs and life savings. Enron and drop his appeals in exchange for companies. The Sarbanes- filed for what at the time was for a 10-year reduction in jail time. Oxley Act made the CEO and largest Chapter 11 bankruptcy in The saga inspired a best- CFO individually responsible for business history. (It was surpassed selling book, “The Smartest Guys the accuracy of their company’s by Lehman Brothers in 2008.) in the Room” by Bethany McLean financial reports and set new In 2006, Skilling was convicted and Peter Elkind, which portrayed disclosure mandates for boards, of securities fraud, insider trading Skilling as a brilliant but egoma- among other things. Nearly a and conspiracy. (Lay was also con- niacal, abrasive workaholic who dozen other countries enacted victed but died before sentencing.) refused to accept any responsibil- similar laws. Thanks to Skilling, portrait: Pam Francis/Liaison/Getty Images; Enron sign: James Nielsen/ The duo emerged as two of Amer- ity for the company’s fraudulent leaders all over the world can no ica’s most notorious corporate and destructive behavior. “The longer say they are honest, consis- villains; Time magazine placed tale of Enron is a story of human tent and transparent; they have to
Photography: courtroom: Stephen J. Boitano/LightRocket/Getty Images; newspaper: NY Daily News Archive/Getty Images the combo of Skilling and Lay weakness, of hubris and greed go to great lengths to prove it. •
December 2001 May 2006 June 2013 Enron files for bankruptcy Skilling is convicted, Skilling agrees to later sentenced to drop appeals and 24 years in prison pay $45 million February 2004 in exchange for Skilling is indicted on fraud reduced jail time and conspiracy charges; pleads not guilty
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