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Enron’s Top Man

Examining what may have motivated former Enron chairman and CEO Kenneth Lay in his decisions while at the company's helm.

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  • MARGARET WARNER:

    So, just who is Ken Lay, the man at the center of the Enron scandal?

    For that, we turn to: Frank Michel, editorial page editor of The Houston Chronicle; Bob Stein, dean of social sciences at Rice University in Houston; and Rebecca Smith, national energy reporter with The Wall Street Journal.

    Rebecca Smith, if those Senators could have asked a question today, what they would have wanted to know was how much Ken Lay knew about Enron's deceptive accounting and these off the book partnerships that made that deception possible. As we heard his wife is saying, there was a lot he didn't know.

    How does this jibe with your reporting about the way he ran that company and how involved he was?

  • REBECCA SMITH, The Wall Street Journal:

    Well, we know in the early days Ken Lay was very much involved in every aspect of the company. Over time it became larger and larger; it moved into a variety of enterprises.

    And like the CEO of any big company Ken Lay trusted others to see that the company would grow properly.

    However, we do know that there are documents that Ken Lay signed that indicate he knew more than he's perhaps let on about some of these officer-led partnerships.

  • MARGARET WARNER:

    How would you describe the relationship between him and Jeff Skilling and also Andy Fastow?

  • REBECCA SMITH:

    Well, we probably know a lot more about his relationship with Jeff Skilling since Skilling was brought in as a McKinsey consultant in 1991. Ken Lay obviously thought enough of him to eventually elevate him to CEO and turn over the company to Jeff Skilling.

    There are a lot of people in the company who think they had sort of a good cop/bad cop relationship going where Ken Lay was the erudite senior statesman interested in politics. He has a Ph.D. in economics — a very wide background. Jeff Skilling was very much the hands-on manager.

    So really the relationship is probably Lay-to-Skilling and Skilling-to-Andy Fastow who helped create a lot of the financial engineering.

  • MARGARET WARNER:

    And who would you say deserves more credit for really the innovation that transformed Enron: Ken Lay or Jeff Skilling, or did they do it together?

  • REBECCA SMITH:

    That's one of the big questions right now. It appears from what we currently know that Jeff Skilling and Andy Fastow helped develop the strategy. How integrally involved in that Ken Lay was we really have not been able to pin down at this point.

  • MARGARET WARNER:

    In terms of transforming Enron from what was really fairly stodgy pipeline company or the merger of two pipeline company into this trading firm that traded in all kinds of things.

  • REBECCA SMITH:

    That was something Ken Lay was very much involved in that.

    He's been an outspoken advocate of open markets since the 1970s when he was on the staff of the Federal Energy Regulatory Commission. He's been very consistent in pushing for open markets, open access.

  • MARGARET WARNER:

    Deregulation.

  • REBECCA SMITH:

    And deregulation, absolutely.

  • MARGARET WARNER:

    Frank Michel, it sounds from what I've read as if a lot of folks in Houston are having trouble reconciling the Ken Lay they thought they knew or at least the Ken Lay they think they see unfolding here in the scandal.

  • FRANK MICHEL, Houston Chronicle:

    I think that's clearly true. I think that's why so many people feel bewitched, bewildered and betrayed by him because he was such an altruistic corporate giant.

    He was not only a philanthropist but he was a kind of a moral voice in the community on a number of issues. I think that's surprised people. How do you reconcile it? To me that's one of the interesting things, the reevaluation of Ken Lay that's going on now.

  • MARGARET WARNER:

    I know Texas has a lot of big tycoons and big companies. Was Ken Lay unusual — in his philanthropy in his civic involvement even in that group?

  • FRANK MICHEL:

    Probably not. If you want to connect the dots, you can go back to the very first reference I found to Ken Lay in my newspaper's electronic archive was in February of 1985. He was under some criticism and concern because of Houston Natural Gas, the predecessor of Enron had mortgaged itself to the hilt to buy some of the pipeline assets and Moody's Investor Service was downgrading their credit rating.

    So some people might try to hang that time line and say there's a pattern here in kind of a direction that he set from the top and from the very beginning.

  • MARGARET WARNER:

    You mean that he was a risk taker.

  • FRANK MICHEL:

    No question, no question about that. But I think that's something probably the culture of Houston — in Texas that's appreciated and admired in many circles.

  • MARGARET WARNER:

    Bob Stein, he was also quite a political operator, was he not — in Texas even before the national level?

  • BOB STEIN, Rice University:

    Absolutely. I think at both levels. At the local level he was aggressive in supporting candidates that would support the kinds of issues and positions that would advance Enron.

    Ken Lay was a great booster for downtown amenities, sports, theater, supported positions that were often at variance with some of the Republican party leaders such as affirmative action and building stadiums.

    He justified this because it was essential to him to attract very productive labor to his community. He needed to hire up the best and the brightest as traders. He felt that the city had image and amenities and issue problems, which he wanted to correct.

    At the national level he courted Democrats and Republicans alike as your piece pointed out. He was a friend not only of President Bush, his father, but Bill Clinton. The monies he gave he gave strategically to key House members on important committees and he was an ardent fan of deregulation and anything that would boost Enron — even if it meant taking on Republicans.

    The Kyoto agreements which would of course cut down gaseous emissions — he favored these because natural gas is less polluting than the petrochemical industry and the oil. So Lay was….

  • MARGARET WARNER:

    I would point out there, Mr. Stein, that many people have pointed out that Enron would have really benefited from Kyoto because it involved trading pollution credits.

  • BOB STEIN:

    Absolutely. I think that the thing about Ken Lay that you could explain was, like many political leaders and business leaders, this notion of capitalism, democracy, was a fine line.

    And he felt that his voice should be heard and if he had those resources, campaign contributions, he was buying more than just the ears and the listening of congressmen. He was buying their support.

    And I think it worked very well for him — independent of the failure of the business he was a political operator at every level and very effective. When Ken Lay asked a local politician to decease and not oppose, for instance, a referendum on downtown stadium, they stopped.

  • MARGARET WARNER:

    Rebecca Smith, I want to go back to something that happened more recently and get you and Mr. Michel to comment on this.

    One of the things that has really outraged employees and investors and many people on the Hill is even after these accounting problems were brought to his attention in August by Sharon Watkins, he was still as late as October touting the stock to analysts and also to Enron employees. Now how do you explain that?

  • REBECCA SMITH:

    You know, the Watkins' letter is interesting for a couple of respects, one of which is it indicates that she believed Ken Lay didn't know about the financial engineering. I find that very hard to believe.

  • MARGARET WARNER:

    In other words because she felt… He was the person to go to.

  • REBECCA SMITH:

    Right. She felt if she would point it out to Mr. Lay, he would make everything right. Clearly that didn't happen.

    Clearly he knew a lot more than she thought he did. But, you know, people are understandably angry about what's transpired.

  • MARGARET WARNER:

    Mr. Michel, some people have also said he just had this kind of incurable optimism.

    I mean we don't want to speculate here really. I'm just asking you to talk about his personality and whether that kind of fits with the Ken Lay you saw.

  • FRANK MICHEL:

    Yeah, I think that's clearly true. It's an optimism — I think in hindsight some people now see it as a kind of a hubris or an arrogance that even today while they're all taking the Fifth Amendment and so forth.

    Nobody over there will admit culpability or responsibility in any way. I think that just totally mystifies people.

  • MARGARET WARNER:

    And tell us just a little bit more about his philanthropy. Was he unusual in that regard?

  • FRANK MICHEL:

    I don't think so in terms of Texas and Houston philanthropists, he gave everything from the major medical charities down to last summer he and his wife donated money to buy an elephant for the Houston zoo.

    It was sort of crystallized in a story in me — one of the local consumer television affairs reporters did a report a few days ago about how many times over the years Ken Lay lent the corporate jet for medical mercy missions down to Mexico and central America and other parts of the world. Unbeknownst to anybody didn't want credit for it and so forth.

    And then I talked a few days later with a restaurateur who was involved in the Enron field debate. She talked about how he sent the corporate limousine around to pick her up, took her out to the same corporate jet, flew her to Austin to the state capital to participate in hearings on the financing bill.

    So it's a kind of a nuanced approach. It's the same asset and the same gentleman pulling the same power levers, but I think clearly there's a self-interest in one of them and clearly a great humanitarian interest in the other. So I don't think you can say he wears a black hat or he wears a white hat clearly.

  • MARGARET WARNER:

    Bob Stein, would you agree with that?

  • BOB STEIN:

    Absolutely. I think the line got blurred. I think he thought what he was doing was promoting not only Houston but promoting Houston, you know, rising waters pull boats up… He thought what was best for Houston would be best for Enron. I think in a very positive…

    This is a Ph.D. in economics and a strong marketeer who believed that if you just simply freed and allowed men and women unfettered in the marketplace they would do good things for everyone.

    I sincerely believe he thought as I think Frank just pointed out that there was nothing wrong with what he did. I think arrogance and hubris would be the harsh way. This was a person who was a true believer. And I think one of the problems in this whole debate is what did Ken Lay know and when did he know it? I don't think that's as important.

    He probably would have continued doing this had there not been a slight downturn in the economy. They were caught. But I don't think they will ultimately ever see they were doing anything wrong or fundamentally unethical.

  • MARGARET WARNER:

    All right. Bob Stein, Frank Michel and Rebecca Smith, thank you all three.

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