Photograph
© James Nielsen/AFP

The Crooked E

Believe it or not, the logo for Enron Corporation was a “tilted E.” In the end, it became the Crooked E and, finally, was auctioned off with other company assets.

Enron - the largest bankruptcy in American financial history (well… for a while). Admired by all and owned by many – individuals and institutions (they all lost money on the stock). Enron won prizes such as “most admired company,” “best board,” and even the year’s best CFO (before he was arrested).

This is the company that had televisions in their elevators so that employees could watch the stock go up. The company was investigated in connection with the energy crisis in California (2000). Those in the know called it a “derivatives company.” If they knew that much, they also knew that it was doing business in the largest unregulated financial market in the world! Kenneth Lay, the CEO, was the largest individual contributor to George W. Bush’s campaign. The top management was a telephone away from President Bush, Vice President Cheney, and much of the Bush Administration. Wendy Gramm, wife of Senator Philip Gramm and former head of the CFTC (for commodities regulation), was on the board.

The Board looked outstanding. They had impressive credentials. They were experienced and intelligent. The Board was also diversified and included several international members. Many of the members had served on Enron’s board for a long period of time and were also experienced members of other boards.

But when Enron came tumbling down, the U.S. Congress had questions. They held hearings on the energy crisis, credit rating organizations, financial institutions. They had sessions for regulators, sessions for accountants, and sessions for academics. They invited and questioned eagerly, Dean Powers from the University of Texas Law School (who joined the Board of Enron, temporarily, and at the request of the Board, to lead a “self-evaluation” of the board when it was only beginning to look peculiar to the outside world.) They invited, and questioned eagerly, Enron’s own whistle-blower, Sherron Watkins (vice president of Enron and an accountant), who was soon thereafter one of Time Magazine’s Persons of the Year.

As Enron did come tumbling down, its accountant and auditor, Arthur A. Andersen, LLP, disappeared in plain sight of the readers of the financial pages. It had international operations that could be sold and domestic operations that could be merged. The United States had, perhaps, settled down to “Big Four.” (But that is a different story and covered in the Arthur Andersen case study in the book).

We watched the various hearings (and some arrests) in fascination. Several executives who were called to testify (not just Enron) refused to do so. The only person who appeared to testify for Merrill Lynch admitted that he wasn’t in a position to be able to answer many questions (he turned out to be right and infuriated the Congressmen). Two sets of Congressional Hearings, in addition to those on the Board, are discussed in this eCase. First is the testimony of Professor Partnoy (see p. 58), who discussed structured finance and derivatives trading of Enron. The second represents an additional set of Hearings undertaken by Permanent Subcommittee on Investigations (PSI) on the role of financial institutions in the Enron collapse. One publication coming out of those Hearings was entitled "Fishtail, Bacchus, Sundance & Slapshot." It includes details on four financings in which major financial institutions cooperated with Enron to provide “creative financings,” which are probably still being investigated, depending upon when you read this.

When the PSI (Committee of Governmental Affairs) decided to study “The Role of the Board of Directors in Enron’s Collapse,” five of the top directors from Enron’s board agreed to testify. They answered all of the Senators’ questions, sometimes clearly and sometimes not. We found the video to be a unique and informative perspective on The American Board – something not really seen before. We decided to make an annotated version available to students of corporate governance, where the board is among the most important variables in this multi-dimensional, multi-functional area of study that has hit the entire corporate world like a bombshell in the last five or six years. Will this increased interest be considered a twenty-first century phenomenon, or will it be seen as a turning point? Probably a little of both.

Along with the Hearings, which are in the eLibrary, we have attached several other public documents. They are almost chronological. We have added to the eLibrary all of the Exhibits (p. 123) (there are 86) published with the Hearings. They demonstrate the extensive effort of the staff of the Permanent Subcommittee on Investigations, Committee on Governmental Affairs, United States Senate. Even if the Senators were not able to ask all their questions, or get an answer to the questions they asked, the Exhibits provide additional information and demonstrate the diligence of the Staff and the fascinating information available for future researchers. Soon after the Hearings, the Staff provided its own analysis, which of course is a report of the PSI.

Hearings, exhibits, staff report. The Report of the Powers Commission is here. The “whistle blowing” letter sent by Sherron Watkins to CEO Lay is in the eLibrary. Bankruptcy? An examiner was named and staffed (we are now seeing questions in the media about their spending). Examiner’s Interim Reports #1 and #2 are included here and are full of detailed information.

For Enron, the eLibrary includes their annual report 2000, the 10K report to the SEC, also 2000, and the proxy statement. If you have not had a chance to look at such public documents, they will be particularly interesting. The 10K report to the SEC lists pages, and pages, and pages of Enron subsidiaries, as required. Although you may think these documents all provide the same information (financial details), that’s not completely true; and the differences are interesting.

Which one of the official (regulatory) documents has the information we are searching?

How would you like to be in charge of that kind of reporting in a corporation?