© James Nielsen/AFP
© 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 years 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. Bushs 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 Enrons 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, Enrons
own whistle-blower, Sherron Watkins (vice president of Enron
and an accountant), who was soon thereafter one of Time
Magazines 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 wasnt 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 Enrons Collapse, five of the top directors
from Enrons 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
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). Examiners 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),
thats 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?