Power Failure: The Inside Story of the Collapse of Enron

Book by Swartz Mimi Watkins Sherron

1
Winners and Losers

SHERRON Watkins went to the Enron Corporation’s November management conference for the year 2000 determined she wouldn’t be taken for a loser. The year before, at her first such meeting after being promoted to vice president, she had blown it. Booked into the Hill Country Hyatt and Resort for three days of corporate team building, she had opted, in the recreational hours, for the company-sponsored salsa-making class. At affairs such as these, where Enron took over the entire hotel and offered an array of afternoon networking and socializing activities, it was important to pick one that advanced your career. A smart, ambitious employee would never sign up for the afternoon of fly-fishing, for instance, because you couldn’t lose the smell of fish in time for the evening cocktail party, and because you could wind up wasting your afternoon with guys who worked in the once crucial but now irrelevant pipeline division. That left, as career-building activities, skeet shooting, the Road Rally, tennis, golf, facials, pedicures, outlet shopping, and antiquing in a nearby Hill Country town.

To understand the loaded nature of the choices, you had to understand the loaded nature of life at Enron. Salsa making, for instance, had turned out to be a disaster. One of the small hotel conference rooms had been converted into a kitchen for the occasion; Sherron had entered straight from her facial, without makeup, without combing her hair, and she was chopping jalapenos with three pipeline guys—middle-aged men shaped like bumpy Bosc pears—when the then COO, soon to be CEO, Jeff Skilling, had walked in. Or, rather, he’d poked his head into the room, narrowed his eyes, and raised his peaked nose, as if to test the air. It had not pleased him. At just that moment, he’d caught sight of her. “Uh, hi, Sherron,” Skilling had said, and then, whoosh, he was gone. In his wake, Sherron found herself enveloped in that uniquely Enronian sense of dread: She knew she’d been caught with a bunch of losers, far, far away from Skilling’s winning team.

Once, the pipeline guys had mattered, but that was long ago. In the 1980s, Enron was one of the largest pipeline companies in North America, moving natural gas from the Gulf Coast to the East Coast, the West Coast, the Midwest, and beyond. But as Jeff Skilling’s influence over CEO Ken Lay grew, Enron changed identities several times. It always positioned itself as the company of Vision, but it supplemented its base. In the late eighties and early nineties, Enron revolutionized the way natural gas was bought and sold by operating more like a finance company than a gas company. In the mid-nineties, Enron started selling and trading power, battling across the country to deregulate entrenched electric utilities.

Lately, with the boom in dot-com and high-tech companies, Enron was vigorously morphing into an Internet/telecommunications conglomerate. Enron Online, the company’s online trading platform, was already the largest e-commerce site in the world, and now “Broadband” was the new buzzword inside the company. Enron was gearing up to trade space available on high-speed telephone lines in order to deliver movies and more into private homes over its Enron Intelligent Network, a new and improved Internet. It was poised to dominate AT&T and all the other behemoths. This corporate shape shifting made Enron seem, to Wall Street, less like an IBM or an Exxon and more like the poster child for the New Economy, a business so fast-paced, so protean, and so forward-looking that it could change its stripes, virtually overnight, to suit the zeitgeist. So if you wanted to get ahead at Enron, you had to be able to change, too.

Sherron, for instance, had successfully engineered herself into the hottest sector of the company, Broadband. Broadband was the reason Wall Street analysts were deliriously touting Enron—after the company rolled out its telecom plans at an analysts’ meeting in January, Enron’s stock moved thirteen points in one day. Broadband proved yet again that Enron’s employees were the smartest, the shrewdest, the most dedicated and ambitious on the planet.

They were purveyors not of products but of ideas, of what Jeff Skilling called “intellectual capital.” A company didn’t need bricks and mortar to triumph in the new age. It needed smarts—smarts that, as Skilling liked to claim, would propel Enron from its old role as the World’s Leading Energy company to its destiny as the World’s Leading Company. So far, Enron’s numbers were on track to do just that: to land Enron in the top ten of the Fortune 500. Third-quarter revenues had grown over 150 percent from the prior year’s corresponding quarter to $30 billion, bringing total revenues for the first nine months of 2000 to $60 billion—up $20 billion from 1999. The company’s stock had quadrupled in value since January 1998 to almost $90 a share. In just five years, Enron grew to rival 1990s tech giants like Cisco and Microsoft, and behemoths like GE. It was a media darling: Fortune magazine hailed Enron as the country’s most innovative company for five years in a row, and included Enron in the top quarter of its list of the “Best 100 Companies to Work for in America.” Skilling was widely regarded as the most brilliant corporate leader in the country, a Jack Welch for the new millennium. CEO Ken Lay had laid the groundwork for Enron’s global reach: He could get virtually any world leader from China to Costa Rica to return his phone calls in an instant; he counted among his closest friends powerful state legislators, entrenched members of the U.S. Congress, current and former presidents. Everywhere Sherron Watkins looked, there were bright young people who had made revolutionary changes and made incomprehensible fortunes in return—and all before getting close to their fortieth birthdays.

Enron was, in short, a company of winners. At the dawn of the twenty-first century, those who were bright, young, and fiscally ambitious were reassessing their career choices. They could slave away in some fusty commercial bank or corporation for years at a salary in the high five figures. Or they could join a Wall Street investment bank, where they could make a lot of money but never really create anything of value. Silicon Valley was great, but it was overrun. And then there was Enron. Those who packed their bags and raced to Houston were the ones who wanted to run their own show right away—by the time they were twenty-five, salary commensurate with their genius.

Certainly Enron had worked for Sherron Watkins. She grew up northwest of Houston, in the small town of Tomball, which had its moment in the sun during the oil boom of the 1920s. There were drilling rigs inside the city limits when Sherron was a girl, sharing a small two-bedroom house with her divorced mother and younger sister. Her mother, Shirley, taught business at a nearby high school, and encouraged Sherron to go into accounting. It was secure, something she could build a career on. Sherron took her advice, graduating from the University of Texas with honors, and getting a master’s in accounting in 1982. Arthur Andersen had recruited her, promoted her to audit manager within five years, and, at her request, shipped her off to the New York office in 1987. From Andersen, Sherron worked briefly in a Manhattan commodity finance boutique, then in 1993 followed the well-trod path from the offices of Andersen to those of its biggest client, Enron.

She could hardly believe her luck when she was hired—the trips on the corporate jet to schmooze California investors, ski jaunts with bankers in Colorado, sales trips to the UK, South Africa, Chile, Peru, Panama, the Philippines, and Korea, helping to expand Enron’s energy markets—or, as she imagined, bringing cheaper, cleaner power to people who desperately needed it. For her efforts, Sherron, whose mother pinched pennies, had been richly rewarded by any standards other than Enron’s own: From a starting salary of $95,000, she was now clearing $150,000, along with stock options and bonuses that more than doubled her income. She owned a home in one of Houston’s best neighborhoods, and never had to ask for the right tools to get the job done: Enron gave her the laptop, the Palm Pilot, the cell phone, the business-class tickets, the ergonomic desk and office chair, and the assistant who did not have to be told where to book dinner or hotel reservations in London.

Even though she had been at Enron since 1993, she was still amazed by the high-end toys parked in the company garage, the dizzying array of BMW sedans, Porsche convertibles, Ferraris, Mercedeses, Range Rovers, and customized SUVs. She loved Enron’s oval-shaped tower of mirrored glass, with its twin tower rising across the street; the purposeful people from all over the world scurrying across the lobby’s glossy granite floor to get to their desks faster; the brightly colored ceiling banners heralding employees’ commitment to Enron’s “Vision and Values”: Respect! Integrity! Communication! Excellence! The lobby’s twelve-foot, multiscreen television reported perpetual NYSE, NYMEX, and Enron Online updates, as did the miniscreens in the elevators. The company café featured spring rolls and gourmet wraps. The coffee bar featured custom lattes and mochas; mini-massages were available in the company gym. It was almost, but not quite, too much: If you deserved all this, you knew you were very, very important.

Of course, there was a downside. It wasn’t easy being the company of the future; Enron was constantly reorganizing to stay ahead of the pack, and a lot of people just couldn’t cut it. Maybe employee X couldn’t close a multimillion-dollar deal within the requisite six months. Or maybe Employee Y got crosswise with a higher-upR...