Clearly there is a problem in paradise that Ken Lay knows to some extent that Enron is not doing well enough to sustain his expectations and visions and his persona - his ego is such that he cannot make the mid-course corrections because if he does that, he really needs to abandon or step away from his vision of the world’s leading energy company or world’s leading company.    It’s just too much for him to do.  There’s not one cost cutting memo from Ken Lay between 1988 and 2001 for example - because first movers - you don’t have to worry about costs.  But the leading vision needs help and Ken and the Board make an extraordinary decision to waive the company’s Code of Conduct for Enron’s Chief Financial Officer, Andy Fastow.  This begins a process that turns out to be Enron’s greatest mistake.

Had the waiver not been granted, Enron would have had to face some very harsh times and Ken Lay’s visions of becoming the World’s leading energy company and much less the leading company would have had to be tabled or abandoned.   This could not be accepted by Ken.  It would be an embarrassment a thousand or a million times greater than the Enron name change ‘Enteron’.   So Enron in small steps - and then greater and greater steps becomes a company at war with reality. 

Let me conclude - to understand and resolve the Ken Lay paradox.  It’s very complicated but it’s happened and it has to be explained.   We have to learn from it.  We can make some lemonade out of the lemons.  But what we need at this point is the rest of the story - beginning right now a few blocks away.    We need to have Jeff Skilling explain how and why the job in retrospect was too big for him.  And how and why did he begin to cut corners.   Where did the slippery slopes begin and when did they get out of control.  We need a process analysis - step to step.  Jeff, what were your problems as CEO and what were the problems you inherited?  What weren’t your problems? 

For Ken Lay, we need to get back to this sort of analysis that Ken gave before the bankruptcy during the Dynergy mergers where Ken Lay said in a very forthright way, “Enron has major problems”.  But this is just the beginning.  There needs to be a lot more explanation than what we’ve had so far.  We need to get away from this - to this.  

So the Ken Lay paradox can be understood as the story of over ambition and slippery slopes, the things we all know about.  But it’s also the story of philosophical fraud and there’s a whole tradition in philosophy called ‘Objectivism’  that’s very important.  It was a member of the Objectivist school that first saw - and I remember nearly falling out of my chair when I read the analysis at 10:30 one night in maybe February 2002 that before Enron’s financial bankruptcy, there was philosophical bankruptcy.  That Enron was engaged in a shared narrative - a fake reality.  So the Enron story - the Ken Lay paradox is the story of philosophical fraud - a term I think we need to add to our vocabulary. But it’s also the story of political capitalism - the unholy way of creating new profit centers and gaming existing regulation.  And this is why my book is tentatively titled, ‘Political Capitalism: Ensel, Enron and Beyond’. 

Questions and Answers

Q.  Do you, knowing Ken Lay as you do, believe that deep in his heart, he believes he is innocent of the charges that he is on trial for today?   

A. You’re asking me to do some psychoanalysis here.  There is a question of delusion and delusion is a form of - it can get the point of mental illness.  If you believe that Ken Lay was delusional - that he just really did not see the situation, what he should have done or what you would have this person do is to get professional help.  You go through intervention and you come to understand reality and from there you move back up.  Is Ken Lay delusional?  There were a number of times when I met with him towards the end when he seemed pretty oblivious to things.   To the extent he was delusional, I wish everything could have been handled differently.  I wish that he could have gone into interventionism and from the very beginning - taken some blame, assigned the blame to Jeff Skilling and to get the truth out there.   And I hope that we can get to this truth during the trial and certainly after.  And maybe the whole truth will come out many years from now in a biography or autobiography.

Q. In describing Key Lay, you used the adjectives enabler, charmer, confidant, dreamer, great storyteller, ‘always in spin mode’ and rule breaker.  How do you see those words meeting up with the fiduciary role of a Chairman and CEO who should be a steward of the company’s assets?     

A. You have to be wonderful delegator. You have to pick the great people around you - and the decision to choose Jeff Skilling over Rich Kinder was a very tragic one.

Q. In your role working closely with Ken Lay did you see this pattern all along or did it develop at some point in time that you can identify?

A. As a historian, it takes me a minimum of six months to understand things after they have occurred so I can’t look back and precisely identify a moment but it’s a path dependence - it’s a process and to really get the story you have to look at the little decisions and see how they grew to big decisions.   One example would be when the Board of Directors allowed Ken Lay to award the travel business to his sister.  You know, ‘He’s a Great Man of the industry and why not?  Keep the Great Man happy’.    But when the Board makes little decisions like that and it leads to the huge decision of waiving the Code of Conduct for Andy Fastow, you have to understand that it’s a process analysis.  So we’ve got to - it’s a good question, we have to get to the small beginnings and see how they grew.

Q. To what extent did Ken Lay and Jeff Skilling’s push to make Enron the most highly leveraged company lead to it’s eventual demise.

A.  I’ll just let the facts speak for themselves there.

Q.  You mentioned a speech that Ken Lay was scheduled to give in November 2001.  What are the highlights of his revolutionary thoughts. 

A.  There are lots of numbers in here on volumes and how everything Enron is doing is going that way [up].  total revenues; positions in gas and electricity volumes - lot of volumes, volumes, volumes; new products;  Average daily transactions.  Market capitalization.. uh oh,  uh oh.. we’re going the other way here [down].  But current challenges, general market, Enron broadband services, Deball? - California power crisis, Zurich’s management changes, loss of investor confidence.  Hey - that’s a lot.   But I cannot remember if Ken Lay approved this or not - this might have just come from other speeches - but a lot of problems.  And then, what do we do to regain market confidence; Continue to meet financial targets; Improve communications; Drive more open financial disclosure; Continue to reposition underperforming assets; Implement better internal blocking and tackling - sounds like they are trying to back to Incrementalism.

Q. To what degree do you believe that deregulation of the California’s energy markets added to Enron’s problems?

A.  Well no, it helped Enron in tremendous ways but then it added to Enron’s problems in other ways.    They had a fixed retail price and an unregulated wholesale price.  Utilities had to buy volumes so Enron and others could make the wholesale price go up as high as it could - where normally retail prices go up to knock wholesale prices down.  So this was a regulatory opportunity to make money that wouldn’t have existed in the market.  Now - to the extent that the California debacle slowed down mandatory open access at the retail level, it certainly did take away a major profit opportunity for Enron - major.

Q.  And a final question.  What would you do today specifically if you could go back and make a life change before 1998. 

A. Before 1998?   Or would I stay at Enron?   I would have stayed at Enron.  I would have sold all our stock after my wife couldn’t go to sleep at $4.00 a share.  But the Enron experience for me as I think 95% or 99% of the Enron employees would say was great until the final months.  But in retrospect, it was too good to be true.  I’m not sure if some of the jobs were adding shareholder wealth in retrospect.  It was in a sense too good to be true.

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