Metas académicas 1 Introdución

“I'd like to take just a moment to read you, if I may, the final page of Hans Christian Andersen's story. I don't believe he's any relation to Arthur Andersen.” The speaker paused to encourage the audience response he anticipated. After the brief laugh, he began reading aloud. “’The emperor shivered, for it seemed they were right. But what could he do? After all, he was the emperor, and people expected him to be dignified….so the emperor…stood up, just as tall, and his servants went on carrying the train that wasn't there.’”1

It was story-time in the US Congress. Sharing this fairy tale was Rep. Bart Stupak (D-WI); gathered around to listen, a sub-set of the House Energy and Commerce Committee dedicated to “oversight and investigations.” The purpose for this day’s hearing fell under the latter category, for by February 2002, the opportunity for “oversight” of Enron Corp. had long since passed.

Legislators now sought to understand—or, more importantly, to explain—what had happened during the preceding six months as one of the nation’s largest and most admired companies had hurtled into bankruptcy. Stupak’s joke about Andersen provided some welcome comic relief, hinting at a potential conflict of interest between the Danish author of his nineteenth century children’s story, and Enron’s accounting firm Arthur Andersen LLP. Amid a scandal that had implicated so many individuals and groups, in both the private and the public sectors, this exaggeration plainly referred to that which, unfortunately, was not an overstatement. Around Enron even the most unlikely possibilities of illicit dealing, the joke grimly suggested, could not necessarily be ruled out.

1 _{Oversight and Investigations Subcommittee of the House Energy and Commerce Committee,}

Financial Collapse of Enron: Hearing before the Oversight and Investigations Subcommittee of the House Energy and Commerce Committee, 107th Cong., 2nd sess., 14 February 2002.

The function of Stupak’s speech as a whole, however, was not humor. It was an attempt to translate an overwhelmingly complicated phenomenon of business, finance, and commercial regulation, into an accessible story, even one that his audience already knew. By alluding to this well-known parable Stupak compared Enron’s wild success to the emperor’s exquisite robe: onlookers who did not appreciate its splendor—or indeed who saw nothing material at all—had been told, and had usually believed, that this was due to their own lack of sophistication. Of course, there was no robe, and eventually someone dared say so. The mass charade had come to an embarrassing end: the emperor was naked; the company insolvent.

Yet the issues at hand in the aftermath of Enron were even less tangible than the emperor’s invisible clothes. Common knowledge was fuzzy: something had happened, causing thousands of people to lose their pensions, their savings, and their jobs. The money seemed to have been stolen, but some claimed it had never existed. Shareholders were suing; employees were sobbing. One former executive had committed suicide; another was building a lavish new house. While Bart Stupak was the only person who saw fit to read aloud from a children’s book on national television, nearly everyone who was talking about Enron at the time was trying to tell some kind of story. They were trying, for themselves and for others, to organize a mess; to make sense of gibberish. Enron needed a narrative.

Here were the first attempts to make sense of what was already clearly a socio-historic event. Legends and memories tend to carry greater impact than the actual events they claim to represent,2 and this can only be more true in a case such as Enron’s, which involved so many obscure technicalities of law, securities and accounting, unfamiliar to the lay majority. Yet “what happened at Enron”—as if everyone understood perfectly—was still constantly cited, in many contexts, as a reference point. The real reference point, of course, was simply one Enron narrative or another, not the agglomeration of numbers that alone represents the true story (insofar as there is one). Some narratives reflected literary forms reminiscent of nineteenth

2 _{Two events, for example, about which scholars have made this assertion are that of the John Scopes trial} (Edward J. Larson, Summer for the Gods: The Scopes Trial and America’s Continuing Debate Over Science and Religion [New York: Basic Books, 1997], 244-45) and the Watergate scandal (Michael Schudson, Watergate in American Memory: How We Remember, Forget, and Reconstruct the Past [New York: Basic Books, 1992], 104, 124-25).

century theatre or even ancient drama. Other stories reflected the bankruptcy’s unique timing by imbuing it with words and images from the events of September 11, 2001. In every case the creators of Enron narrative colored it with their own biases and shaped it toward their own purposes.3 Thus if the Enron scandal mattered, its stories dictate whyit mattered and what it meant.4

Everything You Always Wanted to Know About Enron (But Were Afraid to Ask)

When scandal first brought Enron’s name into general news reports, many people were confused even about what kind of business the company had been in, and understandably so. Founded by Ken Lay in 1985, Enron began as a natural gas and oil supplier. By the late eighties, the company’s business strategy was more complex; it now facilitated natural gas and oil trading, customizing contracts to minimize loss and, of course, maximize profit. It worked. Enron went on to launch many foreign projects and, in the nineties, expanded its business to include (among others) electricity, water utilities, and internet broadband services. Though still an “energy company,” Enron was no longer defined by the “what” so much as the “how.” The company used the trading model that it had developed for its original products, to enter (or even sometimes to create) markets that had nothing to do with energy.5 The strategy was widely admired; Fortune magazine named Enron “The Most Innovative Company in America” every year from 1995 to 2000,6 and its top executives became business celebrities. Only after the company’s collapse was there much inquiry into the details of what exactly Enron had been doing.

This study will not attempt a comprehensive account of the circumstances surrounding Enron’s bankruptcy; many such accounts, in the scope and detail that the event deserves, are

3 _{Hayden White,}

The Content of the Form: Narrative Discourse and Historical Representation (Baltimore: The Johns Hopkins University Press, 1987), ix.

4 _In

Watergate in American Memory, Michael Schudson wrote, “I am not interested in the ‘discourse’ for its

own sake, as if there were nothing but discourse, but for the sake of its role in social action, present and future” (4). Though referring to a different American scandal, Schudson’s justification as stated here is essentially the same as my own.

5 _{Peter C. Fusaro and Ross M. Miller,}

What Went Wrong at Enron: Everyone’s Guide to the Largest Bankruptcy in U.S. History (Hoboken: John Wiley & Sons, 2002), 164-69.

6

available elsewhere.7 _{Rather, it will provide an overview of what is known in terms of, and, when}

necessary, in opposition to, the interpretations that most often found their way into Enron narratives of all kinds. It will summarize some of the most commonly cited of Enron’s practices, with particular attention to aspects in which they were typical or aberrant for a company of its function and stature. As will be shown, “what happened at Enron” does not, or should not, refer to any one specific faulty practice; the company’s problems stemmed from a variety of them.

Special Purpose Entities (SPEs) and financial hedging came to ignominy through Enron, but the fine distinction between accounting sleight of hand that is, for better or worse, legal, and illicit trickery, is sometimes overlooked. Large corporations routinely form SPEs, and Enron already had scores of them before creating the infamous ones known as LJM. SPEs can serve a variety of functions and, although obviously intended to benefit the company, they are required to have a certain degree of independence and investment risk. Hedging is another increasingly common business and financial strategy. Hedges consist in contracts or investments designed to offset potential losses within a single market—for example, that of a particular commodity or financial asset. Like SPEs, hedging is perfectly legal.8 _{For years, however—beginning with}

commodities trading and then increasingly applied to investments as well—top executive Jeff Skilling treated this device as a panacea, summarily ordering his staff to hedge away all risks and losses, as if that were possible.

The hedging SPEs known as the Raptors, made famous by whistleblower Sherron Watkins’ memo of warning to Ken Lay, were problematic by virtue of their peculiar characteristics, not simply because they existed. The Raptors were invested in a number of stocks that by 2001 were flagging. Yet under the “mark-to-market” financial statement policy, Enron had been allowed years before to report gains based on expected investment returns—long before these gains

7 _{See Bethany McLean and Peter Elkind;}

The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (New York: Portfolio, 2003); Kurt Eichenwald, Conspiracy of Fools: A True Story

(New York: Broadway, 2005); Loren Fox, Enron: The Rise and Fall (Hoboken: John Wiley & Sons, 2003). 8 _{In the Senate Commerce, Science and Transportation Committee,}

An Overview of the Enron Collapse: Hearing before theCommerce, Science and Transportation Committee, 107th Cong., 1st sess., 18 December

2001, Chairman Sen. Byron Dorgan (D-ND) asserted in his opening statement that “This is not your average business failure…This is about an energy company that morphed itself into a trading company involved in hedge funds and derivatives.” Dorgan suggested that Enron’s “involvement” therewith, regardless of any details, was inherently unusual or suspicious.

actually materialized. As the Raptors failed to perform with the success that Enron’s statements had already assumed, it became increasingly difficult to reconcile those statements with reality. Moreover, the majority of the stock that capitalized the Raptors was Enron’s own. Few unbiased accountants would consider this strategy sound. As Enron went, so went the Raptors; yet as hedges, the latter should have been protecting Enron from losses. Instead, on the contrary, Enron was actually losing money through the funds.9

Enron managers are often imprecisely portrayed as having “stolen money.” However, among the factors that caused the company to unravel, literal, direct theft from Enron by

executives was comparatively minor. The singularly blatant, sustained instance was that of Chief Financial Officer (CFO) Andy Fastow, who designed and then directed the LJM private equity funds. These funds transacted only with Enron, and included the bare minimum of outside investment (three per cent) to be considered independent entities. The LJMs, Fastow claimed, because they required no negotiation, would streamline and expedite vital deal-closing

processes.10 The problem was that in such deals, he would be on both sides of the table—as CFO of Enron and director of the LJMs. A stark conflict of interest, this arrangement was specifically forbidden under the company’s ethics rules, but the board of directors in a special resolution exempted Fastow.11

It might now be taken as a foreboding but ignored clue that the funds’ acronymic names were the first initials of Fastow’s wife and two sons.12 _{At any rate, over a period of two years, he}

took home $60.6 million through work with the LJMs—work that he had insisted would only

9 _{Testimony of Sherron Watkins in Oversight and Investigations Subcommittee,}

Financial Collapse of Enron;

Eichenwald, Conspiracy of Fools, 54-60; Watkins to Kenneth Lay, memorandum, 15 August 2001, Arthur L. Berkowitz, Enron: A Professional’s Guide to the Events, Ethical Issues, and Proposed Reforms (Chicago:

CCH, 2002), 137-40.

10 _{The ostensible convenience of such a plan points to one of the central ironies of Enron particularly as} related to the company’s strategic use of SPEs. While any corporation that falls so far, so fast, can be said to have taken on too much risk, it was actually the absence of risk that in this area pushed Enron into danger. Real, quantifiable business transactions involve more than one interested party and by definition contain potential both for gain and for loss. Thinking it had found a way to deal with itself via SPEs, Enron was in one sense sidestepping risk but in the final analysis taking on unsupportable liability.

11 _{McLean and Elkind,}

Smartest Guys in the Room, 189, 193.

12 _{Fastow’s wife was Lea, and his sons were Jeffrey (named after Jeff Skilling) and Matthew.}

require a few hours out of his schedule each week.13 _{Alternate Chief Executive Officers (CEOs)}

Ken Lay and Jeff Skilling both deny having known of any mischief involving the LJMs; however, both supported Fastow’s exemption from ethics rules, and Skilling thereafter appears to have either summarily approved LJM transactions or to have waived the requirement that he do so.14 (Although the name of Skilling, and especially that of Lay, are most often associated with “stealing” at Enron, neither of them received any of the appropriated LJM money).15 Fastow’s siphoning of funds through the LJMs surely hurt Enron financially, but the worst long-term consequence may have been in terms of corporate image. After Fastow’s activities came to light, many outside trading partners refused to do business with Enron. Fastow then had to be

dismissed as CFO and on the day he was fired, Enron’s stock price—which at its height scarcely over a year before had exceeded $90.00—fell from an already dismal $19.00 to $16.41.16

Perhaps the most palpable of Enron’s publicized wrongdoings involved the California energy crisis of summer 2000. One popular understanding is that Enron caused the state’s rolling blackouts, in which selected regions lost electricity, in order to spike energy prices in this recently deregulated market. There is some fairly compelling evidence to this effect.17 _{However, some of}

Enron’s other practices in California energy dealing, though they became notorious in part thanks to names like “Get Shorty” and “Death Star,” appear to have been legally (if not ethically)

defensible. Such strategies took advantage of inefficiencies and regulatory loopholes in the state’s energy market, and in most cases, other trading entities would likely have used similar

13 _{McLean and Elkind,}

Smartest Guys in the Room, 376; Eichenwald, Conspiracy of Fools, 554. These facts

are uncontested; Fastow pled guilty on January 14, 2004 to conspiracy counts of wire and securities fraud, to reduce his forfeiture of assets and prison sentence in exchange for cooperation as a witness in the prosecution of other executives (Eichenwald, Conspiracy of Fools, 672).

14 _{McLean and Elkind,}

Smartest Guys in the Room, 193, 310-11.

15 _{This is not to say, however, that Fastow was the only executive who did. A number of others, most notably} Michael Kopper and Ben Glisan, collaborated in the LJM schemes and profited from doing so (Eichenwald,

Conspiracy of Fools, 667-68, 586). Glisan, at the time of this writing, is among the few former Enron

executives who are actually behind bars (“Ex-Enron Executive Going to Prison,” Houston Chronicle 10 September 2003).

16 _{The date was October 24, 2001. Robert Bryce,}

Pipe Dreams: Greed, Ego and the Death of Enron (New

York: Public Affairs, 2002), x; Bryan Cruver, Anatomy of Greed: The Unshredded Truth from an Enron Insider (New York: Carroll and Graf, 2002), 138; McLean and Elkind, Smartest Guys in the Room, 377.

17 _{McLean and Elkind,}

strategies had Enron not beaten them to it.18 _{Whatever Enron’s role in the energy crisis, the}

incident points to the blurry line between capitalistic opportunism and illegal exploitation. The outcry over Enron’s trading practices in California may be grounded more in moral conviction— however justified—than in technical certainty.19

It was only as the company began its precipitous decline that a few specific, pervasive practices made Enron distinctive; here the executives’ crowning offenses came in the form of self- serving damage control measures. First, it is undeniable (for anyone other than the two men themselves) that Ken Lay and Jeff Skilling lied about the financial condition of the company in order to maintain investor confidence. Enron employees, whose pension funds were typically invested mostly if not completely in Enron stock, were not encouraged to diversify their holdings and may even have been deliberately “locked out” from selling during the critical time of October- November 2001. Meanwhile, many top-level executives were selling their own Enron stocks with the franticness that any informed shareholder would. As the financial community and regulatory agencies began formal inquiries into Enron, a massive destruction of documents (shredding of hard copies and deletion of electronic materials) appears to have been ordered at Arthur Andersen, the firm serving most of Enron’s audit and account consulting needs. Finally, around the time of the bankruptcy many executives pillaged Enron’s coffers for enormous “retention bonuses,” while the same rank-and-file employees whose pensions had been decimated received roughly $4,500 each in severance pay.20 _{Whatever factors brought about the Enron collapse, the}

manner in which it was supervised represents the indubitable scandal.

The scandal’s crowning feature was the company’s relationship to George W. Bush’s presidential administration. Enron and the Lay family had been among Bush’s biggest campaign supporters. Ken Lay was friendly with Dick Cheney when the latter was CEO of another Texas energy company, Halliburton. Lay was especially close to George H. W. Bush, but during the

18 _{McLean and Elkind,}

Smartest Guys in the Room 275; Jonathan Falk, “Substituting Outrage for Thought:

The Enron ‘Smoking Gun’ Memos,” The Electricity Journal (August/September 2002): 20-21. 19 _Falk,

Substituting Outrage for Thought, 13-14; Fusaro and Miller, What Went Wrong at Enron, 93-94. 20 _{David Kaplan and L. M. Sixel, “Enron Lays off 4,000,”}

Houston Chronicle, 4 December 2001, 1A; Testimony of Sherron Watkins in Oversight and Investigations Subcommittee, Financial Collapse of Enron.

son’s first term still received White House correspondence addressed to “Kenny Boy.” 21 _{When as}

Vice President Cheney served as chair of Bush’s Energy Task Force, he invited Lay to a closed- door meeting to solicit Lay’s “ideas” for the new administration’s national energy policy.22 _After

the scandal broke, President George W. Bush would emphatically deny any recent contact with Enron executives.23 _{His position on the larger issues at hand was unclear, however, because}

even in the months following the company’s bankruptcy he fought against initiatives to increase “corporate accountability.”

The outrage and desperation that punctuated Enron’s bankruptcy were surely

understandable. And in one sense, the drama of the moment had productive potential: it rendered a number of complex issues immediate and compelling in a way that everyday Wall Street news