Enron's Quiet Outages
Friday, June 2, 2006
A week after a Houston jury convicted former Enron Corp. chairman Kenneth L. Lay of fraud, one of the Houston oil company's onetime directors says he still can't believe Lay knew about accounting schemes that caused the firm's 2001 implosion.
"I'm convinced he didn't know what was going on. . . . I just can't bear the picture of him going off to jail," said Charls E. Walker, a Potomac-based economist and lobbyist who joined the Houston energy company's board before it was known as Enron.
As for his own role as a member of the board of directors from 1985 to 1999, Walker, 82, is regretful. "I was duped. Part of the problem was putting so much confidence in Ken's integrity and ability. . . . We were taken for a ride."
Walker is unusual among the 18 former Enron directors in that he is still willing to talk about the company and the role he played in it. All of the others either declined to comment or failed to return messages left at their homes and workplaces.
After enduring widespread public criticism and congressional scrutiny in 2001 and 2002 for failing to spot or stop Enron's mounting financial troubles, most of the board members have largely gone underground. Many of them resigned from -- or did not run again for seats on -- a number of corporate boards, and those who are still in the public eye have largely removed references to Enron from their biographies.
"They have experienced an extraordinarily difficult couple of years," said Charles Elson, director of the University of Delaware's Center for Corporate Governance. "They've become the poster children of failed directors."
Compared with Lay and other top Enron executives who face lengthy prison terms, the former Enron directors got off lightly. They have faced no government sanctions, and their personal financial costs have been relatively small. Yet outside directors are almost never held responsible for corporate malfeasance, and the fact the Enron's former directors paid any price at all is testament to the depth of public anger over the collapse of what was once ranked the nation's seventh-largest company.
The Securities and Exchange Commission has not taken any formal action against the former Enron directors, but Enron investors sued them, alleging that all 18 had engaged in insider trading by selling shares while they knew more than the public about Enron's complicated financial structures.
Last year, 10 directors agreed to pay a total of $13 million out of their own pockets to settle the shareholder lawsuit. Each director's contribution was based on 10 percent of the profit he or she realized from selling Enron stock. The largest share by far -- more than $5 million -- came from Rebecca Mark-Jusbasche, the former chairman and chief executive of Enron International.
The overall settlement, shared by investors and Enron's creditors' committee, also included a payment of $155 million from Enron's officers and directors insurance policy and covered the other eight directors -- including Walker -- who did not profit from personal stock sales during Enron's collapse and against whom claims were dismissed.
Personal payments by directors are extremely rare. The only other settlement of this size and type in recent history involved the WorldCom Inc. directors. William Lerach, the class-action attorney who represented investors, said the plaintiffs were trying to send a message to other boards. "For those directors who sit on the boards of big companies where there is an egregious failure, they better be prepared to have their own pocketbooks hit," Lerach said.
Many Enron board members were prominent people, including academics, former government officials and top corporate executives. Some of the best known were Wendy Gramm, a former Commodity Futures Trading Commission chairman and senior scholar at George Mason's Mercatus Center; Robert Jaedicke, former dean of the Stanford University business school; and the current and former M.D. Anderson Cancer Center presidents John Mendelsohn and Charles A. LeMaistre.