Enron, the Texas-based multinational energy company, was meant to be different. It was a ‘new economy’ company. It was not like those net start-ups; Enron had real assets and real profits – there was nothing virtual about it. It owned natural gas pipelines, electricity generating plants and water companies. It was the leader in the field of privatised, deregulated utilities the world over. It was ‘the world’s leading company’: it said so on a banner in its headquarters. And it was supposed to be rock-solid. On 2 December 2001 it filed for bankruptcy protection. The world’s leading company had become the biggest corporate bankruptcy in US history. It looked like yet another post-11 September shock: a victim of recession. But rapidly the story began to unravel: Enron was run by the world’s biggest crooks.
Founded in 1985, Enron grew over 15 years into number seven on the Fortune 500, doing $100bn of business in 2000 when it had a stock market value of more than $60bn. It had a reputation as one of the world’s most aggressive multinationals, pushing for deregulation, privatisation and globalisation across the world like a free market missionary, and using its considerable muscle to get its own way. In the USA, Enron funded both Republicans and Democrats in congressional and presidential elections, buying up politicians as it went. Chairman Kenneth Lay was the biggest individual contributor to George Bush Jnr’s presidential campaign, and Enron itself financed the Republicans to the tune of $1.7bn.
The connection with the Bush family fortunes was longstanding. After the Gulf War in 1991 Enron won the contract to replace a Kuwaiti power plant ahead of lower bids: Bush Snr’s cronies were on Enron’s payroll. Following GB Jnr’s election, it was soon revealed that jobs on the commission which regulates the US energy market were vetted by Enron. Ken Lay himself became advisor to the energy department and Enron bankrolled 35 members of the Bush administration. In the face of the devastation wreaked by deregulation in California, Enron wanted more. It also wanted exemptions from pollution controls: it got them. It espoused a vicious philosophy promoted by Chief Executive Jeff Skilling: ‘You must cut jobs ruthlessly by 50 or 60%. Depopulate. Get rid of people. They gum up the works’.
Enron’s depredations were not territorial: it was active across the globe. From Brazil, India, Mozambique, Philippines, Argentina, Indonesia, China… the stories came back about pressure to sign up with Enron, or else. Enron became the first company to be investigated by Amnesty International for brutalising demonstrators who opposed the building of a huge power plant in India: they were found guilty of suppression of local protests, harassment, arbitrary arrest and preventive detention. Enron paid the local government to police the demonstrations and loaned them their helicopters for the purpose.
With the Bush family in tow, you would expect New Labour also to be in the queue. And you would be right. It is worth noting first that following electricity deregulation under the Tories, Lord Wakeham got a seat on the Enron board. Enron sponsored the 1998 Labour conference, and what followed may not necessarily be connected to this or to economic threats of various sorts from the US. Karl Milner, former aide to Chancellor Gordon Brown, was hired by Enron as a lobbyist to oppose the moratorium on gas-fired power stations. He bragged: ‘We have many friends in government. They like to run things past us some days in advance, to get our view’. In 1998 Margaret Beckett, arch-opponent of gas-fired power stations, was removed from the cabinet, to be replaced by Mandelson and Byers. The moratorium was lifted, Enron got agreement to build two power stations, Wessex Water was bought up by Enron (not referred to the Monopolies Commission) and Enron’s European chief became a CBE for services to…
As Enron power-brokered around the world, Wall Street watched admiringly, like snakes beguiled by the snake charmer. Fat fees followed from Enron’s global deal-making. It had bought up the political administration, the regulators and Wall Street. The accountants, Arthur Andersen, were easy-peasy. Enron paid them $52million in 2000 in audit and ‘consultation’ fees. All of them failed to notice the discrepancies: it is estimated that in the late 1990s Enron’s global operations lost more than $7bn.
In August, CEO Jeff Skilling quit to ‘spend more time with his family’. On 16 October, Enron called a conference to discuss its third quarter ‘profits’: in reality losses of $618 million. The company’s net worth had mysteriously shrunk by $1.2bn. The company was close to bankruptcy. It turned out that, over the period May 2000 to August 2001 various company executives had helped themselves by selling off millions of dollars worth of stock. Chairman Ken Lay made $37,683,887, Chief Executive Lou Pai made $62,936,552, Skilling made $14,480,755. When the bubble burst, Skilling declared, from the bosom of his family, that he couldn’t understand what had gone wrong. On 31 October the Securities & Exchange Commission (SEC), financial watchdog, launched a formal investigation into the company. By 9 January 2002 the Justice Department had announced a criminal investigation. On 25 January former vice-chairman Clifford Baxter, who had participated in the greedy share-out to the tune of $35 million, committed suicide.
There is a lot more crooked dealing to reveal. Arthur Andersen, the accountants, have admitted that one of their partners, David Duncan authorised the destruction of vital documents. He has been sacked in a last ditch attempt to minimise the damage. He appeared before the SEC inquiry pleading the 5th Amendment, the right not to incriminate himself. He, like others, will wait for a deal on immunity before spilling the beans. There are plenty of beans to spill.
The real losers were Enron’s employees. Thousands lost their jobs, but even more lost their pensions and savings which were linked to Enron’s stock. Unlike the fat-cat executives, the company would not let them sell shares until the price fell to 26 cents.
Jane Bellamy
FRFI 165 February / March 2002
