New York Times - 15 Aug 01

Prof. Robert B. Laughlin
Department of Physics
Stanford University, Stanford, CA 94305
(Copied 8 May 09)

Enron's Chief Executive Quits After Only 6 Months in Job

August 15, 2001

Jeffrey Skilling, the chief executive of the Enron Corporation, stunned Wall Street today by announcing that he would quit after just six months in the job, calling the move a "purely personal decision."

But the abruptness of the departure left many analysts questioning whether a series of setbacks the company has suffered played a part in the decision.

Kenneth Lay, Enron's 59-year-old chairman, will step back into the position he left early this year after 15 years as chief executive.

Mr. Lay, who originally recruited Mr. Skilling to Enron, said tonight that he had agreed to stay on through the end of 2005 to "make sure we've got plenty of time to work out an orderly succession."

Mr. Skilling, 47, had been at the heart of the transformation of Enron from an old-line natural gas pipeline company to the biggest and most aggressive of the new breed of unregulated energy traders that buy and sell billions of dollars of electricity and other commodities daily.

That strategy helped Enron's stock price soar during the last decade. But this year the company's shares have fallen sharply, as Enron has suffered from problems with its new broadband telecommunications trading unit, its investment in a large power plant in India, and criticism from officials in California, who blame Enron and other energy companies for the collapse of the state's electricity market.

A former energy consultant at McKinsey & Company who joined Enron in 1990, Mr. Skilling built its energy-trading operations into the company's most profitable unit, accounting for nearly $1.7 billion -- or 85 percent -- of operating income last year. He became president and chief operating officer in 1997, and in February of this year became chief executive.

On a conference call, Mr. Skilling said he could not "stress enough that this has nothing to do with Enron." He added that "the reasons for leaving the business are personal, but I'd just as soon keep that private."

Mr. Skilling, who is divorced, has joint custody of three teenage children -- a daughter, 17, and two sons, 14 and 11 -- with his ex-wife. Mr. Skilling, who will leave the board but will serve as a consultant to the company, will not receive any severance package because his departure is voluntary, Mr. Lay said.

Since May 2000, Mr. Skilling has sold at least 450,000 Enron shares worth at least $33 million, according to Securities and Exchange Commission filings. He still owns about 1.1 million shares, the filings show.

"Absolutely no accounting issue," Mr. Lay told analysts, "no trading issue, no reserve issue, no previously unknown problem issues" are behind the departure. There will be "no change in the performance or outlook of the company going forward," he added.

He also said the company was on track to meet analysts' earnings expectations, which are about $1.80 a share this year and $2.15 next year.

On the call, Mr. Skilling said that "in general there have been a lot of issues" that have buffeted the company this year, but he said that he believed Enron had already surmounted most of them. "Now is the time" to step down, he said, "because I think we've got a lot of these things behind us."

Nonetheless, the move jolted analysts, who, despite the stock's recent slide and the company's other problems, saw Mr. Skilling as the unquestioned leader to follow Mr. Lay.

In after-hours trading, shares of Enron fell about 8 percent, to $39.55. That fall follows a plunge of almost 50 percent since January in the stock, which had closed in regular trading at $42.93, up 78 cents. The news of the executive changes came after the market closed.

"I'm surprised and I'm stunned," said Philip K. Verleger, an energy economist with the Brattle Group, a consulting firm in Cambridge, Mass. "Skilling was the guy who executed the growth in the trading business."

Investors have become increasingly concerned that a surge in new power plant construction will lead to a glut of electricity within a few years and lower the value of Enron's role as a middleman between plant owners and electricity users. In addition, the company's efforts to enter the water business have fared poorly, and its broadband trading operation has become a cash drain.

Mr. Skilling's promotion early this year came after several crucial Enron executives resigned. These included Rebecca Mark, who at one time was considered a rival for the top job.

Ms. Mark became chief executive of the Azurix Corporation in 1999 after Enron spun off the company, its global water business. But its financial performance was disappointing, and Ms. Mark left the company last year. Enron later agreed to buy back Azurix stock for less than half what public shareholders had paid.