Press Action ::: Enron-Style Accountability in the White House

Monday, February 23, 2004

Enron-Style Accountability in the White House

Will George W. Bush Face a Classic Run on the Bank in November?

By Mark Hand

“George Bush is really a big corporation in the White House disguised as a human being.” — Ralph Nader, on Democracy Now!, Feb. 23, 2004

Enron’s corporate culture bred an us-against-them mentality among its employees and business partners. Enron insiders believed it was their unique insight into the world of energy trading and markets that enabled the company to grow into the seventh biggest on Fortune’s list of the top 500.

The brash demeanor of Enron executives contributed to the company’s mystique. Enron’s public relations campaigns created an image of a radically profitable company positioned perfectly to thrive in the new century. Through its marketing efforts, Enron built a wall of protection against prying legislators, regulators and traditional watchdogs on Wall Street.

During its rise to the top, Enron officials had little patience for outsiders who questioned the company’s profit-making methods. The motto of the company was “Ask why?” but no one inside the company was asking why and when an analyst or member of the business press tried to get a closer look at the company, they were rebuffed by company officials who retorted that they just “didn’t get it.”

It’s this same zeal for secrecy and absolute power that George W. Bush has embedded in the White House during the past three years. Bush administration officials lob insults and innuendo at members of the press and public who dare to question the effectiveness of White House policies. Simple requests for transparency in the administration’s governing process are portrayed as efforts to stymie the White House’s ability to do its job. As he promised during the 2000 presidential campaign, George Bush indeed imported a corporate culture into the White House that emphasizes the expertise of its staffers and demands blind trust from the public in its governing practice.

With the tag team of Key Lay and Jeff Skilling at the helm, Enron demanded trust from the investment community in its business game plan. The ploy worked for years as Wall Street analysts, regulators, legislators and the press were blinded by the hype — and the opportunity to share in the company’s spoils — and readily accepted the Enron story of success. But the truth about Enron’s balance sheet eventually caught up with the company. As the layers of secrecy unraveled, Enron fell precipitously from its perch as the seventh largest publicly traded company in the United States. The nation was reminded of Enron’s dramatic crash last week as Skilling was indicted on 42 counts of criminal conduct while serving as a top executive of the company.

Will the same penchant for secrecy and cooking the books inside the White House produce the same outcome for Bush and his cronies?

With the help of a subservient judicial system, the Bush administration has successfully fought off challenges to its methods of governing behind closed doors. Charges of White House deception and dirty tricks, however, are receiving increased attention in various investigations that have cropped up in Washington.

In the case of Enron, the investing public voted it out of power by selling its shares in the company in 2001, an event that Skilling called a “classic run on the bank.” After finally catching a glimpse of the soft underbelly of Enron in 2001, investors knew it was time to cut their losses and jump ship.

In November 2004, will the U.S. public digest the news of the Bush administration’s secrecy and lies and then decide to withdraw its support of the president? And if Bush is voted out of power in 2004, like Enron was in 2001, are we to assume criminal indictments will follow?

As with most corporate scams, it took people too long to recognize that Enron’s asset-lite strategy was a hoax and too long to discover where the company had hidden its losses. Like the Bush administration, Enron thrived for many years through its ability to fend off anyone hoping to see what was behind the curtain of corporate propaganda. With most of Wall Street in its pocket, Enron understood it could wage attacks on the rare analyst or fund manager who dared to express even the slightest skepticism in the company’s business strategy and accounting methods.

Behind the scenes, both Lay and Skilling were ruthless in their pursuit of acceptance by Wall Street. But in public, the two men used a good-cop, bad-cop routine to hoodwink the investment community and government officials into accepting their view of the way the energy industry should operate.

By 1990, the year Skilling joined the company after working for more than a decade as a McKinsey & Company consultant, Enron had attained a leading star status in the natural gas industry, and New York investment banks were begging for a piece of the action. “Over time, many companies came to expect buy recommendations from analysts; it was often a prerequisite for getting banking business,” Bethany McLean and Peter Elkind write in their book, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron. “Enron, which paid some of the highest investment-banking fees in corporate America, had an immense amount of leverage, which it used shamelessly.”

Credit analysts, Harvard Business School professors and the business press all hailed Enron, in the words of one analyst for Merrill Lynch, as “an impressively deep resource of some of the best and brightest minds around.” Fortune magazine named Enron Most Innovative Company six years in a row. CEO magazine honored Enron’s board as one of the top five in corporate America. In the fall of 2000, only a year before it filed for bankruptcy, Financial Times Energy named Enron Energy Company of the Year.

By the late 1990s, as Lay was spending more time cultivating an image of business visionary and Houston benefactor, Skilling had become the public face of Enron. Through a combination of business savvy, bravado and intimidation, Skilling successfully sold the idea of Enron as an energy industry revolutionary.

In early 2001, Lay rewarded Skilling with the additional title of chief executive, making him leader of Enron in both name and practice. After only a couple months on the job as CEO, Skilling’s true colors emerged during a conference call with analysts to discuss the company’s first quarter earnings. Richard Grubman, manager of a hedge fund named Highfields Capital, asked Skilling if Enron would be releasing a balance sheet containing more detailed information about the company’s finances than the income statement the company had provided to the public.

When Grubman, who was widely known by Enron executives as a short-seller — an investor who tries to profit from the falling price of a stock — pressed Skilling on whether the company would produce a balance sheet or cash-flow statement for the first quarter, Skilling responded by calling Grubman an “asshole.”

Skilling’s performance during the conference call confounded many in the industry, but Enron traders applauded his performance. After the call, according to McLean and Elkind, the traders gave Skilling a sign that read “Ask Why, Asshole.” The message played off Enron’s motto, “Ask Why.”

(During the 2000 presidential campaign, Republican nominee George Bush made a similar utterance during a Labor Day stop in Naperville, Ill., upon seeing New York Times reporter Adam Clymer. “There’s Adam Clymer — major league asshole — from the New York Times,” Bush told Cheney after spotting Clymer in the crowd. “Yeah, big time,” Cheney responded.)

Not to be outdone by the investment community’s obsequiousness, legislators and regulators showered Enron with plaudits for the company’s development of a vision to transform the monopolistic electric and gas industries into dynamic, competitive sectors that would appeal to investors keen on higher returns. Despite garnering the support of many federal and state officials, Enron executives, particularly Skilling, did not hesitate to badmouth government officials for supposedly blocking the company’s path to even greater success.

“Unlike Lay, Skilling had no patience for the capital. On the contrary, his contempt for Washington was palpable,” McLean and Elkind write. “‘How can you stand your job?’ he asked an Enron Washington lobbyist after a meeting on Capitol Hill. ‘These guys are absolute idiots.’”

And yet, the federal government became a useful idiot to Enron, not only with its efforts to deregulate the upstream side of the natural gas industry in the 1980s and restructure electric and gas markets in the 1990s, but also with its supply of financial aid to the company. “A classic example was Enron’s dependence on such government agencies as the Overseas Private Investment Corporation and the Export-Import Bank, which provided loans and loan guarantees for development projects in the third world,” McLean and Elkind explain.

Between 1989 and 2001, some 20 governmental or quasi-governmental agencies, including OPIC, the World Bank, and the Export-Import Bank, approved $7.2 billion in public financing for 38 Enron project in 29 countries, according to a study by the Institute for Policy Studies.

Enron excelled at selling to the two major political parties the merits of its business model. “It didn’t hurt that the philosophy Lay had long espoused had largely become accepted wisdom, not just by Republicans but by Democrats as well,” McLean and Elkind note. “Eminent people, ranging from the Weekly Standard’s editor, William Kristol, to economics star Paul Krugman (now a columnist at the New York Times), came to Houston twice a year to share their thoughts with Lay in a boardroom adjacent to his office on the fiftieth floor. (They were each paid $50,000 a year to do so.)”

With its 42-count indictment [pdf] against Skilling, the federal government in essence is doing Wall Street’s bidding. The captains of industry and finance in the United States understood that the corporate scandals, symbolized by the fall of Enron, had given Wall Street a black eye. Corporate America was awash in the type of accounting practices that Enron officials had used to boost earnings and enhance share price. And yet, only a few companies were called to account for their sins.

When the fallout from the Enron scandal reached a crescendo in the fall of 2001, Wall Street officials knew some fine-tuning was in order to ensure the long-term health of the market. The engine of market capitalism required a stream of other people’s money to serve as its fuel source. Without certainty and trust, investors would become gun-shy. A hesitant investment community would cause great damage to the current economic structure by stemming the flow of capital.

With scenes of corporate perp walks and threats of long prison terms, Wall Street, with the help of the courts, is hoping to retain the confidence of the investment community. The populist tactics also are designed to warn other executives of the perils in making corporate America look bad.

If the Democrats win the presidency in November, will they purge the executive branch of its anti-democratic features that foster extreme secrecy and criminal behavior? Or will they adopt the Wall Street approach, implementing only mild reforms in the White House as a way to calm public anger ignited by the Bush administration’s Enron-style of governance while keeping the institution’s repressive framework in place?

Mark Hand is editor of Press Action.

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