Mon, Feb 11, 2002 page7

• Skilling, the CEO who didn't know too much

  PLAUSIBLE DENIABILITY The former Enron leader says he didn't know anything about `off balance sheet' partnerships. But others find that claim hard to believe

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  When Jeffrey Skilling ran Enron Corp, he described the energy trader as "brain-power intensive." Friday, the Harvard Business School graduate told Congress 34 times he couldn't remember memorandums or meetings about partnerships that drove the company into the biggest US bankruptcy.

  The former chief executive officer testified he knew nothing of bogus accounting or conflicts of interest by Enron executives who helped run the company's partnerships. His testimony clashed with that of other Enron officials, including current President Jeffrey McMahon.

  

  PHOTO: REUTERS

  Skilling's four hours of testimony to a House Energy and Commerce subcommittee investigating Enron's collapse included a two-minute period where he said "I don't know" eight times.

  McMahon, a former treasurer of the company, said he told Skilling on March 16, 2000, that the partnerships were "unethical and improper." Panel members said they were skeptical Skilling was telling the truth.

  "I can believe you, Mr. Skilling, or I can believe Mr. McMahon, but I sure as hell can't believe you both," Representative Jim Greenwood, a Pennsylvania Republican, told Skilling after his testimony.

  Some former CEOs of US companies said they found Skilling's testimony hard to believe.

  "It is not credible," said Gerald Meyers, former CEO of American Motors Corp and now a professor of organizational behavior at University of Michigan. "There's no way to escape management responsibility here. He may be able to escape liability -- that's a legal subject."

  Lawmakers quoted from a New York Times article that portrayed Skilling as "the ultimate control freak."

  Representative Bart Stupak, a Michigan Democrat, questioned how a former McKinsey & Co consultant known for his hands-on management style could be oblivious to the financial dangers of the partnerships.

  "Probably a more accurate description would be that I was a `controls freak," the 48-year-old Skilling said. "We had a company that was an enormous organization, that was far flung across the globe. We put in force what I believe was a very effective control structure for the company."

  Skilling, who resigned from Enron on Aug. 14 after six months as CEO, said he was not aware of transactions between Enron and partnerships set up and run by former Chief Financial Officer Andrew Fastow.

  The partnerships, LJM Cayman and LJM2 Co-Investment LP, were designed to hedge Enron's investments in volatile technology stocks and to buy and sell Enron assets, such as power plants.

  McMahon, 41, testified that he met with Skilling on March 16, 2000, because he was uncomfortable with Fastow being both a top Enron executive and the general partner of the LJM ventures.

  Skilling said he understood the concerns and would remedy the situation, according to McMahon.

  "I was sure the situation created by the involvement of a high-ranking executive in the company with these partnerships was like creating a moral cesspool," McMahon testified. "Fastow's own interests in the partnerships put Enron at risk."

  Skilling said he recalled that the meeting focused on compensation issues. "He felt he was being put in awkward position having to negotiate with Andy [Fastow] and that it might affect his compensation package," Skilling said. "I don't think there's anything radically different in my recollection compared to what he said."

  The conflicting testimony doesn't jibe with the image of Enron prior to the bankruptcy, when it transformed itself in a decade into the world's largest energy trader from an oil pipeline company.

  In another example where his testimony didn't match other evidence, Skilling said he didn't believe he was required to approve each of the transactions involving the LJM partnerships, which were set up in 1999 when he was company president and chief operating officer.

  "I wasn't required to approve the LJM1 and LJM2 transactions," he said.

  Shown minutes of an Oct. 6, 2000, board meeting in which Fastow said Skilling would approve all the deals between Enron and the partnerships, Skilling said he didn't remember the meeting.

  "I don't recall this being said," Skilling testified.

  Committee member Clifford Stearns, a Florida Republican, questioned Skilling's version of events.

  "I have a hard time believing McMahon didn't describe this conflict of interest," Stearns said. "McMahon says you were told specifically about these conflicts of interest. You are practicing plausible deniability."
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