Transcript

C-Span - American Perspectives
NCTA Conference and Enron Insider
Broadcast 4/22/06 - begins 2:04:48 on the program
Houston Forum - April 6, 2006
Robert Bradley, Former Director of Public Policy, Enron

Insider’s View - Ken Lay & Enron

Introduction

The speaker today is Rob Bradley who is President of the Institute for Energy Research of Houston.  He is also an adjunct scholar of the Cato Institute of Washington DC and a visiting fellow at the Institute of Economic Affairs in London.

Rob may be the least known yet the most knowledgeable person about Enron.  An economist by training, Rob worked at Enron from September 1985 until the company’s bankruptcy.  He was one of the 4,000 who were laid off in early December 2001.    For most of his years at Enron, Rob was Ken Lay’s speechwriter.   He was also co-director of the Enron Oral History Project along with Joe Pratt of the University of Houston - which was compiling information on the history of the company at the time of the collapse. 

Since 2002 Rob has been writing his sixth book.  This one is about Enron setting its’ rise and fall in its historical context of the U.S. Energy Industry and business-government relations.  Support for this project has come from approximately 20 Houston individuals and Foundations.  The book is intended to be a lesson learned primer of business and capitalism in the 20^st Century. 

Rob recently taught a high school course at Kincaid School entitled, “Business and Bust - Lessons for Life”.

Please Welcome Rob Bradley

Robert Bradley

Well thank you very much.  This is a full house.  I see a lot of my old Enron friends.  I almost want to ask all my old Enron buddies to stand up  but maybe that would embarrass you in some ways but we had a wonderful time there at least until the last couple of months.  I think most of us would say that it was a great experience but we would certainly like it to have been different - beginning in about 1997 forward.

I appreciate the opportunity to be here.  I’ve done a lot of thinking on this and I’m going to try to summarize it into about 35 - not more than 40 minutes.  There is a lot to cover here.  And I should confess up front that I’m probably one of the very few winners in the Enron situation - not in a financial sense - certainly then or now, but in the sense of being a writer interested in energy history, best business practices and the big themes of capitalism.  And this is really a dream book - or a dream project because an entire worldview comes into play.  It spans all the social sciences, best business practices, business ethics, political economy; it’s all there.  It is a great way - in a live situation to learn about social sciences.  It’s a worldview that at its most profound level begins with an ancient philosopher who formulated the principle: ‘A is A.  Reality is Real’.  And it’s a worldview that continues today in the work of one business strategist explaining how and why business must deal with reality in order to get from good to great.

Now Enron, as we know is a historic event.  Just in simple business terms, the Enron collapse is the most significant and consequential debacle in U.S. corporate history - really world business.   It eclipses the fall Samuel Ensel’s utility empire in the 1930’s which changed the face of American business law.  And Enron’s demise eclipsed Houston’s prior biggest bankruptcy, that of John Henry Kirby whose 40 million dollar twin oil and timber companies entered receivership in 1904 and whose Kirby Lumber company declared bankruptcy in 1934.  Two bankruptcies - and 40 million dollars in 1901 was worth a lot of money.  Intriguingly, it was part of Kirby’s Houston Oil Company that became Houston Natural Gas in the mid 20’s which in turn because Enron in the 1980’s.  It has happened before.  And you look at some of the traits of John Henry Kirby and Ken Lay and its fascinating.. its very fascinating.  And perhaps it can happen again.

I brought some slides with me.  On one level you can look at Enron.  It’s just the old story of the non-core swallowing the core.  Too aggressive.  Got into too many business lines and business failure.  And the dark cloud there - add a little bad luck perhaps with 9-11 and other things.  But this is the usual story - no business is forever.  Most businesses won’t last decade by decade by decade.  And some of this has come out during the Dynergy proceedings.  Ken Lay, in a very frank moment talked about Enron’s bad investments and loss of investor confidence.  And this was even before we really knew about all the things that Andy Fastow was doing.  

The Enron collapse is about much more than business failure.  It is the story of obfuscation and fraud.  Not vanilla Worldcom type fraud but the 31-Flavors of fraud, misrepresentation, mis-direction and old-fashioned spin.  The Enron fraud was so wide-ranging in retrospect that it’s hard to know where it started and ended and who knew what and when.  I’ve ventured a guess that any further wave of truth will bring forth more quantities and flavors of deceit - not less.  For behind the really big ones are innumerable smaller ones.   Now the judge jury and history will answer the question whether the two top Enron officials now on trial will be innocent or guilty of illegal fraud.  But I would like to offer the working hypothesis that prosecutable fraud aside; the major decision makers at Enron between 1997 and 2001 were guilty of philosophical fraud - which I define as ‘Crimes Against Reality’. 

We’re so used to thinking in terms of criminality and incompetence - and we could add unethical behavior - but there is a very important term - concept we need to add to our vocabulary to understand Enron and to understand all sorts of things - and that’s what I call philosophical fraud.  If you look at a thesaurus - in Roget’s Thesaurus there are 54 synonyms of deception.  I’m going to read a few of these to you - self-deception, fond delusion, wishful thinking, vision, hallucination, will of the wisp, victimization, hoodwinking, defrauding, conning, bluffing, overreaching, outwitting, guile, shiftiness, sneakiness - it goes on and on.  But all those terms would be flavors of philosophical fraud.  Is philosophical fraud prosecutable fraud?  That is a question for the courts but the common denominator is that reality is being falsified a little or a lot. 

9:07

This brings me to Enron.  Unquestionably the Enron story is the Ken Lay story.  It was Lay who in 1984 or 85 remade Houston Natural Gas into a distinct company it could call its own.  He was CEO for all of six months of this period and he was Chairman for the entire period.  This said, something significant did change in 1997 with the departure of Richard Kinder and the promotion of Jeff Skilling.  In important ways, Enron became Jeff Skilling’s company.  And this message came across very clearly who were considered a “Jeff Skilling guy”  or a “Ken Lay guy”.  You knew that this was now Jeff Skilling’s company.  Nonetheless, Ken Lay gave the world Jeff Skilling as we know him today.  And Skilling gave the world Andy Fastow, as well as many of the others who were at the heart of the Enron debacle.  However, the law and history books judge Jeff Skilling and his deeds, they must judge Ken Lay to have been his enabler and so the person who made his deeds possible.   And this gets me to the Ken Lay paradox.