Lay of the Land

Kenny Boy's fall: a sign of Houston's corporate culture gone wrong

Near the pinnacle of Enron's success in the late '90s, CEO Ken Lay spoke to the editors of the corporate advice handbook Lessons from the Top. "I will always look for leadership over management skills in my senior people," Lay told them. "What we are trying to do is create an environment where we stimulate people to act like entrepreneurs, even inside a $30 billion company."

Lay, of course, is now under federal indictment and being sued for plunging that $30 billion company into the economic basement. Depending on whom you ask, he is guilty of fraud, incompetence or simply being duped by subordinates, such as former finance chief Andrew Fastow, who was convicted of fraud. But most people agree that Lay defined Enron's fast-and-loose culture.

"Ken Lay, to a certain extent, was the culture of Enron," says Rod Jordan, chairman of the Severed Enron Employees Coalition. "He was a driving CEO, a CEO that made his philosophy and his enthusiasm known, and filtered it down to the rest of the troops. There was a 'you've got to produce and get it done no matter what it takes' kind of an attitude."

That attitude pervaded not only Houston's largest company but Houston itself, a city long known as a place to make a fast buck without being asked too many questions. Fueled by the oil boom and an absence of zoning, Houston spread during the '70s and '80s like kudzu across the prairie. Enron was founded in 1985, during the inevitable bust that had erased a quarter-million jobs from the city.

The same laissez-faire, free-market ideas that had stung postboom Houston were transformed by Enron into the city's best notions of itself during the '90s. The company was a technocratic deregulation innovator, an oil-and-natural-gas outfit that had diversified into new markets, even broadband Internet. Its founders were perhaps a bit brash and arrogant, but they were also civically and philanthropically engaged. Enron was the new Houston.

Nobody embodied this updated vision for the city better than Lay, who declined to speak to the Press. During the '90s, he was one of the most active members of the Greater Houston Partnership, a business group that has been alternately described as a civic organization and a shadow city government. "He was a man of action and he had an ability to move the ball," says GHP president Jim Kollaer. "And that was what everybody in the community needed."

In his most high-profile civic effort, Lay supported a referendum to fund the Astros' downtown baseball stadium. "He just played a huge role in that campaign," says team owner Drayton McLane. Enron purchased naming rights to the stadium in 1999 for $100 million, and Lay threw the ceremonial first pitch. McLane expresses no regrets about Lay's involvement. "He had nothing to gain personally out of all this," he says. "And so I have great admiration for him."

But not all of Enron's sway was won through volunteerism and the force of ideas. Over roughly the same period, Enron contributed nearly $5.8 million to politicians, mostly Republicans. Lay himself gave $883,000. Enron's leading beneficiaries were Texans such as Senator Kay Bailey Hutchison and then-senator Phil Gramm. One of the top donors in the nation to the 2000 election campaign of President George W. Bush, the company used its own jet to fly the first President Bush and Barbara Bush to their son's inauguration.

It's still unknown exactly what dividends Lay's efforts reaped for Enron. During the rolling blackouts later that year in California, Vice President Dick Cheney and his aides held at least six meetings with the company's executives to discuss national energy policy. Even now, the Bush administration refuses to reveal exactly what transpired behind those doors. But clearly, Bush and Lay were on close personal terms: The president called Lay by his now-famous nickname, Kenny Boy.

The real Kenny Boy was the son of a Missouri farmer. "Driving tractors during the summer while I was growing up gave me a lot of time to think about what I wanted to do with my life," he told the editors of Lessons from the Top, "and I decided pretty early on that I didn't want to be a farmer." Lay served as an economist in the U.S. Navy and an undersecretary of energy under Rogers Morton. In Houston, he ran Transco Energy Company and Houston Natural Gas before taking the reins at Enron.

By many accounts, Lay wasn't a details person. He articulated a broad vision for Enron and left up to others the job of hashing through fine print. By this logic, he could honestly tell his employees that he thought Enron stock was "an incredible bargain" even as it was plummeting in September 2001. And a day before Fastow was pushed out of the company, he could say, "I might add that Enron's board of directors continue to have the highest faith and confidence in Andy and believe he is doing an outstanding job as CFO."

Not everyone is convinced of Lay's ignorance, however. "This is what I call the Elmer Fudd defense -- that 'I went to work every day and was paid $6 million a year and had a Ph.D. in economics -- and somehow despite all this, I didn't know what was going on.' It's laughable," said attorney Bill Lerach in an interview with CBS News. Lerach sued to stop document-shredding by Enron's accountants and is now leading an investor lawsuit against Enron, its accountants and Lay.

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