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CNN LARRY KING LIVE
Interview With Jeffrey Skilling
Aired February 21, 2004 - 21:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LARRY KING, HOST: Tonight, meet the man in the center of the biggest corporate scandal in United States history. And now, he's talking to a federal judge, before that he talked to us. Former Enron CEO, Jeff Skilling, next on LARRY KING LIVE.
On Thursday, former Enron CEO, Jeff Skilling, pled not guilty to 36 charges filed against him. They include multiple counts of insider trading, securities fraud and making false statements. If convicted on all those charges, Skilling could spend the rest of his in prison and pay up to $80 million in fines.
To put things in perspective, the fall of Enron is the largest corporate collapse in U.S. history. Enron, which was once No. 7 on the "Fortune 500" is but a shell of its former self. But they didn't take the fall alone, its accounting firm, Arthur Anderson, was also devestated.
The scandal brought to life questionable accounting practices throughout the country. Led to several reforms in Washington, including a measure making CEO's personally verify corporate earnings reports.
That brings us back to Jeff Skilling. In his first interview since the scandal broke, Skilling joined us with his attorney, Bruce Hiler. Skilling had just testified before Congress, and I started by asking him, why he had decided to tell the story under oath.
JEFFREY SKILLING, FORMER CHIEF EXECUTIVE OFFICER, ENRON: Well, Larry, this whole Enron situation's been terrible for a lot of people, and I think at some point someone had to try to help explain what happened. And I certainly respect the rights of people that take the Fifth Amendment. I mean, that's their right and their due.
But I believe that, for my family, for people in the city of Houston, Texas, for my acquaintances and friends, and, I guess, probably, most important for the employees of Enron that have gone through such a tough time over the last couple of months that I think -- I felt like I owed it to them to help resolve what happened.
KING: Was there any advice not to?
SKILLING: I'll tell you, my friend, lawyer.
HILER: (UNINTELLIGIBLE) into legal advice. We obviously, you know, respect what Jeff is doing and he was forewarned. Obviously, it was a courageous thing to do because . . .
KING: Because you did leave yourself open.
HILER: Well, you know how Congress is going to react. But, you know, I'm also a firm believer in the fact that this is a new case. This is a unique case. I've heard the age-old adage about taking the Fifth. This is a new economy case.
KING: What did you think of the others who took the Fifth?
SKILLING: I think that's their right under the Bill of Rights of the United States of America and I think that's their decision, and it's just fine.
KING: Back a little, Jeff. You joined the company in what capacity?
SKILLING: Well, actually, I had been working as a consultant to former companies of Enron, or predecessor companies of Enron and, so, I joined in 1990 to really start our wholesale merchant business.
KING: And that was your title?
SKILLING: Well, actually, in my first title, I was Chairman and Chief Executive Officer of something called Enron Finance Corp. Probably, the best description would have been Chairman, Chief Executive Officer, and only employee.
KING: Enron grew out of a couple of companies, right?
SKILLING: Yes, Enron was a result of the merger in the middle 1980's of two pipeline companies. As the markets began to go through deregulation in the last 80's, that business became very tough. And in the late 80's, a decision was made to really kick off two new businesses: a wholesale merchant business, which was really to start participating in the new deregulated markets for natural gas, and an international development business that was building power plants and pipelines around the world. I was really brought in to start and manage that merchant -- wholesale merchant business.
KING: Along the way in the 90's, was there a time when you said I'd like to run this company?
SKILLING: Run Enron Corp?
SKILLING: Well, I think my favorite job, if you -- my favorite job was when I was running our wholesale merchant business.
KING: You liked that better than CEO?
SKILLING: Oh, sure. Absolutely.
SKILLING: Well, I think, you know, once you move up to become Chief Executive Officer of the corporation, you spend a lot more time on things that maybe you just don't enjoy as much as the things that -- I like building businesses, Larry, and . . .
KING: But you accepted the post?
SKILLING: Yes, sir.
KING: Why did you stay so short a time?
SKILLING: Well, you know, I'd actually like to kind of turn it around on you a little bit and I think probably the question a lot of people have asked is why did I stay as long as I did?
KING: I mean, as Chairman, you only stayed -- as CEO, you only stayed February until August. That was too long?
SKILLING: Well, as we built the business in the 1990's, as I said, I enjoyed that. We were building a -- what I thought was a fantastic company. We had great people. We were changing -- we were changing the way the marketplace operated. We were creating a market for natural gas and electricity that had never existed before. But I will say it took a toll on me personally.
It was a very difficult 10 years of very hard work. In the fall of the year 2000, there just happened to be a decision point when they asked me to become Chief Executive Officer of the company. It was a time when, as you remember, we were starting to have some real problems in the California energy markets. We were starting to have some problems with a power plant project that we had in India, and we also began to have some problems in a broadband business that we had created. And I felt that before I could, in good conscious, leave the company, I had to make sure that we got all those things taken care of.
KING: Was it Kenneth Lay that asked you to take the job?
SKILLING: Yes, and the board of directors.
KING: All right, why the decision to leave?
SKILLING: Well, I think at that point, the next six months was tough. I mean, it was very tough.
KING: Did you see bad things coming?
SKILLING: No, absolutely not.
KING: Did not?
SKILLING: Absolutely not. In fact, let me -- let me absolutely clear on this. When I left -- I left on August 14 of the year 2001 -- I believe the company was in -- was in great shape. I believe that the financial records, which have created so much controversy in the company, subsequently, were an accurate reflection of my understanding of the financial condition of the company. KING: You left with a clear conscience.
SKILLING: Not only...
KING: You didn't see anything? SKILLING: Not only that, Larry, I'd go even farther than that. I think we had made some tremendous progress in the six months before I left.
KING: Then why did you leave?
SKILLING: I was tired.
KING: Just tired?
SKILLING: Well, you know, for anyone that has started a business, and -- you know, we started a heck of a business. And this business, as I said, I was chairman, chief executive officer, and only employee of Enron Financial when I came. We built that into a wholesale business that became, really, one of the largest companies in the United States. We had success in building new markets, opening markets for competition, and that takes a personal toll.
I think most people probably would have described me as a -- as a workaholic and I think -- I think that's probably fair.
KING: Well, workaholics like to work.
SKILLING: Workaholics like to work, but it does take a toll, and I believe in -- from a personal standpoint -- my own personal life, there were a lot of things that I had neglected, and . . .
SKILLING: My family, my community, things that I personally wanted to do that I hadn't done yet.
KING: Did Mr. Lay and the others try to talk you out of it?
SKILLING: Yes, but I think -- I think at that point, I think Ken knew that I was -- I was convinced that it was the right thing for me and the right thing for my family.
KING: Are you saying, Jeff, then, when this whole thing broke, you were as shocked as everyone else?
SKILLING: Larry, I spent probably most of my professional life helping to build Enron Corporation. I don't think there was anyone that was as shocked by the -- by the collapse of the company as I was.
KING: And now, in retrospect, can you say: ah, I should have known it then? Or, I should have seen this coming? Or, should of, would of, could of? Retrospect, what could I do different?
SKILLING: Well, you know -- and I've said before -- you know, I've gone back and, as I'm sure you would do, as anyone would do, I've gone back through the last five years with the company and I've thought about all of the decisions we made -- some related to some of these issues that have come up subsequently -- and I believe that, given the information that we had at the time and the data that we had at the time, I think we made the right decisions. KING: Did you have wrong data?
SKILLING: I think, looking back on things, I think we've -- given what we had at the time, we made the right decisions. Are the things that now, in retrospect, with what I've seen happen to my company, would I have done some things differently? I think -- I think we all would do -- we would do a number of things differently.
KING: Wall Street analysts said yesterday -- the other day, that they were led astray by Enron executives who promoted it up and they promoted it up while they knew it was going bad. Were you one of those they were referring to?
SKILLING: Well, I don't know what the analysts said yesterday. I think -- I think -- it was my understanding most of them said they were as surprised as I was with what happened to the company.
KING: But they said they were given elevated positions by executives at a company.
SKILLING: I don't -- I don't think there's any doubt that all of us in the company felt very good about the company.
KING: So when you issued optimism on the company, it was honest optimism?
SKILLING: Honest optimism, Larry.
KING: We'll be right back with Jeffrey Skilling. His attorney Bruce Hiler is with us. You're watching LARRY KING LIVE. Don't go away.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Do you swear that the testimony you are about to give is the truth, the whole truth and nothing but the truth?
SKILLING: I do.
(END VIDEO CLIP)
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: Mr. Skilling, if you plan to tell this committee that you did not understand Enron's true financial condition, then you will need to explain why, why you failed to understand things that any diligent CEO would have understood.
(END VIDEO CLIP)
KING: We're back with Jeff Skilling. His attorney, Bruce Hiler, is also with us.
Was it difficult the other day to sit next to Sherron Watkins who was saying things damaging about you?
SKILLING: Well, no. You know, I think we're all trying to get the answers. I mean, there's some missing pieces of this puzzle and we're trying to get some answers. And...
KING: You angry at her?
SKILLING: Am I -- am I angry at her? I'm not angry at all. I think Sherron is absolutely entitled to her opinion. Sherron's not entitled to her own facts, but Cheryl (sic) -- Sherron is certainly entitled to her opinions. I think some of the things that she said about her opinion of what I was thinking I think were incorrect, but, you know . . .
KING: But she used a tough word when she said she believes you and Mr. Fastow "duped" Ken Lay and the Enron board.
SKILLING: Well, actually...
KING: That's a strong charge. That means (UNINTELLIGIBLE)
SKILLING: ... Larry, I think, actually -- I think she said that during some of the House testimony. I don't believe she said that in the Senate testimony. And I don't know if she's changed her mind or what, but, you know, again, Sherron's entitled to her opinion. Sherron's not entitled to her own facts.
HILER: Larry, I'd like -- that's another thing. I mean, Congress has, obviously, treated her as a heroine. I personally don't think she's either the heroine or the finder of truth. She does just have her opinions and views. Her lawyers obviously told her to start her sentences with "in my opinion," or "in my view," but one of the big problems here is that Congress has taken her opinion -- and they know it's simply opinion -- and dressed it up as fact, and presented it to the American people as fact. And that, in our view, is really irresponsible because the American people begin believing that someone's unfounded view or opinion is factual, and it causes a lot of confusions.
KING: Back to like when -- what did you know and when did you know it? Was she in a position to know the things she's talking about?
SKILLING: I don't -- I don't think so. She couldn't know what I was thinking and was making -- had an opinion about it. But, Larry, you're going to have to ask her.
KING: I guess the most damaging thing for you, in the public opinion, which, maybe in this area you can help us with, is the picture of you urging people to buy the stock with reports of you selling the stock. That looks -- it looks duplicitous. What's the response?
SKILLING: Well, actually, you know, it's kind -- it's kind of interesting because I hadn't seen that video tape before Senator Boxer showed it at the Senate the other day. I think what the videotape actually showed is someone else saying that you ought to buy the stock and this is a great thing.
KING: But you were standing there, smiling.
SKILLING: And I think...
KING: You weren't disagreeing. You didn't stand there and go...
SKILLING: I thought the stock was a great buy. I think anybody that bought the stock in 1999 was -- saw over the next couple of years a strong growth. During the year of 1999, I significantly increased my ownership of shares in the company. So I -- to the extent that matters for anything, I've believed in the company, Larry.
KING: But you did sell, though, right?
SKILLING: I sold some shares, but on a net basis, significantly increased my ownership.
KING: In other words, you spent more than you got?
SKILLING: I bought more than I...
KING: Yeah, that's what I mean. You bought more than you sold.
KING: Therefore, did you lose a lot of money in this?
SKILLING: I don't think -- over the last three or four years, I don't think at any time was less than 90 percent of my net worth in Enron Corporation. I am still a major shareholder of Enron Corporation. The only stock I owned -- the only stock I owned was Enron Corporation. Was I believer in Enron Corporation? Yes, sir, I was.
KING: Had you not sold, would you be up against it now?
SKILLING: I'm sorry?
KING: Had you not made those sales of stock in '99?
SKILLING: Well, I think, over the years, I sold a very small portion of my ownership position in the company, and I lost the rest. I lost a significant -- now, I'm not, you know, in no way am I trying to say that I'm a victim of this because I know a lot of people that have been caught up in this -- in this with the organization and the company who have been hurt more than me.
KING: What could be done about that by the way? What do you think as a -- as a -- as a citizen, as a former executive, could be done about someone wiped out?
SKILLING: Well, I think there are remedies. I think there are a whole bunch of lawsuits that are -- that are in process right now and I think that's -- and certainly, the appropriate authorities are looking at the 401(k)s and pension plans to try to protect the interests of the -- of the employees.
KING: Do you think the government should back up large 401s? I mean, 401s held by private corporations?
SKILLING: Larry, I just don't know enough about the mechanics of the pension system and how it ought to be.
KING: Is there money to pay the lawsuits? What if they all prevail?
SKILLING: ... that knows.
HILER: If they all prevail? Well, we don't think they will prevail. In fact, I think, even with the Powers report out there, that a lot of people have talked about, that report is not really probative, and that when the postmortems are in, they will show that this company really was in good financial condition and it was a classic run on the bank.
KING: Then what happened? A run on the bank?
HILER: Run on the bank.
SKILLING: What I think happened, Larry, is that there were allegations of accounting problems -- accounting irregularities. In the business world, allegations of accounting irregularities is tantamount to yelling fire in a crowded theater, except, today, in our Internet world, instead of people running for the exit signs, they just push the button on their computer. And I think it was a very short -- in a very short period of time, there was an absolute flight of liquidity from the company.
KING: Could the company have done something? For example, there are some companies, when there are accounting irregularities, they immediately come out and say this was a misplaced thing. We're taking a loss here. Should Enron have done something on that day?
SKILLING: Well, I was ...
KING: You weren't there.
SKILLING: ... I wasn't there, Larry.
KING: What should they have done?
SKILLING: I just don't know what the issues were.
KING: Do you think this was a snowball effect? SKILLING: Yes, sir. I think it was -- I think it was run on the bank.
KING: Is it, therefore, Arthur Andersen's fault?
SKILLING: I think Arthur Andersen, you know -- in fact, shortly before -- actually, it was shortly after the earnings issue, there were a number of adjustments that were made; retroactive adjustments to the income statement and to the balance sheet.
What's interesting about those is that none of them impacted the cash flow of the company and none of them impacted the future earning capacity of the company. There have been some other allegations about a set of partnerships that were called Raptor. I can tell you in the -- in the board of directors meeting that Arthur Andersen -- it was represented that Arthur Andersen and the lawyers had looked at it, and Arthur Andersen and the lawyers thought that the structure of those partnerships was entirely appropriate. So...
KING: That's what Andersen told you?
HILER: Right, and, Larry, we're not assigning blame here, or trying to assign blame. I mean, the point is that, as in any corporation, the CEO, the board of directors rely on experts, and this company had hundreds of them. Very, very expert derivatives and financial experts, as well as all their accountants and lawyers.
KING: Lay -- Ken Lay says he feels betrayed by those who reported to him. I guess, does that include you?
SKILLING: I don't know. You're going to have to ask...
KING: Have you spoken to him?
SKILLING: No, I haven't spoken to Ken. We...
KING: Were you friends?
KING: Is the friendship over?
KING: You still consider yourself a friend of Ken.
KING: Do you think he's OK in his statements that he didn't know anything?
SKILLING: Well, again, I... KING: Statements -- it is written in the public, he didn't testify. SKILLING: Larry, you know, I left on August 14, and I can tell you that on August 14, I had no idea that there was an issue with the financial statements of the company. And on August 14, I can't believe that Ken would have had any knowledge of an issue with the -- with the accounting statements. So...
KING: Something went wrong somewhere, though, right? Were you too big? I mean, you can't keep your hands on everything, right? You know the name of the guy who headed the mail room?
SKILLING: No, I don't.
KING: You don't, OK. Some CEOs -- it's hard to be. You were not a hands-on CEO, then?
SKILLING: Well, I think in any company -- Enron was a large company. We had operations in, I think, 33 countries. We had 24,000 employees around the world. I tended to focus my areas -- I think, if I look at what I thought I was particularly good at, I was good at things like building businesses and spent time on areas of emphasis in the company.
KING: I think someone said you were good at that and not a manager, though. It is guilty as charged?
SKILLING: Oh, I'd say that my forte, the thing -- the thing I liked the best was building things, so we...
KING: You're sorry you took the CEO job, aren't you, Jeff? You are sorry you took that job.
SKILLING: Oh, I don't know, you know.
KING: You liked the other job better.
We'll be right back with Jeff Skilling and Bruce Hiler. Don't go away.
(BEGIN VIDEO CLIP)
SKILLING: I am here and prepared to answer the committee's questions because I have nothing to hide. I take and will continue to take full responsibility for my actions as a senior executive of Enron corporation. While I worked at Enron, I served the shareholders and the board of directors faithfully. When I left Enron on August 14, I did not believe the company was in financial peril and I have no knowledge -- and had no knowledge of any wrongdoing by its employees.
(END VIDEO CLIP)
KING: We should have asked you at this point, Jeff Skilling: has the press been fair to you or unfair, generally? I mean, the "Wall Street Journal" quoted you as saying you would have stayed with the firm if the stock price had stayed up. You're saying here you left because you were just flat out wanted to go back to family, and tired of it. Have you been treated fairly?
SKILLING: Well, yeah. I mean, that specific instance, I think I made it quite clear that there were personal reasons, that were the reason that I left. And, sure, the stock price in the end, as it was going down like many other factors that you evaluate, impact your personal response to things. And, so, I can't say that it was incorrect or I was misquoted. But I can't say that the...
KING: How, generally, have you been treated?
SKILLING: I think the -- just in general, that the allegations in the press have been unfair. I think in many cases, the judge and jury have already met and they've already convicted at this point, with no trial.
KING: And you think that was due to the press or the Senate and the House treatment of you?
SKILLING: Well, I think -- you know, I certainly think that the Congress was acting as judge and jury. I don't think the Congress was acting as a fact-finding entity, trying to figure out what happened, which is the reason I was there. I was trying to help fill in the missing pieces. But I think that the Congress was -- I mean, it's an election year, and during an election year, I guess you would expect something like that to happen, but I think that Congress is acting as judge and jury. And in my opening statement, I mentioned to them that, in my view, the framers of the Bill of Rights are watching and the Bill of Rights -- the framers of the Bill of Rights, I think they knew tyranny.
KING: In the past -- in the history, Congress would get mad -- more angry at the people who took the Fifth than those who testified. Is that a reverse now?
SKILLING: I -- Larry...
KING: Testify at your peril, do you think? You'd still to it again, though?
SKILLING: Oh, absolutely, I would do it again.
HILER: Larry, I'll be a little less...
HILER: Gentle. A little less gentle than my client. I think it's a highly politicized process. I think they want good guys and bad guys. They want heroes, heroines, and...
KING: And he's a bad guy?
HILER: ... and they've decided he's a bad guy, and that's something I think Jeff should talk about, because I think there's a real danger in Congress saying, "you were the CEO, you were there, you made some money on stock sales, therefore, you're it." We're going to make you guilty. SKILLING: That's the old Truman thing, isn't it? The buck stops here.
HILER: Well -- but, you know, this is a big company with a lot of people. And one thing I want to say about Congress specifically is; if they're going to try to find facts -- and they're not really the type of agency organization that can do that, and I really think they ought to leave that for the people that can -- you have to start with the truth.
The other day -- one example -- when we are tracking all the different statements that are made and the speeches that are made by Congress and all the things that they get inaccurate, and they are legion, but Senator Dorgan pulled a chart out at the hearing the other day and he had the top 10 largest companies in America, and it purported to show all the subsidiaries they had, and then it showed Enron with a lot more subsidiaries. And there were a lot of, you know, the top 10 companies on this. We had in one day, from the same sorts of sources they used -- public filings with the SEC -- found that their chart understated the number of subsidiaries that these companies had by two to 10 times.
KING: So the chart was wrong.
HILER: Absolutely, and in one case, Larry, very dramatically, they put down information unavailable for one of the top 10 companies. We, in one day, have found out that there were at least 1,714 subsidiaries. You can't get the truth if you don't start with truth.
SKILLING: So, do you say to yourself, Jeffrey, why you? Why are you the boy, since you had left in August? Does it look like -- do they think -- are they malicious? Is it political? Do they -- do they think because you left, you knew something was coming and you bailed? Why you?
SKILLING: Larry, I think a lot of people have been hurt by this. I mean, there is no question that a lot of people have been hurt by this. And, in that kind of environment, I think people look for who's at fault.
KING: And they've accepted Sherron as fact.
SKILLING: I think the Congress has decided -- the United States Congress has decided that I am guilty until proven innocent.
KING: Do you think she has a purpose?
SKILLING: I don't know. You'd have to -- I don't -- I don't...
KING: Well, you know her well, though, don't you? I mean, you worked with her.
SKILLING: I know -- I know Sharon. You know, when you ride up and down the elevator I would say good morning to her and good afternoon.
KING: You didn't work a lot in contact with her? Talk to her a lot every day?
HILER: See, that's one of the problems. She doesn't have facts on my client, and I think part of her motivation was very clear in her first letter to Ken Lay, the August 14 one that was published. She said: what are the rest of us, who didn't get rich going to do at Enron? I think she's discovered what she's going to do. She has a lucrative book deal.
KING: How well did you know -- do you think that's part of it? How well did you know the late Cliff Baxter?
SKILLING: I knew -- I knew Cliff very well.
KING: Were you shocked at that? His suicide?
SKILLING: Oh, yes, I was shocked.
KING: What do you make of it? I mean, everyone knows someone who -- if you know someone who killed themselves, all you do is think about why. Why do you think he did that?
SKILLING: Larry, Cliff and I were very close -- very close, and I know -- I know his wife very well. I know -- I know his family. They are very private -- they're very private people and I just as soon not -- could you ask Carol, his wife, her view?
KING: You were that close?
SKILLING: Cliff and I were very close. Cliff was my best friend.
KING: Your best friend at the company?
KING: OK, I don't want to pressure you, if that's not where you feel like you want to go. How do you feel abut Mr. Fastow?
SKILLING: Well, I worked with Andy for a long time, as well. Andy is a very bright, very energetic person. And, just in the same way that I sure hope people aren't pointing accusing fingers at me, I'm going to wait and see how the facts come out before I want to start pointing fingers at anybody else.
KING: He was chief financial officer, as everybody knows.
KING: Would be -- would -- who do you focus on in a big company if something goes wrong? Do you focus on the chief financial officer, the CEO, the chairman of the board? HILER: That's a problem. You want -- what Congress is doing is they're just focusing on the CEO, or wherever the easiest target is. KING: He's the only one talking to them.
HILER: Well -- and that's right. You -- but you need to focus on the facts, and you need to find those, and those facts aren't out. There are some indications of people receiving money from investments that the board of directors didn't know about. That's a good place to start. My client isn't one of those.
KING: Those people -- you saying people at the company who got money from what?
HILER: From investments that were not authorized by the company, or were not disclosed to the company that maybe should have been. That's a good place to start, but we're not -- you know...
KING: It's a big company, Jeff, can you hide things? Are people in position to hide things from other people? To generate money from it?
SKILLING: I mean, Larry, we had, as a company, I believed, one of the best control systems in the world. I mean, we had a risk control group that had hundreds of people. We had -- we had hundreds of accounts, hundreds of lawyers.
It used to be kind of a joke in Enron that you couldn't go to the men's room without the accountants and the lawyers going in with you. We had a lot of spent time -- the board spent time, the audit committee, management spent time putting good controls in place. Can those controls catch everything? Of course not. It just can't happen.
Does a CEO of McDonald's company go and close out the cash drawers of every store every night? Does the president of General Motors go down and check out as the shift punches out and changes? You just can't do that. You have to have systems and people in place to manage, and you rely on those systems and you rely on those controls and you rely on the people within the company.
KING: Jeff Skilling's our guest. His attorney is Bruce Hiler. We'll be right back.
(BEGIN VIDEO CLIP)
SKILLING: What has happened thus far, primarily in the House, should be cause for concern of every American. The entire management and board of Enron has been labeled everything from hucksters to criminals with a complete disregard for the facts and evidence assembled. These untruths shatter lives and do nothing to the public understanding of what happened at Enron.
(END VIDEO CLIP)
KING: We're back with Jeff Skilling. His attorney is Bruce Hiler. We're here in Washington. What about the political aspect of this? The huge donations that the corporation made to people of both parties, the friendship, especially, with the former President Bush, what was that all about?
SKILLING: Well, Larry...
KING: Just part of doing business?
SKILLING: I think so. I mean, if you look at it -- I think when this originally started, I think part of the reason that this has gotten so much attention is I think people thought there was a political scandal here and it just -- I don't think anyone's gotten anywhere with that. It just doesn't -- just doesn't hunt.
KING: Just -- but there was a lot of donations made to people, and when you make donations, it gives you entree, right? I mean, you're not just making it out of the clear blue wind; you're making it to hope they effect change for you -- both parties.
SKILLING: Well, I think, you know, the individuals -- I know in my own case, when I made contributions to candidates, it was because I believed in them. I believed that -- and they needed support and I personally would support them. I think if you actually go through the records and look at Enron's contributions, they're relatively low compared to a lot of very large companies in the United States.
We were in the process of trying to build a new business. The new business involved really remaking the way the natural gas and electricity markets ran, and we had a lot of entrenched competitors; monopolies, the local electric utilities, the local gas companies. When we started our broadband business, the local RBOCs, these were entrenched monopolies, and so, we as a company had to work real hard on our business -- from the business side to help build these businesses. And, so, I think if you look at it in aggregate, I think it was probably just -- I don't think there's any story there.
KING: Do you think you had clout over those energy meetings with the vice president, and the like -- and eventual energy policy?
SKILLING: Larry, I wasn't -- I personally wasn't involved in any of that. I just don't know.
KING: You think they did?
SKILLING: I doubt it, but I really don't know, Larry.
KING: In other words, you don't think contributions buy some influence with either party? I mean, they -- Kenneth Lay was a friend of both Bush and Clinton, right?
SKILLING: I think if you look at what happened -- we had -- again, I believe the company experienced a run on the bank. I certainly didn't see any government agencies jumping in to help us out. So...
KING: The run happened so fast, didn't it? SKILLING: It did happen fast.
KING: How do you explain that to yourself? I mean...
KING: ... companies like Enron don't go down that quick, do they? Kmart lasted a while.
SKILLING: One of the issues -- and it's an issue that I mentioned in the Senate testimony which is kind of interesting, because I don't think people have picked it up, or spent a lot of time talking about it, but we were a company, as most companies in the future will be, that were based on intellectual capital. You know, the physical assets -- the companies that compete in the physical asset business are moving increasingly offshore because the U.S. is just a high-cost place to do business. So businesses in the U.S. are going to become more based on intellectual capital than they are on on hardware.
KING: No car.
KING: There isn't the car.
SKILLING: It's going to be brains, and that kind of business depends an awful lot on the confidence of the people that you do business with. And, so, if that confidence, for whatever reason, goes away, you can see a flight of capital very quickly. I think it was exacerbated in this case, and something that I hope the Congress looks at is that part of the issue was that, as confidence declined in the company -- and this is my hypothesis, Larry.
SKILLING: ... that we were an active player in the derivatives market. We were -- which are important to help people shield themselves from price risks in natural gas and electricity. Those derivatives were typically written to something called an ISDA standard, and that -- I know it sounds complicated, it's actually -- it's pretty important. But -- International Swap Dealers Association -- they all had something in them called MAC clauses; material adverse change clauses.
KING: Break it down for the -- for the dumb.
SKILLING: For the -- for the average guy, what it means is that when people lost confidence, you could trigger a MAC clause and pull money out. And, so, in a very, very short period of time -- and, again, this is my hypothesis -- but in a very, very short period of time, billions and billions of dollars were being pulled out of the company.
KING: Was this, then, preventable? SKILLING: I think Enron, when it all -- when it all is said and done, might turn out to be a little bit of the canary in the coal mine. That I think there are some structural things in the economy right now that -- unfortunately, a lot things happened altogether. The old, sort of, what they call the storm -- the perfect storm kind of analogy that a lot of things happened suddenly and once that -- once that domino starts falling, it's pretty darn hard to stop it.
KING: Therefore, you are pessimistic about making it preventable elsewhere?
SKILLING: I think there are probably some things that should be -- should be looked at, and I have suggested some places that I would have looked if I were looking at general policy...
KING: More regulation?
SKILLING: I'm not a -- I'm not sure that regulation, in the long run, makes a big difference. I think there's some business practices, for example, in the derivatives business, it is literally a hundreds of trillions of dollars business, and there are the clauses in contracts that get automatically triggered, which I think it makes it tough when you begin to have that problem to stop it.
KING: A trillion here, a trillion there, it mounts up.
SKILLING: It does add up.
KING: We'll be right back with Jeffrey Skilling and Bruce Hiler. Don't go away.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: During that period of time, February '99 to June 2001, did you convert stock worth $66 million at that point? Did you sell $66 million in stock sales?
SKILLING: What was the time period?
UNIDENTIFIED MALE: February '99 to June 2001.
SKILLING: 2001. I don't know, but I have don't the records with me.
UNIDENTIFIED MALE: Would that be surprising to you to learn that you did that?
SKILLING: No, that would not be surprising.
UNIDENTIFIED MALE: And do you consider $66 million a great deal of money?
SKILLING: Yes, it is, sir.
UNIDENTIFIED MALE: Do you still have most of that?
SKILLING: Yes, I do.
(END VIDEO CLIP)
All right, it must be asked: what did you make of the report from the Enron special committee; the 217-page report submitted earlier this month? An investigation done for Enron's board, probe headed by William Powers, said that you, Jeff Skilling, certainly knew, or should have known, of the magnitude and the risks associated with the transactions.
And it also said: "Skilling who prides himself on the controls he put in place at many areas of Enron, bears substantial responsibility for the failure of the system of internal controls to mitigate the risk inherent in the relationship between Enron and the partners."
Your chance to respond.
SKILLING: Just -- Larry, I just don't buy it. I mean, we set up -- when the partnerships were set up, every -- we knew about them, and some people have said: Skilling says he didn't know, and -- absolutely not true. We in the board approved the creation of the partnerships. At the time we created the partnerships, we put in place a set of controls to manage -- we knew a conflict of interest was created, and we put in place a set of controls to manage and eliminate that conflict of interest. It didn't work.
HILER: Just to be clear, I mean, the partnerships were put together by somebody else, but the board...
KING: The board approved.
HILER: ... approved Andy Fastow's involvement with the...
KING: But the controls didn't work?
SKILLING: It's not clear yet. It's still not clear exactly what happened.
KING: The report, then, is...
SKILLING: Well, I think...
KING: ... too soon?
SKILLING: The Powers report -- in particular, one of the -- one of the things the Powers report spent a lot of time on is, they talked about the set of transactions that were called Raptor transactions, where they were related to this LJM partnership. The Powers report says that the accounting for those was inappropriate.
Larry, all I can tell you is that we were -- we, the board of directors, Ken Lay and myself, were assured that Arthur Andersen, Vinson and Elkins, our law firm, had thoroughly reviewed those partnerships and they were appropriate.
Now, the Powers report apparently has gone out and gotten a different accountant, and the other accountant is questioning that. Well, you know, OK, let's have dueling accountants, you know.
KING: Does the CEO have to listen to his accountants? I guess it's not the accountant, right? There's no other course, but to listen to his accountants.
SKILLING: Well, I think you have accountants there to give you their professional advice on how things should be accounted for. I guess you could probably go out and hire two accountants, or three accountants, or five accountants. And if you do that, I think that's called opinion shopping and that's illegal.
KING: Jeff, do you ever -- moments at all, ever have any feelings, morally, forget legally, a responsibility?
SKILLING: Larry, again, I can't tell you how catastrophic this has been for myself and for a lot of other people and I don't -- I don't -- again, I don't want to try to make it sound like I'm a victim because a lot of people have been hurt a lot more than I've been hurt in this. But, did -- what did we do wrong? What did the board do wrong? You know, you go back and you look at it, and I think we made the right decisions. We had good people, we had good control systems, we had accountants, we had auditors, we had lawyers. Can you go back and -- I...
KING: No, personally, do you ever say, I should have done this?
SKILLING: Larry, I honestly...
KING: No, I want...
SKILLING: ... have gone back in...
KING: Honest, there's nothing you could have changed, as you saw it, the day you left in August?
SKILLING: I think when we made decisions -- and I've agonized -- I mean, I've agonized...
KING: I bet. Sure.
SKILLING: When we made the decisions, based on the information we had at the time, I think we made the right decisions.
KING: How have you been treated by friends, people in Houston?
SKILLING: Well, people say when you go through something like this you learn a lot.
KING: Sure do. Who your friends are, and... SKILLING: Who your friends are, and who your friends aren't. I think I have gotten a tremendous amount of support in the city of Houston. I would like to tell the people in the city of Houston I really appreciate it. I think Houston maybe, of all places in the world -- you know, we went through the oil and gas bust in the 80's and all, and people kind of know things happen, and you can be a good person, you can be doing your best, and things can go wrong for you. So I think I've gotten support from an awful lot of people.
KING: Anger from some, too?
SKILLING: Absolutely, I think -- I think there's some people that I think, justifiably, are angry. This was -- this is a tragedy. I mean, there's no question it's a tragedy, but I think, over time, what I'm assuming -- I am not -- and people said are you going to -- are you leaving the city of Houston? I'm not leaving the city of Houston. It's my home. It's where -- it's where my children are. It's where my friends are. I'm going to do all I can to help in this process and see if we can get the answers, fill in all the pieces, and I think when all is said and done, I think my friends and my family are going to feel pretty good about what I did at Enron Corporation.
KING: Bruce, is it tough when the client is up against it media- wise? Image-wise? Image is part of our culture.
HILER: It's very difficult, especially when there is, you know, interest by a number of regulators and potential prosecutors and you have to be concerned about...
KING: Do you fear him being indicted?
HILER: I do not. I do not think that should be in the cards, you know, and I think we know an awful lot about the facts. A lot of facts have to come out yet. The media is getting them wrong, also. Constantly, we see things reported in the media as facts. We see Congressmen and Senators giving speeches claiming that they are facts.
KING: But isn't the media just reporting what...
HILER: You know, they're trying to draw their conclusions, too, but some of them are just getting it wrong. We had a correction the other day in one of the major newspapers that said my client testified that he didn't know about the LJM partnerships. Well, that's absolutely not correct.
KING: When you read...
HILER: That is something fundamentally wrong.
KING: ... something that's totally wrong, how do you react?
HILER: It's -- when I read -- Larry, this is every day. I mean, I wake up in the morning and I go down and get out the newspaper and I would guess -- you know, when I see something -- I was in a meeting, or I was there, and the representation of it -- right now, we're getting maybe a third of it right. And when you read this, it's like getting punched. It's...
KING: We'll be back with our remaining moments with Jeffrey Skilling and his attorney, Bruce Hiler, right after this.
(BEGIN VIDEO CLIP)
SKILLING: My only reccollection of the restructuring of the rafters is that I was told that they were restructuring the rafters. I asked if the accountants had signed off on it. It looked OK and I was told that it was and went along with it.
SEN. JOHN MCCAIN (R), ARIZONA: Was it your responsibility to know?
MCCAIN: Was it your responsibility to know?
SKILLING: As I said, Senator, I am not an accountant.
(END VIDEO CLIP)
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: I want to tell you, if you look at Ms. Watkins' testimony, she says it in a sentence. "My understanding as an accountant -- she says -- is that a company could never use its own stock to generated a gain or avoid a loss on its income statement." Did you -- is that true? Were you aware of that?
SKILLING: I am not an accountant.
UNIDENTIFIED FEMALE: I didn't ask you that. Is her statement true?
SKILLING: I think I'd have to be an accountant to know if it's true.
(END VIDEO CLIP)
KING: A couple of other things as we wind it up. When Senator McCain said he was shocked that you couldn't remember millions of dollars in bonuses, is that true? You didn't remember millions of dollars in bonuses?
SKILLING: He asked me what -- if I remembered what my bonus was last year, and I don't -- I don't. If you asked me what my salary was last year, I can't tell you.
KING: You didn't know your salary?
SKILLING: No, sorry, it just -- and I think this might be, you know, indicative of part of the things like I said. I mean, I think I'd probably...
(CROSSTALK) KING: You had a good job.
SKILLING: I had a -- I had a good job, no question about it, but I think there's some imbalances in my life. You know, I think my -- I spent probably all of, you know, 10 minutes a year thinking about my finances. I didn't...
KING: Didn't know your net worth?
SKILLING: Did not know my net worth.
KING: Do you know your net worth now?
SKILLING: Yes, I do now. I had to do that.
KING: Is it less than it was?
SKILLING: Oh, it sure is.
KING: When Senator Boxer pointed out that you have this, what, masters from Harvard...
KING: ... that you should know accounting.
SKILLING: Well, I think, actually, what Senator Boxer said -- and this is classic, Larry. This is absolutely classic -- she said, Well, the, you know, Accounting 101 suggests that you cannot use your own stock to impact your income statement. And she says, You didn't know that? And I said, Senator, I didn't know that. And she said, And where did you go to school? I said, Harvard Business School, and the audience kind of laughed. And the reason I don't know that is that I know for a fact that that's not true.
A classic example: executive stock options. Executive stock options reduce compensation expense, increase profitability, using your own stock. That is classic contrary situation. In fact, Senator Boxer introduced the legislation that allowed that accounting treatment to be continued.
KING: Do she now know this?
SKILLING: Well, I pointed it out to her and she got off the subject pretty quickly, but I believe that that's one exception. I'd imagine -- I know there were hundreds.
HILER: There is accounting literature that allows the use of your own stock in a derivative transaction. In addition -- I mean, this is an example; they wanted to ridicule him about not knowing accounting or relying on accountants and the control structure. They know in the real world every CEO does that. In fact, they rely on people. This chart that I was talking about, which we someday will make available to the media, they got that wrong. I would assume the Senator would say he relied on people to give him that information.
KING: A couple of other things: you a baseball fan?
SKILLING: Yes, I am a baseball fan.
KING: Feel bad about Enron Field is no more? It's Astro Field.
SKILLING: I think it's a tragedy.
KING: They had to remove the name, though. Don't you think?
SKILLING: I think so.
KING: They had to. What do you say to people who lost? I mean, when they come up to you, I lost all my savings.
SKILLING: I can -- I can only -- I can apologize to the -- I will apologize until the day I die to people for what Enron has come to represent. It was a tragedy -- it was a tragedy.
KING: What do you want to do with your life, Jeff?
SKILLING: I don't know, Larry. You know, at this point, I think my purpose, right now, in life -- what gets me up in the morning, which, some mornings, it's pretty tough to get up, but my purpose in life right now, getting up in the morning, is I want to be someone that goes out and helps explain what happened.
There are a lot of employees out there that, I imagine, have children that go to them and say, Mom or dad, did you work for a criminal organization -- a bad company? We weren't' a bad company. We were -- we were -- we thought we were building a great company. We thought we were building a company that was helping to open and create new competitive markets, give customers choice where choice never existed before. We felt good, all of us, and I think if I can do anything to get the message out so that -- so that our employees can look at their children and they can say we were part of a good organization. Something happened. It was -- you know, and we will find out what happened, but it was not because of the motives of the people that were involved, either their motives or certainly my motives. We were trying to build a great company.
KING: It's going to consume a lot of your life, then.
SKILLING: Yeah, I would imagine this is going to take -- this will probably take up the next five to 10 years of my life.
KING: Thanks, Jeff. Thank you, Jeff.
SKILLING: Thank you, Larry.
KING: Thank you, Bruce. Our guests have been Jeff Skilling; he is former CEO of Enron, and Bruce Hiler, his attorney. I'm Larry King, thanks for joining us. LARRY KING WEEKEND tomorrow night. We'll be back live on Monday. Good night.
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