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CNN Saturday Morning News

Reporter's Notebook: Skilling's Role in the Enron Scandal

Aired March 02, 2002 - 08:11   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: Enron's former CEO says he believes the company's executives made the right decisions over the years. Jeffrey Skilling made those comments during an exclusive interview to CNN's Larry King. Skilling says he and other Enron execs were shocked by the company's collapse because he says there were safeguards in place.

(BEGIN VIDEO CLIP)

JEFFREY SKILLING, FORMER ENRON EXECUTIVE: 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 and 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. You know, it just can't happen.

Does the 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.

(END VIDEO CLIP)

PHILLIPS: Jeffrey Skilling says he blames the news media for being unfair and that he went on to say that Congress decided that he was guilty until proven innocent.

Well, Enron and its struggle in the political world is the topic of our "Reporter's Notebook" this morning. Our congressional correspondent Kate Snow is with us. Also joining me is Mike McNamee, senior correspondent for "Business Week" magazine. They'll be answering some of your e-mails and calls. We want to press that number again. We need some phone calls. It's 404-221-1855.

Kate, Mike, great to see you.

KATE SNOW, CNN CONGRESSIONAL CORRESPONDENT: Good morning, Kyra.

MIKE MCNAMEE, "BUSINESS WEEK": Good morning.

PHILLIPS: Well, Mike, I'm just curious, did you just hear what Skilling had to say to Larry King? And if you did -- I can repeat it for you, but I wanted to get your response and see what you thought about that, that he and other Enron execs were shocked by the company's collapse.

MCNAMEE: I did hear that and that has been Skilling's line all along. He's maintained that he did not know what kind of shape the rafters were in and the other LJM related partnerships that took the company down. In fact, the testimony that came out this week that the House congressional, the Energy and Commerce committee released indicates that his underlings were reporting to him and he knew a lot more than he's willing to let on.

PHILLIPS: Straight to the e-mails, Gary from Rockford, Illinois -- Kate, I think I'll direct this one to you. "Why is Jeff Skilling coming out of being so outspoken instead of his predecessor, Ken Lay?"

SNOW: A lot of people asking that question. You know, Jeffrey Skilling could very well have taken the fifth just like Ken Lay did. You remember Ken Lay came before Congress two weeks ago and said I'm not going to answer any of your questions. He was sworn in and then he took the fifth. And a lot of the executives of Enron have done that.

Mr. Skilling said last night to Larry King that he just felt it was the right thing to do. He felt like that was his personal choice to speak out to congressional investigators.

I think that the, I've talked to some associates of Skilling and I think that his approach to all of this is that he can sort of outwit the system if he speaks out and if he tells his story. He thinks that gets him further than being quiet. He's a very smart man. He's very impressive on the witness stand. So Mr. Skilling thinking that testifying is the way to go.

Ken Lay, who you're seeing there, on the other hand, he took the other course. He decided that he didn't want to open himself up. Of course, if you testify before Congress, those words can come back to haunt you because the Justice Department is looking into theses folks, too, and there are already class action lawsuits filed against Enron. So these folks are vulnerable to perhaps criminal charges. So anything they say could come back to bite them, as well.

PHILLIPS: Mike, you agree with that? Anything you want to add?

MCNAMEE: No, I quite agree. I think Jeff Skilling has made his whole career by being, you know, the smartest man in the room and he thinks he can still do that, which in a roomful of congressmen, maybe he can. But he's got a lot of smart people on his tail, as well.

SNOW: Yes, and it didn't go so well, by the way, Kyra, for some of the senators, I think, were sort of angry at that, his way, his approach with them the other day. He was, he was very going at the senators. He corrected them from time to time. He, you know, he sort of tried to put them in their place and they don't like that so much.

PHILLIPS: That's true. We saw a lot of sarcasm in the testimonies. Lloyd on the phone from Florida. Go ahead, Lloyd. What's your question? LLOYD: Yes, I was wondering if Jeffrey Skilling would be willing to confront a jury of his peers, 12 other CEOs of Fortune 500 companies, to explain the plausibility of his story.

PHILLIPS: Oh, wow, I bet some interesting questions would come out of that. Kate, what do you think?

SNOW: I don't know how he would answer that. I would think he, again, he's been rather open about all of this, but whether he'd want to sit down in front of a bunch of other CEOs and talk about it, probably not. He's also been pretty cautious about what he's said in public. He had his lawyer sitting with him last night when he was on "Larry King." His lawyer sat with him when he testified before the Senate committee the other day and occasionally would enter into the discussion and sort of make sure that Skilling was right on target with his answers.

So he is being careful while also talking.

MCNAMEE: I would disagree slightly. I think a jury of CEOs would be the safest jury for Skilling to sit down before because --

PHILLIPS: Really? You don't think they'd bury him?

MCNAMEE: No, because I think they would all think I don't know everything that's going on in my company and would I want to be in the same position, having been dragged through all this? I think a jury of CEOs would be a lot safer than a jury of, say, Enron shareholders.

PHILLIPS: Well, that's a very good point. Absolutely. All right, this question from Linda in Providence, Rhode Island. "When questioned during the presidential election about his ties to the oil business, President Bush insisted that he was only a small oil man. Is this true?" Mike?

MCNAMEE: Well, yes, he really didn't make that much money in the oil business. He made his money by leveraging up considerably and buying the Texas Rangers and that's where he made his mark as a businessman, not so much in the oil business.

SNOW: But I think the question, Kyra, that keeps getting raised about connections to oil, not necessarily Bush's own personal, the president's own personal background in oil, but I think the questions in Washington that get raised are how much influence did some of these large energy corporations like Enron have while he was governor and now that he's president in terms of giving campaign contributions, having access to the governor's mansion and now the White House. Things like that are more the question, I think, that people keep raising.

PHILLIPS: Jeff from Michigan on the phone. What's your question, Jeff?

JEFF: Yes, I'd just like to ask the experts if they think there are going to be any criminal charges against any of these Enron executives. And I'd just like to say one thing. I didn't believe, I didn't think Jeff Skilling was believable at all to me. So, that's all. Thanks.

PHILLIPS: Thank you.

Mike, you want to start with that?

MCNAMEE: Criminal charges are extremely likely, either on the easy to prove sorts of things like perjury or destruction of documents, destruction of evidence, obstruction of justice. The securities cases will be somewhat harder to make because they're going to be very complicated. They'll have to prove beyond a reasonable doubt that these Enron executives intentionally deceived or committed fraud. That's going to be a very tough case to make.

PHILLIPS: Many questions...

MCNAMEE: But I...

PHILLIPS: Go ahead.

MCNAMEE: I think charges will be brought. Making the cases will be hard.

PHILLIPS: Another question out of Michigan. Henry, go ahead. You still on the line with us, Henry? OK, we lost Henry. Let's move on to an e-mail. This one comes from Rick and his question is, "How protected are employees' pensions, not 401(k,) when their company goes under?"

Mike?

MCNAMEE: The defined benefit, your traditional pension plan, is protected by an insurance program of the federal government called the PBGC, the Pension Benefit Guaranty Corporation. So a number of very large steel company, Chrysler for a while looked like it was going to be relying on the PBGC, a number of very large companies have had, have gone down, and their pensions have been picked up, not 100 percent, but definitely to a sustainable level.

PHILLIPS: We've got Henry back on the line from Michigan. Go ahead, Henry.

HENRY: Yes, I'd just like to know if the bankruptcy courts have made any moves to freeze the assets of Mr. Fastow and Mr. Skilling and Mr. Lay so that they won't be able to maneuver and manipulate those funds and get them back to the people?

PHILLIPS: That's an interesting question. Kate?

SNOW: I don't know. I think you'd better go to you other guest because he knows more about this.

PHILLIPS: Yes? Mike, do you know anything about that?

MCNAMEE: Well, the bankruptcy courts, not to get hyper technical here, but the bankruptcy courts don't have jurisdiction over the executives. They only have jurisdiction over the company. It would have to be the Securities and Exchange Commission or the plaintiffs in the other lawsuits, the shareholders and the employees, bringing an action to freeze those assets and so far that hasn't happened.

PHILLIPS: Another e-mail here, Richard in New York. "Why is there very little focus on Wall Street experts, who were ignoring warnings from Enron and recommending buys of the stock?" Kate?

SNOW: Actually, Kyra, there was some focus on that this week. In fact, a panel on Capitol Hill had a hearing the day after Jeffrey Skilling was up on Capitol Hill. So it didn't get quite as much attention. But there was a panel of Wall Street analysts who came out. And they said that they thought they were consistently misled by Enron. They said they were listening to what the Enron higher-ups had to say about the company and that's what they were trusting and that's why they recommended the stock so highly.

But, so they have been called to task. They were called here before Congress. And there's some talk about whether there ought to be regulatory changes, whether, you know, whether Congress can do anything to change the way analysts do their job. And, of course, there are a lot of other questions about other legislative moves they might make on pension reform and regulating securities and all sorts of things.

PHILLIPS: And isn't, when CEOs start to sell their stock, when you -- it has to become public, correct? And that was happening before this company went under, isn't that right?

MCNAMEE: CEOs, all executives above a certain level, and five percent shareholders, have to report when they sell their stock. And ideally they should be doing so on a regular basis, according to a regular schedule. That gets them out from under the question of whether they're selling because they know something that you don't know.

But the reporting is with a lag and in particular in the Enron case with some of Mr. Lay's stock sales, they were done under a loophole that delayed the reporting by months. And that's one thing that Congress is very likely to change, to speed that up.

PHILLIPS: Mike McNamee, senior correspondent for "Business Week" magazine, also Kate Snow, our congressional correspondent, thanks, you guys.

SNOW: You bet.

PHILLIPS: Appreciate it.

MCNAMEE: It was a pleasure.

PHILLIPS: All right.

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