The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (16 page)

So naturally the arrangement was doomed. Part of it was that Skilling’s marriage was too far gone to be saved. Part of it was that rather than valuing Burns for his management skills, Skilling viewed him as an intellectual lightweight and was openly dismissive of him. “Ron doesn’t get it,” he would tell his inner circle. Taking his cue from Skilling, Lou Pai began a campaign to undermine Burns.

In August 1995, Burns resigned to become president of the Union Pacific Railroad. Skilling, who had returned to work full time, assumed, once again, the title of chairman and CEO of ECT. Then he plucked one of his inner circle to be ECT’s new number two: Lou Pai.

Until the mid-1990s, most people who had heard of Enron had no idea who Jeff Skilling was. To the outside world, the person who
was
Enron, who had a reputation for turning impossible concepts into glittering realities, was not Skilling. It was Rebecca Mark. When she stepped off Enron jets in remote spots in third world countries, she was welcomed like a celebrity and surrounded by throngs of reporters. Mark was a high-profile woman in a very male industry at a time when building power plants and pipelines across the globe was thought to be one of the most glamorous, profitable businesses ever, a little like the Internet in the late 1990s. And she reveled in it, embraced it with every fiber of her being. “In her ambition, her drive, and her tenacity,” says a former Enron executive, “she was truly spectacular.”

Mark, who was put in charge of something called Enron Development upon Wing’s departure, not only kept her former lover’s legacy of ferocious independence; she furthered it. Her team’s offices were in downtown Houston—but across the street from Enron’s headquarters, not in it. The decor was all glossy wooden furniture and expensive Oriental rugs, a dramatic contrast to Skilling’s stark modernism. Mark’s fiefdom had its own compensation system, one that would make her incredibly rich regardless of the ultimate success of her projects. It had its own books, its own accounting system, and its own risk-management system. And it had its own culture, where the ex-military guys she liked to hire sought to outdo each other at parties featuring elephants, motorcades, and belly dancers, and where Mark herself once came roaring in on the back of a Harley to the beat of “Eye of the Tiger.”

It’s actually one of the more stunning things about Enron that Mark’s international business and Skilling’s trading business could coexist within the same company. Skilling wanted to figure out ways to separate energy from the hard assets needed to produce it; Mark’s business was nothing
but
hard assets. Trading was all about hedging away risk and quickly capturing profits. International development, where it could take a decade to recoup your money, meant taking on uncontrollable risks—everything from natural disasters to popular uprisings—and living through the inevitable trauma that comes with constructing a giant power plant in inhospitable territory. “Foreign direct investment,” says a former executive in Mark’s group, “is a matter of faith.” That was anathema to Skilling. “We were absolutely on opposite ends of the spectrum,” he once acknowledged. “Put us both in a room and we’d start screaming at each other.”

Within Enron, it was obvious early on that Mark and Skilling were on a collision course. The contempt they had for each other’s business was well known, and there was—and still is—a bitter divide between those who worked for Skilling and those who worked for Mark. Both have always insisted that their rivalry was a business issue, not a personal one. But for them, business
was
personal. Mark and her deputies thought that Skilling was a financial manipulator who wasn’t capable of running a real, dirty-fingernails business. Skilling saw his rival as someone who was so busy jetting and glad-handing and playing the Enron glamour girl that she couldn’t be bothered to understand the numbers. She snowed people, he believed. “Harvard Business School doesn’t teach you accounting or finance,” Skilling once said about Mark. “They teach you how to be convincing.” Mark, in turn, came to believe that Skilling would go to any lengths to sabotage her. In time, she was proved right, not that she didn’t give him plenty of ammunition.

Perhaps part of the problem was that, in many ways, they were very much alike—and not just because they were the same age and had Harvard MBAs. They both came from modest midwestern backgrounds. They had both been brought up to believe in the virtues of hard work, which, as adults, they took to extraordinary lengths. They were both driven to succeed. And they both believed they were creating new worlds, where anything was possible. Both also wrapped their business goals in the lofty language of idealism. Skilling loved to say that in trying to create a new kind of energy company, Enron was doing “the Lord’s work.” Mark struck a similar tone in talking about her business. “We are brought together with a certain amount of missionary zeal,” she told Harvard for a case study. “We are bringing a market mentality and spreading the privatization gospel in countries that desperately need this kind of thinking.”

Mark and Skilling also have this in common: both are blamed for Enron’s downfall—by ex-employees, by outside observers, and by each other. Mark’s critics contend that the shockingly poor performance of the assets she built stripped Enron of its financial strength and that, in being so richly rewarded for building those assets, she looted the company along the way. Nor is the harsh criticism limited to those from Skilling’s side of the company. “Ego-driven empire-building,” is how one former international employee describes Mark’s tenure. Mark “worked very hard at self-promotion,” says an early executive. “She had a lot of drive and personal ambition, but I’m not sure it was always directed toward the company.” And this, from the former CEO of a major oil company: “The failure of Enron before all the accounting scandals can be seen in the results overseas.”

 • • • 

The first comment people make about Skilling invariably involves his brains. With Mark, the first thing people mention is her looks. That’s partly because
she operated in the all-male energy industry and partly because the world can still be a sexist place. But it’s mostly because of Mark herself. She happily played up her physical attributes, which included long blond hair, big brown eyes, and a dazzling smile. At Enron, she viewed her outfits—usually high
heels and short skirts—as part of the show.
Forbes
writer Toni Mack once noted that Mark would sometimes change clothes as often as three times a day. “High finance with a touch of theater,” Mack called it. Mark unapologetically viewed being a woman—a smart, charismatic woman—as a way to “get privileges
that other people don’t get, and . . . audiences that others could never hope
to achieve,” as she told one reporter. Her gender was not an obstacle to be
overcome but an advantage. As she liked to put it, “I’ll take all the advantages I can get.”

The image of blatant opportunism that such a quote conveys doesn’t really do Mark justice. Yes, she was opportunistic, but she was also genuinely charming—all down-home warmth, not big-city glamour—with a gift for remembering personal details and a girlishness that put people at ease. Mark had a way of talking that made listeners feel as though they were being taken into her confidence. “If you meet her and she turns on the charm, you’ll be absolutely reduced to mush,” says a former Enron executive who is not a fan. It’s easy to see how those who worked for her could believe that anything was possible.

Mark’s defining characteristic, though, was her optimism. She always had faith in herself, faith that the world was a place where she could make things happen, and faith that no matter how bad things seemed, all would work out just fine in the end. In her many interviews, she was so upbeat that she sounded positively sappy: “We were taught to believe that if you worked hard enough at anything, you could accomplish it,” she told one reporter. “Many times the biases against women are those of our own creation,” she told another. “If you approach people thinking that you’re not going to be discriminated against, most often you’re not.” This wasn’t just pap she fed the press; it was what she really believed. One of her favorite books was Paulo Coelho’s
The Alchemist
, essentially a fable about the good things that happen if you follow your dreams.

Born Rebecca Pulliam, the second of four children of devoutly Baptist parents, Mark grew up on a farm in the small community of Kirksville, Missouri, about 150 miles east of Kansas City. Just as Ken Lay used to talk about his upbringing in moralistic terms, so did she. The farm, she later said, was where she learned the importance of hard work and where she got her first understanding of business. Even as a child, she preferred what is usually considered man’s work—mucking out stalls, for instance—over, say, sewing. Mark was a good student, and like her siblings (not to mention Ken Lay and Jeff Skilling) she put herself through college. She spent her first two years at William Jewell College, a private Baptist school near Kansas City, before transferring to the Baptist-run Baylor University in Waco, Texas.

Mark did not leave the farm intent on going into business. On the contrary: she dreamed of becoming a clinical psychologist and earned a BA in psychology in 1976. She took an internship working with juvenile delinquents, but it was not a happy experience; the job simply didn’t mesh with her natural optimism. She later described it as “personally depressing—the antithesis of everything I learned growing up: that you can control your own destiny.” What drew her to business was precisely her sense that it was an arena where she could control her destiny, where her willingness to work hard and dream big could pay off. By 1977 she had a master’s in international management from Baylor.

By an odd coincidence, Mark ended up working in the same place that Skilling did after college: Houston’s First City National Bank, where she began her business career as a commercial-lending officer. As she has pointed out, Skilling was upstairs operating in the rarefied world of portfolio theory while she was down on the floor making loans. That is to say, she was getting her fingernails dirty. (It was also during her stint at First City that she met and married an Arthur Andersen consultant named Thomas Mark.) In 1982, she joined the treasury department at Continental Resources, an energy company that was bought by Houston Natural Gas in 1985 shortly before the InterNorth merger. She ended up working in Enron Cogeneration, where she desperately wanted to prove that she could work just as hard as the guys and where she learned, as one of her colleagues put it, to never “melt into the shadows.”

 • • • 

By 1991, Rebecca Mark felt that her time had come at Enron. The Teesside deal had been completed, it was a triumph for all concerned, and she believed she’d been a big part of it. She’d gotten her Harvard MBA. She was free of John Wing, who had been removed by Lay and the board from his Enron empire, lucrative consulting contract in hand. Her relationship with Wing, she believed, had toughened her up. She believed that she deserved to replace Wing as head of Enron Power, and she fervently hoped that Lay and Kinder would agree.

Much to her dismay, they didn’t. Instead, they decided to carve up Enron Power into three divisions: Europe, the United States, and an emerging-markets business called Enron Development. Mark got Enron Development. The only problem was that Enron didn’t
have
an emerging-markets business: Mark had been handed a division without a single asset and with only a handful of employees. And that wasn’t the only indignity. Instead of reporting directly to Lay, she was told that she would be reporting both to Bob Kelly, who was put in charge of Enron Europe, and Tom White, the new CEO of Enron Power. Mark was furious at the decision; years later, it still rankled. When someone once mentioned the success Skilling had in building his trading operation, she scoffed. Unlike him, she replied tartly, she “didn’t start off with the largest gas-pipeline system in the United States.”

Emerging markets:
in the early to mid-1990s, there was no more seductive siren call in all of American business. Developing nations, long overlooked by Western corporations, had enormous populations and tremendous needs. Their governments were becoming more open to free-market ideas and to the notion that Western investment could help generate jobs and improve standards of living. Many governments were even privatizing state-run enterprises. Banks were salivating over the prospect of loaning billions to third world development projects.

One thing developing nations needed was energy—cheap, plentiful, reliable energy. If they hoped to lure other forms of development, if they just hoped to provide for their growing populations, they needed energy before just about anything else, which meant more pipelines, more power plants, more everything. In the early 1990s, Enron predicted that worldwide power plant requirements would grow by a staggering 560,000 megawatts over the next decade. Government development agencies such as the Overseas Private Investment Corporation (OPIC) and the Export-Import Bank were willing to loan money to fund big energy projects, as were the big banks, which meant that companies like Enron had to invest only a tiny sliver of their own capital to get a project off the ground. Wall Street analysts talked about the potential for 30 percent returns on equity, about triple what U.S. pipelines were earning.

In the gold rush that followed, all kinds of companies raced in to stake their claims. And the projects were massive. In 1994, for instance, General Electric announced that it had teamed with financier George Soros to invest $450 million in power projects abroad; GE said the figure could eventually exceed $2.5 billion. In 1996, when Bolivia auctioned its state oil and gas company, some two dozen foreign companies bid. More often than not, the winning company took the initial up-front risk, with plans to extract some quick profits by selling off pieces to other buyers once the project was under way. In some ways, that was prudent business: it was a way to diminish the risk. Yet that kind of business plan was predicated on the belief that someone else would always be willing to pay a higher price. On Wall Street, this is known as the greater fool theory.

So while Mark may have been handed a division without any assets, she did have the wind at her back. And there was no doubt what she was expected to do:
plant the flag for Enron in as many developing nations as she could. Mark’s team quickly put together a string of flashy, first-of-their-kind deals. One of the earliest took place in late 1992, when Enron bought a 17.5 percent stake in Transportadora del Sur, a pipeline in southern Argentina that the government was privatizing. By early 1994, Mark also had power plants in the Philippines, Guatemala, and Guam and had struck deals to build plants in India and the Dominican Republic. Within the next few years, her team was busy laying a pipeline in Colombia (where Enron had to hire hundreds of soldiers to guard workers against guerrilla attacks), constructing a plant in China, and evaluating opportunities from Indonesia to Yemen. Enron also announced grand plans to develop enormous gas fields in Mozambique, lay a pipeline to South Africa that would feed a multibillion-dollar steel plant there, and construct a power plant in Vietnam.