CEO Departure Puzzles Enron Investors

When Enron's President and CEO suddenly and unexpectedly announced he was
leaving the company earlier this week, the stock got hammered due to the
increased uncertainty. The exact reasons for the departure are puzzling and
remain a mystery, and this is probably not the last chapter we'll hear in
this story.


By Paul Larson (TMF Parlay)
August 17, 2001


The plot around Enron (NYSE: ENE) has thickened. On Tuesday evening, the
commodities market maker's president and CEO, Jeffrey Skilling, said that
he was leaving his posts for "personal reasons." Skilling had spent most of
his career rising through the ranks at Enron and had manned the CEO post
since February. Many saw Skilling as quite brash, sharp, egotistical, and
one who brought more than his fair share of youthful energy to the
"new-age" Enron.


But now that Skilling has resigned, Chairman Kenneth Lay -- the man
Skilling took the reins from -- will again act as president and CEO until a
permanent replacement is found. Lay was Enron's CEO from 1985 until earlier
this year, and he was largely behind the company's push to become the
wholesale trading powerhouse it is today after years as a sleepy gas line
operator. (For more on the energy industry, see our latest issue of The
Motley Fool Select.)


So why did Skilling bail?
The first reason Skilling cited for his departure was the very vague
"personal reasons." Both the company and Skilling denied the resignation
was for health reasons of any kind, and the secrecy and resultant
uncertainty has sent the stock diving, losing roughly $6 (or about 14%) of
market value on extremely heavy volume in the two trading days since the
announcement was made.


The move is especially puzzling since the departure is hitting Skilling in
the pocketbook -- hard. Since Skilling is leaving voluntarily, he will not
receive a severance package that would have reportedly been worth more than
$20 million in cash and stock had he been forcefully pushed out. Even if
Skilling had been doing a terrible job at Enron, one would think he would
stick around and wait for the axe to fall instead of leaving on his own,
given that potential windfall.


The departure is even more riddling when one considers a roughly $2 million
loan outstanding that Enron has to Skilling. If Skilling had been canned,
this loan would have been forgiven. More importantly, if Skilling had
fulfilled his employment contract to the end of the year -- a mere four
more months -- Skilling could have kept this $2 million free and clear. How
many folks do you know who pass up $2 million for four months of work?


Yet another oddity in this case is The Wall Street Journal's report that
one of the reasons Skilling left was because of Enron's faltering share
price. Ironically, the fashion in which he has left has been directly
responsible for causing the shares to breach a new annual low.


Many long-time Enron investors may remember when Skilling brashly called
Enron's shares undervalued back in January, saying the stock should trade
above $120. But since Skilling took the helm, the stock has done nothing
but fall, losing over half its value in the past six months. Even though
much of the stock's weakness had nothing to do with the company's operating
performance, the pressure of not living up to that bullish projection was
supposedly very difficult for Skilling.


Still, the exact reasons for the sudden departure remain a mystery today.
Both Skilling and the company deny there were any accounting problems or
other improprieties behind the resignation, and both continue to speak
quite positively about Enron. But for a company that has a reputation of
strong management, this week's activities are highly out of character.
Investors may be unsatisfied with the current state of affairs and
information, but for the time being there's little to do but stay tuned.