Jeffrey Skilling

• 1. Introduction

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  Jeffrey Skilling sat for a PBS Frontline interview in March 2001 and described the company he helped run in the plainest moral terms. He said, "We are the good guys. We are on the side of angels." Before that year ended, Enron had filed for bankruptcy protection. Skilling, an American businessman born in 1953, would later be convicted of federal felony charges tied to the collapse. How does a consultant rise to the top of an energy giant in barely a decade? What did he believe about the people who worked for him, and how did that belief shape their days? Why did the highest court in the United States take up his case, and what did it actually change? The answers begin long before Enron, with a boy who liked television.

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• 2. The Making of a Consultant

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  At sixteen, Skilling had a job at WLXT, a UHF television station on channel 60 in Aurora, Illinois. He was born in Pittsburgh, Pennsylvania, on the 25th of November 1953, the second of four children. His father sold valves as a sales manager for an Illinois company. His older brother, Tom Skilling, would become chief meteorologist at WGN-TV in Chicago.

  Skilling grew up between New Jersey and Aurora, and he graduated from West Aurora High School. A full scholarship took him to Southern Methodist University in Dallas, where he joined the Beta Theta Pi fraternity. He began in engineering and then switched to business.

  After graduating in 1975, he worked as a corporate planner at First City Bancorporation of Houston. By 1977 he had quit to attend Harvard Business School. By his own telling, the admissions interviewer asked whether he was smart, and he answered with a crude boast. The story goes that this bluntness helped win him a place. He earned his MBA in 1979, finishing in the top five percent of his class as a Baker Scholar.

  He then joined McKinsey and Company, advising clients in energy and chemicals. He became one of the youngest partners the firm had ever had. In 1987, one of his clients was a company called Enron.

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• 3. Enron's Rising Star

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  In 1987, Skilling helped Enron build a forward market in natural gas. His work impressed Kenneth Lay, who hired him in 1990 as chairman and chief executive of Enron Finance Corp. A year later, a merger of Enron Gas Marketing and Enron Finance produced Enron Gas Services Co., and Skilling became its chairman. He was also named chief executive and managing director of Enron Capital and Trade Resources, the arm that handled energy trading and marketing.

  In 1997 he became Enron's president and chief operating officer. Only Lay stood above him, and Skilling kept running the trading subsidiary as well.

  Under his management, Enron adopted mark-to-market accounting. A deal's expected future profits were counted up front, using an estimate of their present value rather than the historical cost. Skilling also pushed a novel notion. With an aggressive investment strategy, he argued, the company did not really need assets of its own.

  The approach made Enron the largest wholesaler of gas and electricity. In a single quarter, it traded 27 billion dollars. On the 12th of February 2001, Skilling replaced Lay as chief executive. He was expected to take over as chairman in early 2002.

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• 4. Rank and Yank

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  Skilling's favorite book was The Selfish Gene by Richard Dawkins, and he treated it as the base of his management philosophy. By his own reading, the world ran on Darwinian rules. He believed that money and fear were the only things that truly motivated people.

  Soon after arriving at Enron, he created the Performance Review Committee. Twice a year, management panels graded employees in public on a scale from 1 to 5, where 5 was the worst. Officially, the grades reflected job performance and feedback from colleagues and supervisors. In practice, the best marks tended to go to people who brought in money and to people with internal connections.

  Bonuses often depended heavily on the ranking. Those with the lowest grades were supposed to lose their jobs. At Skilling's direction, the grades followed a curve, so ten percent of employees had to receive a 5 however well the group performed. Anyone given that grade had two weeks to find another post inside Enron or be fired. The scheme became known as "rank and yank." Skilling called it "the most important process we conduct as a company."

  Dawkins later distanced himself from Enron and from Skilling, saying Skilling had misunderstood the book. He said he had never promoted selfishness as a way to get ahead.

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• 5. The Strange Summer of 2001

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  At one meeting of Enron employees during the California energy crisis, Skilling asked, "What is the difference between California and the Titanic? At least when the Titanic went down, the lights were on." He later blamed the joke on strained relations between Enron and California. Meanwhile, his employees plotted to keep energy prices high in that state.

  On the 17th of April 2001, a conference call with financial analysts turned ugly. Fund manager Richard Grubman complained that Enron was the only financial institution unable to produce a balance sheet or cash flow statement with its earnings. Skilling thanked him and then called him a crude name. The remark became infamous.

  In June, Skilling spoke at the Commonwealth Club of California. Protesters from Global Exchange wore pig masks and heckled him, and a pie partly hit him on stage. A documentary, The Pie's the Limit, was later made about the incident.

  Then, on the 14th of August, he resigned without warning, citing personal reasons. Soon afterward he sold large amounts of his Enron shares. Lay, who had served as chief executive for fifteen years before him, took the job back. Enron filed for bankruptcy protection that December. Skilling told congressional committees he had "no knowledge" of the complicated scandal behind it.

  It was the largest bankruptcy in American history up to that point. It cost 20,000 employees their jobs, and many lost their life savings. Investors lost billions.

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• 6. Trial in Houston

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  On the 19th of February 2004, Skilling surrendered to the Federal Bureau of Investigation. He was indicted on 35 counts, including fraud and insider trading, and pleaded not guilty to every one. Prosecutors stressed his probable knowledge of the fraudulent transactions. They also pointed to his stock sales. About a month after he left Enron, he sold almost 60 million dollars of his stake, in blocks of 10,000 to 500,000 shares. Prosecutors alleged he did so knowing the company was heading for bankruptcy.

  His lead lawyer was Daniel Petrocelli, a 52-year-old civil litigator. Petrocelli had represented Ron Goldman's father in the successful civil suit against O. J. Simpson. Skilling spent 40 million dollars preparing for trial, with at least 23 million going to his defense lawyers' retainer. His younger brother Mark, an attorney, helped the team.

  In April 2004, after a night of drinking, Skilling scuffled with patrons of a cigar bar in New York City. His wife, Rebecca, was hurt. A hospital blood test showed his blood-alcohol level at 0.19 percent. Prosecutors asked a judge to raise his bond from 5 million to 7 million dollars, limit his travel to Texas and impose a curfew.

  The trial opened in Houston on the 30th of January 2006. Defense lawyers argued repeatedly that a fair trial there was impossible. On the 25th of May 2006, the jury found him guilty of one count of conspiracy and one of insider trading. It also convicted him on five counts of making false statements to auditors and twelve of securities fraud. He was acquitted on nine other insider trading counts.

  In a Wall Street Journal interview on the 17th of June, Skilling said he had been melancholic after the bankruptcy and had considered suicide. He said the indictment ended his depression. He called himself the worst witness against himself. To endure a long sentence, he said, he would need "something to do, something to accomplish."

  On the 23rd of October 2006, he received a sentence of 24 years and four months and a fine of 45 million dollars. On the 12th of December, Judge Patrick Higginbotham refused to let him stay free during his appeal. The judge wrote that Skilling raised "no substantial question" likely to reverse his convictions on all counts, though he noted possible "serious frailties" in some. Skilling went to prison the next day.

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• 7. Before the Supreme Court

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  In 2008, Skilling's lawyers requested the notes FBI agents took when interviewing Andrew Fastow, and soon found inconsistencies in them. On the 3rd of April 2008, Petrocelli argued that the conviction rested on honest services fraud, which he said did not apply. His reasoning was that Skilling's maneuvers aimed to save the company, not to enrich himself. Experts thought the odds were slim. They saw a better chance in a parallel ruling that had thrown out guilty verdicts against three Merrill Lynch bankers accused of helping Enron inflate profits.

  In October 2008, Skilling was moved to a low-security prison near Littleton, Colorado. His original prison, FCI Waseca, was being converted to an all-female facility.

  On the 13th of October 2009, the Supreme Court agreed to take two questions from his appeal. The first asked whether the honest services statute required proof of intended private gain. If it did not, was the law unconstitutionally vague? The second concerned jury prejudice. When a crime shakes a whole community and publicity is inflammatory, can the government rebut a presumption of bias?

  At the argument on the 1st of March 2010, jury selection drew the most attention. Justices Stephen Breyer and Sonia Sotomayor were troubled by one potential juror. She had said she lost between 50,000 and 60,000 dollars in the Enron collapse, and the judge had not followed up. Sri Srinivasan argued for Skilling, and Michael Dreeben argued for the government.

  On the 24th of June 2010, Justice Ruth Bader Ginsburg wrote a unanimous opinion nullifying the honest services conviction. The Court found that "Skilling's misconduct entailed no bribe or kickback." It sent the case back to the lower court.

  In April 2011, a three-judge Fifth Circuit panel found that the jury had seen "overwhelming evidence" of a conspiracy. The verdict would have been the same without the honest services theory, so the convictions stood. The Supreme Court denied his next petition.

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• 8. Bargain and Aftermath

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  On the 3rd of February 2011, Skilling's youngest son, John Taylor, known as JT, was found dead in his Santa Ana, California apartment. He was 20 and had died of a drug overdose. Skilling was not allowed out of prison to attend the funeral. JT was one of three children from Skilling's first marriage, to Susan Long, which ended in divorce in 1997. In March 2002, Skilling married Rebecca Carter, a former Enron vice president for board communications and board secretary.

  On the 21st of June 2013, Judge Simeon T. Lake III, who had presided over the 2006 trial, accepted a deal between Skilling's lawyers and the Justice Department. His sentence fell to 14 years, ten fewer than before. A 2009 appeals ruling had already ordered a recalculation because the judge misread the federal sentencing guidelines. In exchange, Skilling gave up about 42 million dollars for Enron's victims. He also agreed to drop further appeals, including a claim that prosecutors had concealed evidence from his lawyers.

  He went to a halfway house in Texas on the 30th of August 2018. On the 21st of February 2019, he left federal custody after twelve years. In the meantime, on the 8th of December 2015, federal judge Melinda Harmon had granted the Securities and Exchange Commission summary judgment and permanently barred him from serving as an officer or director of a public company.

  In June 2020, Reuters reported that Skilling was raising money for an online oil and gas trading platform called Veld LLC. It was registered in Texas in August 2021, with his wife listed as manager. On the 30th of August 2022, the company appeared as withdrawn.

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