ANALYSIS: Media Watch - A lack of clarity in CEO's resignationcosts Enron a bundle

Just six months into his tenure as CEO of one of the nation's most

powerful energy companies, Enron's Jeff Skilling surprised everyone with

his sudden resignation on August 14.

He had been widely credited as one of the primary architects of Enron's

successful transformation over the last decade from a gas pipeline

company to a major energy trader.

Once promoted to the top spot, Skilling was expected to do great things

and was described as "perhaps the smartest man in the energy business"

(CNN, August 15). It was perhaps because Skilling was so highly regarded

that his resignation caught everyone off-guard.

The shock announcement was made worse by the fact that Enron gave almost

no detail as to why Skilling was quitting. Slate magazine (August 15)

noted, "Skilling insisted he was leaving only for personal reasons,

which of course always sounds fishy." Both Enron and Skilling declined


The absence of any official elaboration led to speculation in the media

as to the real reason. This prompted the media to reel off a list of

things that have gone wrong for the company within the last year:

accusations of overcharging California for electricity; a broadband

communications division that is in a rut and public disputes over a

power plant in India.

Such negative reports were probably the last thing Enron's PR department

wanted rehashed.

On the first business day after Skilling's announcement, Enron's stock

lost $3.5 billion in market capitalization. It appeared few would

swallow the official line about Skilling's departure. There was also

concern that Skilling's exit was a reflection of deeper, as-yet-unknown

problems within the company.

Once again, Wall Street demonstrated its dislike for uncertainty. Fuzzy

explanations make investors nervous.

So it was all the more strange that Skilling would later grant an

interview with The Wall Street Journal (August 16) in which he spilled

the beans.

He said it was the 50% loss in Enron's stock, under his watch, that had

been the deciding factor. Skilling said he viewed the company's stock

performance as a "kind of ultimate scorecard" on how well he was doing

as CEO.

Provided there is no other shoe to drop, and Enron is still on track

with its financials, why would it have been so damaging to let the

public know Skilling's real reason on August 14 rather than drag the

uncertainty out until the 16th?

An analyst told CNNfn (August 17), Enron is "in a position right now

where they have to go out to Wall Street and prove that everything's

well ... But I think they need to go in with a real PR effort to sort of

clean up any type of mystery that's surrounding the company and keeping

a lot of people at bay."

Skilling's resignation, within a mere six months of his ascendance to

the top spot, was bound to raise enough questions as it was. But the

manner in which the resignation was handled appeared to have fueled the

uncertainty, which contributed to the bad press and substantial loss in

market capitalization.

Evaluation and analysis by CARMA International. Media Watch can be found


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