Thomas White, the former Enron vice chairman appointed by George W. Bush to be Secretary of the Army, should resign immediately. The case against White is self-evident. Touted as "one of the most outstanding managers in corporate America" by Enron's favorite senator, Phil Gramm, he was named Army Secretary, promising to bring "sound business practices" to the Pentagon. But White's entire business experience was at Enron, where he participated directly in the lies and mismanagement that resulted in its bankruptcy and the betrayal of investors and employees. Enron's business practices generally, and White's in particular, are the last thing that should be inflicted upon the Department of the Army.
Before being named Army Secretary, White was vice chairman of a venture called Enron Energy Services from 1998 through May 2001. He was paid $5.5 million in salary and bonuses in his last year alone and walked off with stock and options valued at about $50 million and homes in Naples, Florida, and Aspen, Colorado, worth more than $5 million apiece.
Touted as a burgeoning profit center, Enron Energy Services reported a pretax operating profit of $103 million on revenues of $4.6 billion in 2000. But EES was a fraud, hemorrhaging money while covering up its losses with accounting maneuvers. Its profit in 2000, according to Enron vice president Sherron Watkins, was created by counting ersatz financial trading gains from one of the infamous off-budget Raptor partnerships. The recently released special investigation of Enron's board of directors concluded that those transactions violated accounting rules. White and EES chairman Lou Pai made millions, but the venture they ran was so mismanaged that in February 2001 Enron executives brought in another leadership team to clean up the mess.
Enron Energy Services was set up to compete with public utilities in selling energy to large enterprises like JC Penney, the Catholic Archdiocese of Chicago and the US Army. Enron would sign long-term contracts to provide energy at a sharply reduced fixed price. It would then install energy-saving devices to lower its clients' energy needs and use its trading savvy to supply that energy at bargain prices.
From the beginning, though, Enron's follow-through was something of a joke. "They knew how to get a product out there, but they didn't know how to run a business," former EES employee Tony Dorazio told the New York Times. Glenn Dickson, an EES director laid off in December, charged that White and Pai "are definitely responsible for the fact that we sold huge contracts with little thought as to how we were going to manage the risk or deliver the service."
Perhaps Pai and White were more concerned about selling than fulfilling contracts because they were making their money on the front end, benefiting from Enron's aggressive accounting practices. When Enron signed a ten-year contract with a customer, it would project its revenues and profits over the ten years and book all of them as received in the first year of the sale. This "mark to market" accounting is a generally accepted accounting practice--but only when the revenues and costs can be reliably projected. EES had to predict future energy prices, the pace of energy deregulation in different states and the conservation savings of its customers over many years. It then paid its managers and sales personnel bonuses based on those projections. This was an irresistible invitation to what former EES employee Jeff Gray called "illusory earnings."
And illusion there was. "It became obvious that EES has been doing deals for two years and was losing money on almost all the deals they had booked," wrote former employee Margaret Ceconi in an e-mail to Enron's board in August, warning that more than $500 million in losses were being hidden in Enron's wholesale energy division. Enron used its bankruptcy to walk away from EES's losing deals and dismissed most of its 1,000 employees.
Where was White during all this? His emerging defense is that he was out of the loop. He didn't do numbers. He provided a dashing can-do military figure for the customers, a rainmaker who helped land the deals. And EES was tasked to show growth. Bidding for a fifteen-year, $1.3 billion contract with Eli Lilly, it paid Lilly $50 million up front to seal the deal. The contracts could be projected as profitable, even if they were to bleed money in the succeeding years. So long as EES kept expanding fast enough and the contracts kept rolling in, no one need know. Under White's leadership, Enron Energy Services turned into a classic Ponzi scheme.
White still maintains that EES was "a great business...there were no accounting irregularities that I was aware of." It is hard to imagine a clearer self-indictment. Either he knew that EES was a lie and is potentially guilty of fraud, or he was oblivious to the lie and thus is utterly incompetent to manage the Department of the Army with its annual budget of $91 billion.
Tyson Slocum of Public Citizen argues that White is a walking conflict of interest. He came to the Army pledging to get it out of the energy business, even as Enron was bidding to supply the military with energy. He pledged to sever all financial ties with Enron but elected privately to receive an annuity payment, part of which came from the company. Enron's bankruptcy ended this conflict, but it doesn't put an end to White's complicity in a scheme from which he pocketed millions while running his venture into the ground, betraying the trust of investors and employees alike.
Ultimately Enron is about values, about integrity and responsibility. It is a story of executives who cashed out more than $1.1 billion in stock while misleading employees and investors. Thomas White is one of those executives. Personal responsibility should apply to the powerful as well as the weak. If it means more than election-year campaign rhetoric for this Administration, then it is time for Thomas White to go.
As the House of Representatives was about to begin debating a modest campaign finance reform bill, former Enron CEO Kenneth Lay was taking the Fifth before the Senate commerce committee. As the disgraced exec sat grim-faced at the witness table, Democratic Senator Fritz Hollings, chairman of the committee, used the nickname George W. Bush once conferred upon Lay, noting that there is "no better example than Kenny Boy of cash-and-carry government." Lay and Enron dumped millions of dollars into the political system--in hard-money contributions to candidates and soft-money donations to political parties--and spent millions more to hire politically wired lobbyists (including Republican Party chairman Marc Racicot) and to snag high-profile opinion leaders (like Bush economic adviser Lawrence Lindsey) as consultants. Executives were coerced to cut campaign checks to Bush and other politicians, Republican and Democrat. The goal was to game the system in Enron's favor--in regulatory agencies, in Congress, in state capitals, in the White House.
Enron, of course, was not unique in this regard. Why else would corporate executives invest millions in candidates and parties? If they're not receiving a return, shareholders should sue. (Enron may well have received favors from federal and state officials in the months and years before the company started collapsing and became too controversial to assist; the various Enron inquiries on Capitol Hill should be digging into this.) And the system seems to be working fine for most donors and the recipients, for the flow of money keeps increasing. In 2001 the two parties bagged $151 million in soft money--the large unlimited contributions given mainly by corporations, unions and millionaires--almost a 50 percent increase over 1999, the last nonelection year. The Republicans out-collected Democrats, $87.8 million to $63.1 million.
The Shays-Meehan bill, at the center of the latest House campaign finance debate, called for something of a ban on soft money for the national parties--a good move. But the legislation, similar to the McCain-Feingold bill in the Senate, still contained soft-money loopholes and, just as unfortunate, raised the limits on certain hard-money donations. If Shays-Meehan had been enacted years ago, it would have done little to slow down the Enron racketeers. That's why it's important for the debate to move beyond Shays-Meehan/McCain-Feingold. The long-term solution must be a system of public finance in which candidates can receive most of their campaign dollars in clean money, that is, funds that come from the no quid/no quo public till rather than the private pockets of the rent-a-politician crowd. The first run of clean-money systems in Maine and Arizona showed that such an alternative can work: There were more contested races, more women and minorities running and a more level playing field. The vast majority of both states' legislators and statewide officials will run "clean" this year, and it looks as though the Massachusetts Supreme Court will force the implementation of that state's clean election law for this year's election. Legislation is advancing in several other states.
In the past few years, the reform debate in Washington has been too modest. The authors of the reform bills deserve credit for pushing against a mighty tide of self-interest, but Enron shows how far special interests will go to rig the system. True reform has to go as far.
The Texas company has been a scandal in other countries for a long time.
(A Houston version of the Irish folk song)
Oh, Kenny Boy, your friends are disappearing.
They don't know you, much less your kvetchy wife.
Yes, it's sad when pols that you've been shmeering
Now hope that you'll get twenty years to life.
They sang your song: They passed deregulation.
They passed your laws. They bent the regs your way.
But now they track your every obfuscation.
Old Kenny Boy, their Kenny Boy's now Mr. Lay.
Enron, maker of big promises and big donations, stands revealed as a four-flusher.
Is the Enron story one of outrageous mendacity or stupefying ignorance?
This letter was originally published on January 29, 2002 at www.michaelmoore.com
Having simmered on the back burner through the aftermath of September
11, Congress's effort to obtain records from Vice President Dick
Cheney's energy task force has now reached the boiling p
Right till the end of January, Dita Sari, an Indonesian in her late 20s, was preparing to fly from her home near Jakarta to Salt Lake City to bask in the admiration of assorted do-gooders and celebrities mustered by the public relations department of Reebok for its thirteenth annual Human Rights Awards, overseen by a board including Jimmy Carter and Kerry Kennedy Cuomo. Make no mistake, the folks--usually somewhere between four and six--getting these annual Reebok awards have all been fine organizers and activists, committed to working for minorities, the disfranchised, the disabled, the underdogs in our wicked world.
Dita Sari's plan was to proceed to the podium in the Capitol Theater in downtown Salt Lake City, on February 7, and then, when offered the human rights award, reject it.
Now, this annual Reebok ceremony isn't up there with the Nobels, or the genius grants from MacArthur. Despite Reebok's best efforts, it's definitely a second-tier event. Nonetheless, it has paid off for Reebok. Says Jeff Ballinger, an antisweatshop activist who's organized with shoe workers in Indonesia for the past thirteen years, "With this kind of ceremony, Reebok gets its name into respectable company. When they give a prize to someone like Julie Su, a lawyer for immigrant workers in California, people who wouldn't be seen dead in Nikes are impressed."
Dita Sari got picked by Reebok's judges because she defied her government on the issue of independent trade unions. In her own words: "In 1995, I was arrested and tortured by the police, after leading a strike of 5,000 workers of Indoshoes Inti Industry. They demanded an increase of their wages (they were paid only US $1 for working eight hours a day), and maternity leave as well. This company operated in West Java, and produced shoes of Reebok and Adidas."
She got out of prison in 1999. Since then she's been building a union in plants across Java. It was there that she got a good look at Reebok's contractors, the underbosses of all the apparel, footwear, computer and toy companies. These contractors run their plants in a notoriously harsh manner.
Reebok's flacks can brandish armloads of studies, codes, monitoring reports, guidelines and kindred matter, all attesting to the company's dedication to fair treatment of anyone making consumer items with the name Reebok printed on them. But nothing has really changed. "We've created a cottage industry of monitors and inspectors and drafters of codes," Ballinger says, "but all these workers ever wanted was to sit down in dignity and negotiate with their bosses, and this has never happened."
Due in large part to the efforts of the workers and Western allies like Ballinger's Press for Change, the daily wage in Indonesia actually went up more than 300 percent between 1990 and 1997, at which point the Asian economic crisis struck. Inflation wiped out all those gains. Workers' daily pay is now half what it was before the crisis hit.
These were the points Dita Sari was going to make when she got to Salt Lake City. Then she learned that Reebok intended to schedule her and other recipients for some public events before the actual award ceremony. Rather than let Reebok benefit in any way from her presence, Dita Sari pulled the plug and at last word is in Jakarta trying to raise relief money for workers left destitute by the worst flooding in decades. She's sent the speech she was planning to give at the awards:
I have taken this award into very deep consideration. We finally decide not to accept this....
In Indonesia, there are five Reebok companies. Eighty percent of the workers are women. All companies are sub-contracted, often by South Korean companies such as Dung Jo and Tong Yang. Since the workers can only get around $1.50 a day, they then have to live in a slum area, surrounded by poor and unhealthy conditions, especially for their children. At the same time, Reebok collected millions of dollars of profit every year, directly contributed by these workers. The low pay and exploitation of the workers of Indonesia, Mexico and Vietnam are the main reasons why we will not accept this award.
But isn't Reebok at least trying to do something decent? The way Dita Sari sees things, the attempt is phony. All the awards in the world--all the window dressing with Desmond Tutu, Carly Simon, Sting, Robert Redford--doesn't alter the basic fact that workers in the Third World are being paid the absolute minimum to make a very profitable product. The labor cost of a $70 pair of sneakers made in China, Vietnam or Indonesia is $1 or less.
Is there such a thing as a virtuous sneaker? Ballinger cites Bata, a Toronto-based company that runs its own factory in Jakarta. Its executives sat down with the union and worked out a contract with significant improvements on issues that employees care about greatly, like seniority. Though the margin has fallen recently, wage scales are better than minimum. Instances of bullying and intimidation are far fewer. Bata's shoes are sold in Indonesia for what an Indonesian can afford: $10 or less.
Ten years ago another courageous Indonesian, Teten Masduki, was asked by the Levi Strauss company to broker a clinic to be built near a contractor's factory. Teten, uncompromising labor advocate that he is, refused, even though the assignment would have made him a local hero. His reason: a clinic wouldn't give the workers what they need, a voice, the power to bargain.
Teten Masduki and Dita Sari see the world clearly, a lot more clearly than the celebrities and activists massed at such events as the one organized by Reebok in Salt Lake City, which is already awash with Olympian bunkum about human brotherhood. Dita Sari turned down $50,000 from Reebok. Teten Masduki turned down a tempting position with Levi Strauss. These days he's been responsible for chasing out a corrupt attorney general from his post as head of Indonesia's Corruption Watch. Do-gooders should study these fine examples and stiffen their spines.