attack.
“Okay,” Skilling said, holding up his hands. “Listen, I’m just a consultant. I’m just giving my advice.”
One director moved that the company maintain dual headquarters. Another seconded the motion.
“Fine,” said Strauss, the chairman. “All in favor?”
A chorus of ayes filled the room.
“Opposed?” Silence.
Jesus Christ
, Skilling thought.
“The ayes have it,” Strauss said.
Defeated, Skilling and Sawhill made their way out of the room as the directors called a break. Lay hustled to the hallway to find the consultants. “Jeff! John!” he called.
The two consultants waited as Lay hurried up to them.
“I want to apologize for what happened here,” he said. “The work you did was very good, we appreciate the thought that went into it. I think you’re probably right, but we just can’t do it now.”
Skilling nodded, mumbling his thanks. For all the trouble the board had given him, he thought, at least this fellow Lay was a class act.
HNG/InterNorth descended into chaos. The ousting of Segnar was supposed to calm the waters at the company; instead, it set in motion an endless drama of backstabbing and one-upmanship as longtime InterNorth employees prepared for a final battle with the interlopers from HNG. Many viewed Lay as one misstep away from Segnar’s fate.
Topping it off, the newly merged company was still struggling through the basics, including the selection of its independent accounting firm. HNG had long relied on Deloitte Haskins & Sells; Lay and his top management were recommending that firm. But InterNorth had used the prestigious ArthurAndersen & Company, and the directors were frightened that changing firms would leave Andersen no choice but to shut down its Omaha office.
The issues came to a head in late January 1986 at a series of directors’ meetings in the sixteenth-floor boardroom of the Omaha headquarters. Lay easily won the battles with subordinates; the directors accepted his appeal to terminate two longtime InterNorth executives he believed were sowing discontent. But the selection of auditors proved to be far stickier. The audit committee—which would make the final recommendation of accountants to the full board—listened in silence as Keith Kern, the chief financial officer, presented management’s recommendation of Deloitte as auditors and Andersen as consultants.
When Kern was finished, Lay spoke up. “Now, the management committee is not unanimous here,” he said. “But I personally agree with the recommendation.”
The first shot from the directors was a surprise: it was aimed at Andersen. James Renier, who worked at Honeywell, said he was worried about that firm. He knew Andersen had been clobbered in recent years by malpractice lawsuits; it had paid about $140 million in such cases over five years, seven times more than any other firm.
That would not be an issue, Kern replied. “They’ve discussed those cases with us in detail. The amount of money is large, but, really, the number of cases is relatively small. We don’t think it’s a concern.”
The signal of support for Andersen was all the other directors needed. Of course the lawsuits weren’t a problem, several said. In fact, one suggested, why take the auditing away from Andersen? With all the difficulties that HNG/InterNorth was facing, why go to the trouble of a switch? Why not rely on Andersen for everything?
Georgiana Sheldon, formerly head of the Federal Energy Regulatory Commission, felt uncomfortable with the suggestion. “Wait,” she said. “I don’t like the idea of giving all the work to Arthur Andersen. I’d be concerned about a possible conflict of interest if the same firm performed both the consulting and the auditing.”
The directors understood. Auditors might need to examine the outcomes of consultants’ strategies. Who would want an adviser grading its own papers?
“I agree,” said Robert Jaedicke, the Stanford Business School dean who served as the
“Okay,” Skilling said, holding up his hands. “Listen, I’m just a consultant. I’m just giving my advice.”
One director moved that the company maintain dual headquarters. Another seconded the motion.
“Fine,” said Strauss, the chairman. “All in favor?”
A chorus of ayes filled the room.
“Opposed?” Silence.
Jesus Christ
, Skilling thought.
“The ayes have it,” Strauss said.
Defeated, Skilling and Sawhill made their way out of the room as the directors called a break. Lay hustled to the hallway to find the consultants. “Jeff! John!” he called.
The two consultants waited as Lay hurried up to them.
“I want to apologize for what happened here,” he said. “The work you did was very good, we appreciate the thought that went into it. I think you’re probably right, but we just can’t do it now.”
Skilling nodded, mumbling his thanks. For all the trouble the board had given him, he thought, at least this fellow Lay was a class act.
HNG/InterNorth descended into chaos. The ousting of Segnar was supposed to calm the waters at the company; instead, it set in motion an endless drama of backstabbing and one-upmanship as longtime InterNorth employees prepared for a final battle with the interlopers from HNG. Many viewed Lay as one misstep away from Segnar’s fate.
Topping it off, the newly merged company was still struggling through the basics, including the selection of its independent accounting firm. HNG had long relied on Deloitte Haskins & Sells; Lay and his top management were recommending that firm. But InterNorth had used the prestigious ArthurAndersen & Company, and the directors were frightened that changing firms would leave Andersen no choice but to shut down its Omaha office.
The issues came to a head in late January 1986 at a series of directors’ meetings in the sixteenth-floor boardroom of the Omaha headquarters. Lay easily won the battles with subordinates; the directors accepted his appeal to terminate two longtime InterNorth executives he believed were sowing discontent. But the selection of auditors proved to be far stickier. The audit committee—which would make the final recommendation of accountants to the full board—listened in silence as Keith Kern, the chief financial officer, presented management’s recommendation of Deloitte as auditors and Andersen as consultants.
When Kern was finished, Lay spoke up. “Now, the management committee is not unanimous here,” he said. “But I personally agree with the recommendation.”
The first shot from the directors was a surprise: it was aimed at Andersen. James Renier, who worked at Honeywell, said he was worried about that firm. He knew Andersen had been clobbered in recent years by malpractice lawsuits; it had paid about $140 million in such cases over five years, seven times more than any other firm.
That would not be an issue, Kern replied. “They’ve discussed those cases with us in detail. The amount of money is large, but, really, the number of cases is relatively small. We don’t think it’s a concern.”
The signal of support for Andersen was all the other directors needed. Of course the lawsuits weren’t a problem, several said. In fact, one suggested, why take the auditing away from Andersen? With all the difficulties that HNG/InterNorth was facing, why go to the trouble of a switch? Why not rely on Andersen for everything?
Georgiana Sheldon, formerly head of the Federal Energy Regulatory Commission, felt uncomfortable with the suggestion. “Wait,” she said. “I don’t like the idea of giving all the work to Arthur Andersen. I’d be concerned about a possible conflict of interest if the same firm performed both the consulting and the auditing.”
The directors understood. Auditors might need to examine the outcomes of consultants’ strategies. Who would want an adviser grading its own papers?
“I agree,” said Robert Jaedicke, the Stanford Business School dean who served as the
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