Conspiracy of Fools by Kurt Eichenwald Page A

committee chair. “I’d be concerned if Andersen was appointed auditor and a transition wasn’t made quickly to another consultant.”
    The bantering left Lay uneasy. Once again the board members seemed to be undercutting their managers in favor of their own parochial interests. “Ineed to point something out,” he said. “Our CFO made this recommendation to me, and I agreed with it. So it’s the recommendation of the CFO and the CEO that this proposal, as outlined, be accepted.”
    The room went silent. Finally, someone took the bait. “I’m concerned about the message we’d send if this committee doesn’t support management,” Renier said.
    The dynamic of the discussion was shifting. But Jaedicke asked for a forty-eight-hour recess. Lay walked out frustrated. It was a stupid squabble, one that, if he lost, would once again undercut his authority.
    Some battles are just not worth fighting
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    The only way to win, Lay decided, was to adopt the board’s position as his own. He would be victorious in defeat. Two days later, Lay went back to the boardroom to speak with the directors by conference call.
    “It is very important at this stage in the company’s history to have unanimity from this committee,” Lay said. “In view of the fact of the virtual equality of the two firms, management has revised its recommendation”
    He paused for a moment. “We are now recommending that Arthur Andersen be retained as our independent auditor.”
    The directors unanimously agreed. Arthur Andersen was retained as auditor and consultant; Deloitte was abandoned. No one raised the concerns again about the possible problems of Andersen serving in two conflicting roles.
    Lay’s defeat on the accounting issue set Bill Strauss to thinking. His reappointment as chairman was supposed to help the company come together. Instead, it was pulling itself apart. Already he thought Lay was spending too much time on internal politics; the man had been given the CEO title but received little of the respect that the job deserved. Something needed to be done, Strauss decided. Everything was put in motion in early February 1986, when Strauss ambled down to Lay’s office.
    “Look, Ken, I know these are tough times, and they’re probably not going to get any easier,” Strauss said.
    “That’s probably an understatement,” Lay said, chuckling.
    “Well, we need to resolve a few things. I need to know your hands are tied to the steering wheel, that you’re here for good.”
    One problem, Strauss said, was that Lay’s contract from HNG allowed him to pull the rip cord on a golden parachute up to a year after the company merged. So there was still plenty of time left for Lay to walk away from his job with about three years’ worth of salary and bonus.
    “If everybody is going to get behind you, Ken, we need to know there’sno escape hatch,” Strauss said. “I’d like you to give up your golden parachute, and I’d like to be able to tell the board at the next meeting that you did.”
    Lay asked for the weekend to think about it, and talked it over with his wife, Linda. On Monday he returned with the verdict: Strauss could let the directors know he was giving up the pay package.
    The board met on February 11, 1986, at an office building in Orlando, Florida. The directors gathered around the table, and Strauss started things off. Lay figured he would open with the announcement about the pay package.
    “I have something to tell you,” Strauss began. “I’m going to tell you something that only my wife and I know.”
    What?
Strauss’s wife sure wasn’t the only one to know about Lay’s decision. What was going on?
    “In the last few weeks I’ve met with each of you individually. I’ve talked to you about what ought to happen at this company. I’ve asked you about the management team, and the problems and all of that”
    Strauss looked over at Lay. “I’ve reached the conclusion that I should step down as chairman and Ken should