The death of Ken Lay

ken lay30.jpgFormer Enron chairman and CEO Ken Lay died early this morning in Colorado, reportedly of a heart attack. He was 64 at the time of his death.
I have a day’s worth of meetings that prevent me from collecting and conveying my thoughts immediately on Mr. Lay’s death, but I wanted to pass along a couple of recent posts (here and here) about Mr. Lay and the weakness of the criminal case against him, one of which includes this excerpt about the man that Mr. Lay was:

Lay is clearly a proud man who desperately wants to tell his side of the story, and it is quite a story. Born and raised in a family with little money, Lay worked his way through college and graduate school, landed his first job with Houston-based Humble Oil (the predecessor to ExxonMobil), and then served his country admirably as a Naval officer and Deputy Undersecretary of Interior for Energy for six years during the Vietnam War. After his governmental service, Lay rose quickly through the executive ranks of a couple of gas pipeline companies before assuming the chairman and CEO position of the company that eventually became Enron in 1985. From that perch, Lay accumulated a personal net worth of about $350 million as of 2000 as he oversaw the growth of Enron into one of the largest publicly-owned companies in the U.S., and then saw that net worth evaporate over the past four-plus years since Enron’s collapse into bankruptcy.
But as difficult as that fall must have been, Lay does not appear to be the type of man who is bothered all that much by the loss of wealth, and certainly not nearly as much as he is aggravated by the Task Force and mediaís ravaging of his reputation over the past five years. According to media reports, Lay and [defense counsel Mac] Secrest struggled somewhat during the early stages of Layís direct examination, and my sense is that their struggles were attributable largely to Layís frustration with not being able to explain to the jurors directly ó without the limiting framework of a trial ó the utter contradiction between his life story and the nature of the criminal charges against him.

And, as usual, Larry Ribstein has these insightful observations on Mr. Lay’s death and Peter Henning passes along an interesting implication of Mr. Lay’s death on the criminal case against him.

The big problem with Mexico

mexican flag at port.jpgThe presidential election in Mexico garners more interest in Texas than many places because of the increasing problems that the state faces in regard to the influx of immigrants and violence on the border. Calderon’s apparent victory is almost certainly better economically for Mexico, and Opinion Journal’s Mary Anastasia O’Grady observes that the handling of the election is a hopeful sign for Mexico’s emerging multi-party political system. However, the Washington Post’s Robert Samuelson identifies in this column the problem that continues to vex Mexico’s economic development — inefficient big businesses that are protected by the government and vibrant small businesses that are threatened by it:

[Mexico’s] economy consists of two vast sectors, each slow to adopt better technology and business practices.
One sector involves large, modern firms in semi-protected markets that limit the pressure to improve efficiency or lower prices. “Mexico’s business sector is risk-averse. It’s never had to operate in a true competitive environment,” says Pamela Starr, an analyst for the Eurasia Group, a consulting firm. “It’s operated with monopolies and oligopolies encouraged by the government.”…
The other part of the economy is usually called the “informal sector.” It consists of thousands of small firms — street vendors, stores, repair shops, tiny manufacturers — that theoretically aren’t legal, because they haven’t registered with the government and often don’t pay taxes or comply with regulations on wages and hiring and firing. Almost two-thirds of Mexico’s workers may be employed in the informal sector, according to one rough estimate by the International Monetary Fund.
The sector’s size might suggest great entrepreneurial vitality. The trouble is that these firms are virtually compelled to remain small and inefficient. Because they’re technically illegal, they can’t easily get bank loans and can’t grow too large without being forced to pay taxes or comply with government regulations.

Read the entire column.

Kerkorian’s deal for GM

gm15.gifKirk Kerkorian’s proposed deal to save General Motors came up just before the holiday weekend, so analysis of the proposal has been sparse to date (previous posts on GM’s Enronesque experience are here). Last Friday, Kerkorian’s Tracinda Corp. — the largest individual shareholder in GM — publicly proposed that GM become the third wheel in an automotive alliance with Nissan and Renault, both of which would buy substantial minority stakes in GM. Nissan and Renault are led by Carlos Ghosn, whose revival of Nissan six years ago has made him the most influential automotive CEO in the world. Interestingly, Kerkorian’s salvo was deftly timed to coincide with the Big Three automaker’s June sales reports, which were dismal.
As GM’s stock rose nearly 10% after Kerkorian’s announcement, GM’s directors convened an emergency meeting while grumbling that they didn’t appreciate negotiating in public, although they announced after the meeting that they would consider the proposal (imagine the lawsuits if they didn’t?). Nissan and Renault’s boards kept up the heat on Monday by announcing that they would entertain an alliance if GM agrees. Such an alliance would leave the weak and struggling Ford Motor Co. as the only independent American automaker.
The WSJ’s Holman Jenkins ($) sizes up Kerkorian’s strategy and suggests “the possibility that Mr. Kerkorian is simply lining up a lifesaver in the event of a sudden auto recession that some see looming. GM likely would not survive a sharp drop in SUV and pickup sales right now.” Regardless of whether that’s the underlying reason for Kerkorian’s proposal, Jenkins observes that Kervokian’s message is clearly “there’s not enough change going on around here. Give me more change.”
Kerkorian’s concerns about GM’s management have merit. Although GM posted a small profit in the first quarter of 2006 on the heels of its gargantuan $10.6 billion loss last year, the profit was primarily the result of an accounting change. Cash flow remains negative and the company’s debt remains in the deep junk category. This lackluster performance comes amidst a larger backdrop of GM’s poor performance over the past six years. Since earning a record $5.7 billion in 1999 and having its stock top out at $70 a share in June 2000, GM’s stock has declined by over 70% since then to below $19 per share at the end of last year, although it has recovered to $29 per share on the early success of current GM CEO Rick Wagoner’s reorganization plan and now Kerkorian’s proposal. Perhaps most importantly, however, GM’s U.S. market share has plummeted to 24.4% from almost 30% in 1999. Twenty years ago, GM’s share was 41%.
Looking at all this, Jeff Matthews has the most entertaining analysis of Kerkorian’s strategy to date, analogizing GM’s choice to the one faced by Sonny Corleone in The Godfather if it turned out that Don Corleone did not survive after being severely injured in Sollozo’s assassination attempt. As Matthews notes, brother Michael’s plan ended up being a better alternative for Sonny than making a deal with Sollozo, there is no Michael Corleone for GM.

Golf 101

HCC logo.jpgLet’s see now. Suppose you are a trustee of the Houston Community College system.
You are confronted with a chronically underfunded system that is operating in a region where golf courses are overbuilt and will do most anything to attract customers.
What would you do?
Well, I don’t know about you, but I wouldn’t be approving the construction of a three-hole, par 3 golf facility to provide “a new and unique opportunity for residents of northeast Houston to learn or improve skills in the age-old sport of golf.”
The Houston Press’ Richard Connelly has the story.