Enron CEO's Departure Not Passing the Smell Test

Speculation's swirling around Jeff Skilling's abrupt departure from energy giant Enron (ENE Quote) on Tuesday, for what he would only say were "personal reasons." While Enron's stock performance since Skilling ascended to the CEO spot in February has left shareholders wanting, his departure is being assailed by many as both selfish and riddling.

Skilling left behind a trove of potential financial gains, making the timing of his move puzzling.

"I'm quite confused by the whole thing," says Tom McIntyre, president of Dessauer McIntyre Asset Management and an Enron shareholder. "After a difficult few months, all of a sudden the CEO quits. This just isn't passing the smell test."

Other investors spoke with their feet. Enron shares traded down as much as 14% early Wednesday before closing at $40.25, down $2.68 or 6.2%

"I reject the notion that this is a very good time to leave," says McIntyre. "That is a very selfish interpretation of the current situation. People of Skilling's stature take on a responsibility and they cannot walk away without considering the impact such a decision can have on shareholders."

The $22 Million Question

While both Skilling and Enron Chairman Ken Lay, former -- and now current -- president and CEO, maintain that Skilling left for personal reasons and of his own volition, the shroud of secrecy over the specifics is troubling to both investors and pundits -- including my colleague James J. Cramer.

On a company conference call Tuesday evening, Skilling said he "wished to keep the personal reasons private." Sources at Enron would not elaborate, but insisted that Skilling, 47, did not resign for health reasons.

On the conference call, Lay confirmed that Skilling would not receive severance pay, as his resignation was "voluntary." Had Skilling been canned, the severance package would have been hefty. According to Enron's 2000 Proxy Statement: "In the event of involuntary termination prior to the expiration of the term, Mr. Skilling will receive a lump sum payment for each full calendar year of the remaining term of the agreement equal to base salary, performance bonus and long-term grant value received in calendar year 2000, offset against amounts payable under the severance plan maintained by Enron, as well as full vesting of all outstanding stock options and restricted stock awards."

Hence the $20 million question with a $2 million kicker.

In 2000, Skilling was paid a base salary of $850,000 and a bonus of $5.6 million, and received restricted stock awards valued at $3.5 million as well as 867,880 options to purchase Enron stock. With a contract expiring in 2002, Skilling would have been eligible to receive a single severance payment of at least $19.9 million, not including the value of the options received in 2000. Also, the nonvested portion of the 2.4 million stock options he currently owns immediately would become vested, had he been forced out.

Leaving voluntarily, Skilling would have collected a cool $2 million if he'd hung around for another four months.

That's because, according to the 2000 proxy, Enron loaned $4 million to Skilling in 1997. Skilling repaid $2 million in 1999 and his employment contract calls for the balance of the loan to be forgiven "if Mr. Skilling fulfills all the duties and responsibilities under his employment agreement through Dec. 31, 2001 or is involuntarily terminated prior to Dec. 31, 2001."

So if the Enron ship is on course, Skilling isn't ill and timing really wasn't an issue, why wouldn't he either wait until December to resign or announce his resignation but make it effective Dec. 31 and collect the extra $2 million?

"Gee, only four months," McIntyre quipped. "If he's not sick and dying you would think he would be willing to stay four months."

Some may argue that money isn't an issue for Skilling. According to recent data compiled by Thomson Financial/First Call, Skilling owns nearly 1.1 million shares of Enron, worth more than $42 million at today's price.

Skilling also has been retained as a consultant under terms that have not been released by the company. Calls to the company seeking clarification were not returned, leaving questions unanswered.

"I just don't think you can understand it," says McIntyre. "You might as well watch cows fly out the window."