Enron as an omen

Stephen Cooper is in the business of saving businesses. From Polaroid to Enron, Cooper has made a career of rebuilding bankrupt or near-bankrupt companies done in by poor leadership and shoddy business practices.

Looking into the future, he doesn’t think he’ll have any problem finding more work.

Cooper, who was named CEO of struggling Krispy Kreme Inc. in January and also continues his work to rebuild Enron, says the business world is ripe with opportunities for rebuilding experts such as himself. Despite a rebounding economy here in the U.S., Cooper says he expects more Enron-sized implosions in years to come. “In general, what my colleagues and I expect is that corporate restructurings in the future are going to get bigger and more complex,” said Cooper, who delivered a keynote address for the Wharton School’s Restructuring Conference on Feb. 11. “There’s always going to be a fair number of casualties in today’s corporate world, and those casualties are only going to get bigger and bigger and bigger.”

Ten years ago, Cooper says, most large companies filing for Chapter 11 bankruptcy had operations only in the U.S. Today, that’s no longer the case, as more and more companies are globalizing operations and expanding to overseas markets.

Cooper, who received his MBA from Wharton in 1970, said companies that could face bankruptcy include airlines, automakers and any company—especially supermarket chains—forced to compete with mega-retailer Wal-Mart. “Competing with Wal-Mart is business suicide,” he said. There also remain, Cooper said, plenty of bad businessmen running global companies who will fail to heed warnings, deny problems and get starry-eyed and irresponsible while working to please Wall Street. “Enron may represent the template for future restructurings,” said Cooper.

“ A hurricane of litigation”

At the time of Enron’s collapse in 2001, the company had 32,000 employees and, in 2001, reported $134 billion in revenues for just three fiscal quarters. It had operations in more than two dozen countries and claimed more than 3,000 legal entities. The company also boasted a complex legal structure that was designed, Cooper says, to accentuate earnings but hide debt.

The structure worked—for a while. “The entire setup was designed to provide assurances that it was a solid organization,” says Cooper, who was named CEO of the company in 2002. “As a result, it melted down.”The same corporate board that was lauded for its “imagination” was proven to be a fraud. The same company that was praised as one of the best places to work in America was soon firing thousands of employees by email. By the time Cooper took over in 2002, the company was the target of seemingly endless litigation, government probes and, of course, angry creditors. “We had a hurricane of litigation,” he said.

Cooper’s strategy to fix the company was a simple one: He aimed to deconstruct the complex web that helped the previous management team hide its weaknesses.

Cooper and his management team in 2002 resisted suggestions to sell Enron’s pipelines—one of the company’s major assets—in a deal that would have netted the company $1 billion. By waiting an additional two years, Cooper says, Enron netted $2 billion instead.

He also faced internal battles. Not long after arriving in Houston, Cooper discovered, even though the company had filed for bankruptcy and its stock was all but worthless, the company’s human resources department was still taking 5 percent of each employee’s paycheck and using it to buy stock. He instructed the HR manager to stop the stock payments, but was told the HR computers would have to be reprogrammed—a process that could take 30 days. “So I asked her, ‘This is Texas, right?’” he said. “I told her, ‘There’s got to be somebody ... in the building that has a gun. If it’s going to take 30 days, we might as well just shoot the computer.’” Miraculously, he said, the change was made within a day.

Cooper said he could not comment on his efforts to rebuild ailing Krispy Kreme, where he took over as CEO in late January, other than to say he has not gained any weight since starting and is considering removing a donut bin from which employees can take free donuts: “It’s not a cost issue,” he said. “It’s a calorie issue.”

Originally published on February 24, 2005