TRANSITIONING TO A PROFESSIONAL PARTNERSHIP MODEL

1. DRAFT txho/01204dm6c ENX119.ppt • 8/28/2014 7:37:02 PM TRANSITIONING TO A PROFESSIONAL PARTNERSHIP MODEL Draft document for discussion with Jeff Skilling November 29, 2000 This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.

2. txho/01204dm6c ENX119.ppt ENRON’S ORGANIZATIONAL EVOLUTION • Level 3 - • Future Enron • Level 2 - • Current Enron • Level 1 - • Traditional Enron • Description • Asset-based organization • Knowledge-based organization • Partnership-based organization • Benefits • Strong command and control • Organizational simplicity • Ability to attract talent • Opportunity to leverage intangibles • Ability to capture opportunities and create businesses • Unrivaled managerial talent • Unique ability to build and grow businesses • Constant portfolio management - always seeking new opportunities • Capture/exploit institutional knowledge • Unlimited entrepreneurial opportunities

3. txho/01204dm6c ENX119.ppt CURRENT PERSPECTIVE • Organizational challenges • Recommended solution • Attracting, developing, and retaining a body of unrivaled managerial and leadership talent • Extending the organizational capacity to prioritize, resource, and build new businesses • Institute a Professional Partnership Model (PPM) to • Create non-hierarchical meritocracy with an unlimited number of leadership opportunities • Create opportunities for wealth commensurate with contribution • Build strong linkages/networks across business units • Capture Enron’s growth potential via a corporate accelerator

4. txho/01204dm6c ENX119.ppt PRINCIPLES OF A PPM • Flatter organization • More “room at the top” • Meritocracy • Clearly defined standard for admittance to “partnership” • Processes support development of key skills at all levels • Values and incentives push individuals to perform and cooperate • Processes designed to facilitate organizational integration • Encourages initiative, entrepreneurship, and business building • Attractive incentives for top performers

5. txho/01204dm6c ENX119.ppt ELEMENTS OF A PROFESSIONAL PARTNERSHIP Architecture People processes Accelerator

6. txho/01204dm6c ENX119.ppt PPM ARCHITECTURE • Partners • Broad skill set • Diverse management responsibilities • High personal risk • Obligation to build the organization • Non-partners • Performs primarily a functional role • Fills a pre-defined position within the organization • Lower personal risk

7. txho/01204dm6c ENX119.ppt THREE LEVELS OF PARTNERSHIP • Representative roles & responsibilities • Executive Managing Director (EMD) • Representative roles & responsibilities • Managing Director (MD) • Representative roles & responsibilities • Vice President (VP) • Non-partners

8. txho/01204dm6c ENX119.ppt THREE PATHS TO PARTNERSHIP • EMD • EMD • EMD • MD • MD • MD • VP • VP • VP • Director • Manager • TBD • TBD • A/A • Commercial • Core commercial activities • Unlimited partnership roles • Clear path to election • Strategic professional and technical • Roles critical to commercial activities • Key staff leadership positions eligible for partnership • Fewer partnerable roles • Support • Traditional technical, infrastructure, and administrative roles • Only role eligible for partnership is organization leader

9. txho/01204dm6c ENX119.ppt DETERMINING PARTNERSHIP TRACK • Roles directly responsible for deal sourcing, structuring, and closing • Transferability of skills • Critical commercial-enabling roles • Role manages significant financial risk • Role cannot easily or should not be outsourced • Role is core to Enron’s mission • Non-core • Commercial • Strategic professional and technical • Support • P/L leaders • Originators • Traders • Investment groups • Business development • Selected members of Finance groups • RAC • Structuring • Selected leadership from • Legal (deal related, tax) • Accounting • HR • IT • Finance • IR / PR • AOPS • Pipeline operators • Critical O&M staff • Secretarial • AP/AR • Legal (compliance, reporting) • HR • IT • IR/PR (support roles) • AOPs

10. txho/01204dm6c ENX119.ppt PPM GOVERNANCE Role Membership • Chairman and CEO • President and COO • Office of the Chairman • Responsible for overall corporate policy, personnel management policy, and corporate strategy • Subcommittees be used to drive creation of strategy and policies for each area • Office of the Chairman • Plus 11 selected members (EMDs) from across the organization • Corporate Policy Committee • Building New Businesses • Vision and Values • People Committee • Communication of relevant information/activities across Enron’s businesses • Leadership of company-wide initiatives • Performance review processes • New business evaluation and creation • Corporate Policy Committee • Plus 35 selected members (EMDs) from across the organization • Executive Committee

11. txho/01204dm6c ENX119.ppt PPM PERSONNEL PROCESSES • Goals • How it works • Evaluations of all partnership members and and partner candidates against a “gold standard” • Partnership elections based on merits, with unlimited room at the top • Compensation and incentives to reinforce partnership-like behavior • Cooperation/networking • Initiative/business building • Contributions to the organization • Governance committees set standards for achievement • Personnel Review Committees (PRCs) perform partner evaluation and election duties While time consuming, effective personnel processes are the cornerstone of a successful PPM

12. txho/01204dm6c ENX119.ppt KEY PERSONNEL COMMITTEES Role • Evaluates, elects, and sets compensation for Exec MDs • Appoints all personnel committee and Corporate Policy Committee members • Approves MD and VP compensation schemes and evaluation/election criteria • Office of the Chairman • Corporate Policy Committee • Sets MD and VP evaluation and election criteria • Sets MD and VP compensation levels and “curve tilt” • Hears and decides on MD and VP evaluation / election appeals • Approves election slates from PRCs • Determines partnerable roles • People Committee • MD PRC • Comprised of EMDs • Evaluates, ranks, and elects all MDs • Commercial/Strategic VP PRC • Comprised of MDs and EMDs • Evaluates, ranks, and elects all Commercial and Strategic Professional and Technical VPs • Comprised of MDs and EMDs • Evaluates, ranks, and elects Support VPs • Support VP PRC

13. txho/01204dm6c ENX119.ppt PARTNER EVALUATION CRITERIA • Organizational impact • Demonstrated ability to build and grow businesses • People development • Collaboration/networking across the organization • Internal committee participation/leadership (e.g., PRC) • Special project team leadership (e.g., Vision/ Values) • External reputation and network • Recruiting leadership • Commercial impact • Identifiable value creation • Direct financial impact • Business building • Deal completion/closing skills • Creativity/innovation • Deal identification • Structuring (finding the value in a deal) • Risk management/business judgment • Customer relationship development and management (upsell) • Individual skills • Problem solving • People leadership • Communication • Specialized knowledge • Project management (meeting deadlines, etc.) • Teamwork • VP, MD, Exec MD • Manager/ • director • Analyst/associate

14. txho/01204dm6c ENX119.ppt COMPENSATION/INCENTIVES • Relative level of compensation at-risk for partners • Compensation tenets • Partners have more compensation at risk than a typical corporate executive • Increasing variability/ spread in compensation ranges by level • Corporate-wide bonus pools for each partnership level • At-risk • Base • salary • VP • (Non-Partner) • VP • (Partner) • MD • EMD

15. txho/01204dm6c ENX119.ppt PPM ACCELERATOR • Supports the PPM by • Creating a formal mechanism to harness internal innovation potential and build new businesses • Fostering cooperation and networking across the organization • Increasing attraction and retention of entrepreneurial talent • Capturing and codifying institutional business building skills

16. txho/01204dm6c ENX119.ppt ACCELERATOR OBJECTIVES • Primary • Supply additional capacity to identify, evaluate, and develop new business ideas – especially those ideas that require cross-functional input • Access appropriate resources required for successful business building • Support “break-out” innovation in core and non-core activities • Secondary • Provide new career and potential wealth-building opportunities • Develop a platform that is exemplary of a PPM • Create a complimentary offering to existing corporate venture capital activities

17. txho/01204dm6c ENX119.ppt ACCELERATOR – GUIDING PRINCIPLES • All ideas, both core and non-core, will be considered for investment • External resources, funding, etc. will be considered for ideas expected to be divested • All investment and external party involvement decisions are approved by the Enron Investment Committee • Business units will have the option to develop core ideas internally, but will be compensated/rewarded for providing ideas and resources to the accelerator • Whenever possible, fair market value will be used to assesss value creation and transfer pricing

18. txho/01204dm6c ENX119.ppt ACCELERATOR – CORE ACTIVITIES Core Activities Innovation/ Ideation(Idea Attraction/ Generation) “Stress Test” Ideas(Idea Evaluation) Create the Venture(Plan/ Prototype) Launch the Venture(Detailed Design/ Implementation) Run the Venture(Operation-alize/ Stabilisation) Ideas New Ventures Support Activities Program Management: Interface, Communication, Status Tracking, Prioritisation, Staffing Portfolio Management: Capital Management/Allocation Process, Idea Portfolio Alliance Management: End-to-End Alliance Identification, Selection and Partnering Administration Recruiting Budgeting/ Financial Legal Training/ Education Facility (Infra/Telecom)

19. External Investor External Investor External Investors txho/01204dm6c ENX119.ppt ACCELERATOR STRUCTURE • Accelerator is wholly owned and managed by Enron ENRON • Investment Committee provides final approval on ideas screened by accelerator management Investment Committee • Accelerator attracts, screens, develops business cases, and presents ideas to the Investment Committee • Coordinates portfolio management • Provides planning and business building resources • Coaches entrepreneurs, creates privileged networks • Captures/codifies institutional business building skills Business Unit 1 Business Unit 2 Accelerator Management Accelerated Ideas Accelerated Ideas Accelerated Ideas • Advisory Committee comprises market and subject matter experts from business units • BU reps serve to remove administrative and political road blocks Advisory Committee • External investors are invited to participate on a individual deal basis

20. txho/01204dm6c ENX119.ppt ACCELERATOR NEXT STEPS • Capital and resource commitment • Identify rollout team to coordinate launch activities • Select members of Investment Committee, Accelerator Management Team, and Advisory Committee • Communicate Accelerator objectives/processes to the organization • Legal due diligence • Liability assessment • Identify appropriate avenues for employee “upside” participation

21. Architecture People processes Accelerator txho/01204dm6c ENX119.ppt THE PROFESSIONAL PARTNERSHIPMODEL IS A MATCH FOR ENRON • Organizational challenges • Attracting, developing, and retaining a body of unrivaled managerial and leadership talent • Extending the organizational capacity to prioritize, resource, and build new businesses