I’ve been rereading The Smartest Guys in the Room by Bethany McLean and Peter Elkin, both of Fortune Magazine, and Conspiracy of Fools by Kurt Eichenwald, of the New York Times. Both books look at the history of Enron and the events leading up to the Enron scandal, but they each find different reasons for the scandals. So, I’m starting the thread to see if anyone else read the books, and what they think of them.
The Enron scandal shouldn’t be news to anyone at this point, but because it’s been a while since the scandal broke, just to remind everyone, Enron was a natural gas pipeline company headquartered in Houston, Texas. In the nineties, Enron, spurred on by the stock market boom and the general exuberance, engaged in a massive expansion, expanding into such fields as power generation, water distribution, and even broadband services. Many of these investments were ill concieved and led to massive losses. In order to hide these losses and artificially inflate their profits and therefore their stock price, Enron engaged in a serious of questionable and illegal financial transactions, setting up false investment companies, and then “selling them” unprofitable assets, thereby to hide debt and list those sales as income on their balance sheets. Of course, these “sales” were in reality nothing of the sort, because in most of those cases, the companies were in reality owned by Enron, and the money they used to buy the assets from Enron was in actuality Enron’s money. Eventually this whole system collapsed, Enron fell apart and had to declare bankruptcy, and a number of Enron executives were prosecuted and went to jail.
Both books agree on the general timeline of events, of course, but they each find a different villain that they blame for Enron’s collapse. The Smartest Guys in the Room focuses on Jeff Skilling, Enron’s Chief Operating Officer. It argues that Skilling had the attitude that competition at any cost was healthy, and that a company should hire visionaries who aren’t afraid to challenge the status quo and bend the rules, if neccesary, and then give them free reign to compete against each other and the company would thrive. The book argues that this led to a kind of paranoid, win at any cost mentality that destroyed corporate communication, and, since the only thing that the company rewarded was bringing in profit, those divisions of the companies that stood in the way of that, like risk management and internal auditing, found themselves without power. In addition, this led to a kind of arrogance that meant that the profit makers figured the laws didn’t apply to them…that they were sort of Nietzschean supermen who could ignore the laws that were inconvenient.
Conspiracy of Fools, on the other hand, put most of the blame on Andy Fastow, the CFO. It argues that most of the illegal deals were his idea, and that he structured them so that he and his allies in the company would benefit personally. By doing that, he set up a massive conflict of interest where he used insider information to set up deals that hurt Enron and financially rewarded them, and used his influence to pressure Arthur Anderson, Enron’s accountants to go along, as well as blocking anyone in the company who tried to speak up against him. The rest of the Enron executives, including Skilling, went along with it because he kept the books looking good and the stock price up, and just didn’t care what he did as long as he accomplished those goals.
What both books seem to agree on is the almost total non-involvement of Ken Lay, Enron’s CEO, in the running of the company. They both portray him as someone in love with the perks that being CEO gave him…his status as a community leader, a charitable giver, and political bigwig, but who didn’t have any interest in running the company or making decisions.
So, did anyone else read the books? What did you think?
