A couple months back I watched Enron: The Smartest Guys in the Room, a documentary about the downfall of Enron based on a book of the same title. After watching the movie, I decided to check out the book. One of the amazing things about the Enron story is how every facet of the company had lost its scruples. So much so that a 2 hour long movie had to leave out huge chunks of the book. The book, which runs over 400 pages, details incident after incident and is a testament to theft. First you take an inch, then you take a mile (or in Enron’s case, a couple thousand miles). The book is both entertaining and thorough, which is a noteworthy considering it tries to explain the mundane accounting details and the never-ending list of insanities Enron contrived.
My understanding of Enron before reading the book was that it was a pyramid scheme on a grand scale. A company propped up on cooked books. What the book does so well is show how it wasn’t just one accounting scheme but a systemic culture of greed and arrogance. The book details Enron’s obscene spending habits (operating budgets in the billions), blatantly illegal trading schemes in California (thoughtfully entitled ‘Deathstar’ and ‘FatBoy’), and the stupidly complex accounting scams, just to name a few.
After reading a couple hundred pages of this insanity, you can’t but help wonder “How could this have possibly gotten so big without anyone noticing?” Luckily, the authors step through this for us. First off, Enron employed wickedly smart people who could thoroughly sell the Enron vision. But this can only go so far. At some point the wheels need grease and Enron had plenty of it. Enron spared no expense on just about anything; this was especially so on consulting fees. This applied to their accountants, lawyers, and bankers. No one could deny them their requests because no one could deny the fees they were booking. And what employee could think there was something wrong if their employer kept doling out excessive compensation “even by the standards of an excessive era”. And we’re not talking about a couple bonuses here and there:
In 1998, Enron’s 200 most highly compensated employees took home a total of $192 million in salaries, bonuses, and various forms of stock. In 1999 that leaped to $402 million; in 2000, they took home $1.4 billion. [...] In 2001, the year Enron went bankrupt, at least 15 employees made over $10 million
Oddly enough, a friend of mine just recently sent me an article Malcolm Gladwell wrote back in 2002 about Enron entitled The Talent Myth. Though mentioned in the book, Gladwell specifically speaks to Enron’s culture and the monster it bread. Enron loved to hire the brightest of the bright (”guys with spikes” as Skilling called it) and valued talent on a “star system”. Once you were considered a “star” you could do no wrong. You could take huge risks with little consequence for huge failures. Gladwell nicely sums up in a few sentences what Smartest Guys details.
They weren’t naturally deceptive people, and they weren’t any less intelligent or self-confident than anyone else. They simply did what people do when they are immersed in an environment that celebrates them solely for their innate “talent.” They begin to define themselves by that description, and when times get tough and that self-image is threatened they have difficulty with the consequences. They will not take the remedial course. They will not stand up to investors and the public and admit that they were wrong. They’d sooner lie.
Well, almost sum up. Just add “plus they were crazy fucking greedy”.
As I type this, Enron’s former CEO’s Ken Lay and Jeff Skilling are standing trial for a slew of indictments. For coverage of the trial and an overview of Enron’s downfall check out the Houston Chronicle’s Section on Enron. It’s quite thorough and has a couple blogs of journalists who are attending the trial.
great post rooney. i want to read that book now
[...] I first heard about the book while reading Smartest Guys in the Room. It turns out that every trader at Enron was required to read the book which details how greed and arrogance took down a hedge fund which employed couple noble laureates along with the living legend of wall street, John Meriwether [...]
Thank you for your comments on my site.
I agree with your analysis. The greed and corruption sketched out in lurid detail in the book is disgusting. I think Ken Lay and Jeff Skilling thoroughly deserved what the jury handed to them.
[...] Smartest Guys in the Room – Bethany McLean, Peter Elkind. I covered this book in another post but suffice to say, it’s really quite interesting considering it’s length and topic. [...]