The Smartest Guys in the Room: The Amazing Rise and the Scandalous Fall of Enron

THE SMARTEST GUYS IN THE ROOM: THE AMAZING RISE AND THE SCANDALOUS FAEL OF ENRON by Bethany McLean and Peter Elkind The story of Enron's rise and fall resonates with human failing on nearly every level. It is a story of greed, of arrogance, of professional and personal infidelity, and of willful ignorance. In an era in which our capacity for outrage has surely been diminished, Enron's story still commands our attention, if not for the novelty of the misdeeds involved, for the sheer magnitude of their impact, and for the broad-based complicity of institutions charged with the responsibility of knowing better. The dizzying speed with which Enron collapsed is certainly a strong indication that this was not a normal company. At its peak, on August 23, 2000, Enron's stock sold for ninety dollars a share, with a resulting $70 billion valuation for the company. As of October 2000, Enron had provided a 1,400% return on capital invested in 1990. That return incorporated an 89% return in 2000 alone. In 2001, for the sixth straight year, Fortune had named Enron "America's Most Innovative Company," while securities analysts gushed over the company's prospects. And then, beginning in early 2001, Enron's stock price began a breakneck race to the bottom, resulting in its declaration of bankruptcy on December 2, 2001. In January 2004, Andrew Fastow, Enron's Chief Financial Officer from 1998 to 2001 plead guilty to securities fraud, and as of July 2004, three of the most powerful remaining figures in Enron's history, Chairman and CEO Ken Lay, President and one-time CEO Jeff Skilling, and Chief Accounting Officer Richard Causey had been put under indictment for conspiracy to commit securities fraud. Enron's story has been told many times, from various angles. Newspaper readers were treated to timely, in-depth stories covering Enron's fall and subsequent legal proceedings by Washington Post writers Peter Behr and April Witt, by New York Times correspondent Kurt Eichenwald, and Wall Street Journal reporters Rebecca Smith and John Emshwiller. A spate of early books covered some of the most revealing, if not downright titillating, aspects of the scandal, including Power Failure, co-authored by Mimi Swartz and Enroninsider Sherron Watkins. What distinguishes The Smartest Guys in the Room is the scope of its coverage and the nearly fantastic tale it tells of the interwoven relationships between Enron's dysfunctional management and the stewards of public trust charged with the responsibility of protecting Enron's investors, customers, and pensioners. As to Enron's management, McLean and Elkind go a long way to answering the perplexing question of how a corporate culture can go so badly awry. By its very nature, for all the faith we place in capitalism as an engine of prosperity and an impartial arbiter of merit, it just as surely provides an incentive to individuals to bend or break rules and to enrich themselves in the process. Yet, we live in the confidence that our institutions are largely law-abiding and that the individuals within them endeavor to keep faith with those to whom they owe an obligation of confidence. What made Enron unique, and what McLean and Elkind do such a thorough job of detailing, is that by the time of its demise, the company had become a caricature of capitalism. The environment was one in which individuals were rewarded handsomely and, in some instances, obscenely, for closing deals, but rarely for follow-up, and for showcasing earnings, while hiding debt and ignoring critical cash flow. In the name of entrepreneurial endeavor, it was also an environment that permitted individuals to enrich themselves at the corporate trough to the company's detriment, and often through deals reflecting astonishing conflicts of interest. As McLean and Elkind make clear, there were four keys to Enron's economics and, ultimately, its demise. The first sprung from Enron's view that the value of every deal could be banked at the outset of a deal's life, based on its anticipated cash flow. …