The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron
by Bethany McLean and Peter Elkind
Adult Non-fiction 333.79 M
The Smartest Guys in the Room
DVD Collection – Documentary – ENR
The current meltdown in the sub-prime mortgage market reminds me in some ways of the Enron collapse. Aside from the similarities to the current mortgage/credit/housing disaster, the story of Enron as told in The Smartest Guys in the Room is well worth a look. This true story of real events and larger-than-life personalities reads like a suspense novel. The authors, Bethany McLean and Peter Elkind, dish out the juicy details about wild corporate excesses, such as one "meeting" held while motor biking through Mexico; an Enron executive who spent most of his work day time at a local strip club; and Ken Lay wandering the halls to solicit opinions about the décor on his new corporate jet as the company is unraveling. These high jinks are juxtaposed with the human interest stories of people who had the courage to stand up for what was right, such as, Sherron Watkins, who found out about the imaginary profits and took her concerns to top management. The authors also show the devastating consequences for the folks who lost their livelihoods and their retirement savings when Enron collapsed.
What makes this book unique is that McLean and Elkind (both writers at Fortune Magazine) provide easy-to-understand explanations about how corporate finance works so that the average person can understand how Enron’s management was able to create billions of dollars in nonexistent profits. From there, it is easy to follow the story through the desperate gambles necessary for Enron's management to keep the charade going for as long as they did. The book explains how Enron used its virtual monopoly of the California energy supply as a "cash cow" to forestall bankruptcy. There is convincing and detailed evidence that Enron insiders knew what they were doing when they urged others to buy Enron stock just as they were dumping theirs.
The documentary focuses on the dramatic and human interest sides of the story with a brief description of how the financial sleight-of-hand worked. Of course, the book has much more information than the film. I did need to flip back and forth in order in the book in order to keep the players straight, but that's a minor quibble when compared to how well the authors have organized a complicated and far-flung story.
The authors do leave some important questions unanswered. How did a handful of insiders perpetrate a fraud worth billions that duped not only the "average" investor, but also professional financiers? If Enron suffered from a “culture of corruption," how and when did Enron become corrupt? What were the systemic flaws within our economy that allowed Enron to happen and wreak such havoc on the markets? The authors have provided an accurate and engaging story about what happened at Enron, but it remains for someone else to analyze how that story relates to the economy as a whole.
For readers interested in business and investing who would like a more detailed (if less dramatic) narrative about the various missteps on the slippery slope to corporate failure, I recommend Final Accounting: Ambition, Greed and the Fall of Arthur Andersen by Barbara Lev Toffler. Toffler worked at Arthur Andersen during its ill-fated relationship with Enron. As an ethics expert, she was both an insider and an impartial observer to how Arthur Andersen, an accounting firm with a sterling reputation for integrity, got caught up in the Enron mess. She also offers valuable insights into how the events at Arthur Andersen and Enron related to the economic climate at the time.