Enron: The Smartest Guys in the Room
Director: Alex Gibney (The Trials of Henry Kissinger)
Based on the book by Fortune magazine journalists Bethany McKean and Peter Elkin: The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron
The one good feeling you get from this movie is knowing that Enron was outed for corruption; the story of Enron’s downfall the reason this documentary was made. I’ve got a feeling Henry’s regular readers would already know the Enron saga. It must be/have been mandatory material for anyone interested in economics and corporate politics. The Enron saga is as yet incomplete; Enron’s founder Ken Lay and one time CEO Jeff Skilling are to be trialled in January 2006. Enron corporate officer Cliff Baxter committed suicide when news of Enron’s downfall first hit the media and CFO Andrew Fastow has already been convicted and sentenced for criminal activity.
Film-maker Alex Gibney takes us through the history of Enron’s internal and outward spread of corruption. It is a revelation of massive fraud, a deceit that eventually was the lifeblood of Enron. Enron went from being the seventh largest corporation in the United States with assets estimated at just below $70 billion, to being worth next to nothing by the end of 2001. In its wake tens of thousands of lives were ruined.
One of the many sad things about this documentary is that so many really bright people failed to realise their potential. Worse, they regressed into ignorant liars and cheats – as this was the rewarded Enron way. Enron could have been a great and innovative enterprise, but sadly it turned into a black box full of manipulated numbers.
As far back in the company’s history as 1987, company founder Ken Lay was cultivating malpractice. On discovering the $3,000,000.00 theft from Enron by the company’s most profitable oil trader at that time (Louis Borget), Mr Lay overlooked Borget’s criminal activity because he believed the massive profits made far out-weighed the theft. Lay actually upped Borget’s trading budget. The precedent to reward criminal activity was set. Post-dating Borget (Borget’s greed actually did come back to bite him, and Lay pleaded ignorance as to his activities at the trial), Jeff Skilling was bought on board Enron as CEO.
Ken Lay and Jeff Skilling
Now Skilling initially was a very bright spark and quite probably a man destined for great things. He literally created the business of trading oil and natural gas at a time when US government deregulations were kicking in. You have to wonder what the outcome for Enron may have been if Skilling had not lost his original vision; had not been sucked into what appeared an easier option of diddling figures to create wealth and prestige and had attempted to make real progress by implementing his innovative (real) ideas. Unfortunately Skilling’s creative business instincts, kicked in by Lay’s seeming disregard for anything but the appearance of accruing dollars, paved the way for Skilling’s implementation of a valuation system christened ‘hypothetical future value’.
Hypothetical future value, the basis of mark for market accounting (as I understood from the documentary’s voice-over) gave Enron total freedom in grossly misleading their stock-holders. They could basically make any assumption about their projected earnings. As the well established accounting firm Arthur Anderson sanctioned this accounting, no one seemed to quiz too deeply. We are also told that Arthur Anderson reportedly received $1,000,000.00 a week for their external auditing. It is made obvious that many Wall Street institution, legal firms, auditors and banks were content to watch their Enron Shares grow as they all possessed interests. You wonder if some individuals from these institutions were bribed or threatened into silence. We are told the fate of a Merrill Lynch stock analyst who publicly expressed doubts over Enron’s remarkable figures. Ken Lay did a very advantageous ‘deal’ with Merrill Lynch at the time, embedding the deal with the suggestion that that the questioning gentlemen be dismissed. He was. Again, it is obvious that many Wall Street institutions, legal firms, auditors and banks were content to watch their Enron shares grow.
Aggressive young Turks on Enron’s payroll, the brightest of the brightest, were tacitly given the go-ahead for money-making dishonesty. When we are eventually (in the documentary) given sound bytes of the young Enron traders' conversations as they exploit the state of California, they sound like the nastiest, dumbest kids on the block. In their profit-making manoeuvrers for Enron they exhibit nothing more elevated than securing a monopoly of sorts, then manipulating a crisis, then selling back a commodity at outrageously inflated prices to a desperate and needy community. What’s happened to those rocket scientist minds? (For those as ignorant as I am/was with regards to the causes of California’s energy crisis, Enron’s gross misuse of the deregulation of energy commodities was a major factor).
Enron: The Smartest Guys in the Room also elicits twinges of uncomfortable self-recognition because you think of every time you’ve been tempted to dip in, kick back, advantageously neglect, overlook … or anything at all that is a bit sleazy in the business sense. You see how getting away with one slight of hand encourages more outrageous and frequent acts, and how those actions can influence everything and one with which they come in contact; how it all can snow ball in a very sinister way ... In short, what an easy and in every sense damaging cop-out greed can be.
Enron: An Emperor caught diseased and nude in the 21st Century …
As I wrote, the only optimistic thing about this documentary is that it was made.
Ed: Our earlier items on the Enron debacle are linked here:
* Enron Affair
* Enron Agen
* Enron - Take #3
And see what The Art Life is up to this week ...