Saturday, May 14, 2005

The Smartest Guys in the Room...

Maybe it's because it was Houston.

Maybe it's because I'm an accountant.

Maybe it's because I had friends there.

Maybe it's because I bought the stock.

Maybe it's because I only worked a few blocks down the street.

Or, maybe it's because it is the worst story of corporate corruption in history.

Whatever the reason, the story of Enron is compelling. At least, it is to me. And the documentary Enron: the Smartest Guys in the Room is VERY compelling.

It's amazing the hubris. It's amazing how quickly the House of Cards fell. And this movie tells that story wonderfully. Toward the beginning, one of the interviewees says something very key - so often the story of Enron is nebulous because its all about complicated structured finance, and tricky accounting and numbers, but in reality, it's a story about people. That is dead on.

This documentary provides intimate details of the rise and fall of Enron, and Ken Lay, Jeff Skilling, and Andy Fastow - much of in their own words. This was a company that was never really doing anything - at least nothing that made money, yet they trotted out record earnings quarter after quarter. The tales of arrogance are alarming and almost unbelieveable.

The stories of Enron around town were unbelieveable. Like I mentioned, I worked not far away, worked in finance and accounting for a big company in Houston - and we would always hear stories floating around about guys 28 years old making multi-million dollar bonuses; about the ultra-competitive culture where over 10% of the employees were laid off every year. Yet I had three friends who left our company to go work over there - because if you made it, you made it big time. And, you were considered best of the best. Enron was the thing. Of course, now we know that it was really nothing. Nothing but smoke and mirrors. Crazy stuff.

One of the best thing this movie does is it shows how it was a whole web of entities responsible. Sure the top guys at Enron conceived and sold the scheme. But auditors signed off; attorneys signed off; analysts signed off; bankers signed off; the government signed off. The list is mind boggling - all the reputable business that turned a blind eye to shocking schemes (like Andy Fastow being the primary partner in partnerships that dealt only with Enron) and malfeasance (like rigging the California power market to cause black-outs which drove the price of electricity to unprecednented levels).

The dean of my law school, Nancy Rappaport, is in one portion of the film where she discusses a telling analogy with a scientific study done in the 50s where ordinary people were found to be willing to inflict pain upon others - pain to the point of death - only because they were told they could. At Enron, these people lied and cheated and stole. Only because they could. Only because they believed no one could stop them.

Sherron Watkins, a key whistle-blower who contributed to the unraveling of the illegal accounting schemes, at one point of the film is addressing what was going on and how they were getting away with it, and she says hauntingly - and it could happen again. Believe me, it certainly could happen again.

I ended my last post with a age-old phrase which fits startlingly here as well:

Absolute power corrupts absolutely.

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