Since the summer of 2001, Enron has become almost a byword for greed, corporate mismanagement and tragic human failure. At one stage it was listed as the world’s leading energy company – a fact it proudly boasted about. This led the firm to believe it could be the “world’s leading company”.
However, thanks almost entirely to the efforts of Fortune reporter Bethany McLean and later her colleague Peter Elkind, the house of cards came tumbling down in an almighty crash.
When McLean wrote an article in 2001 titled, How Does Enron Make Money?, she had seemingly asked a question for which no one had an answer. With that bit between her teeth, the journalist went on a campaign to uncover just what was happening and how Enron produced the numbers it did each and every quarter, without fail.
The results of that campaign are pieced together in The Smartest Guys In The Room, a concise and fascinating account of how a company took more than a decade to achieve a $70bn valuation and then became worthless in just a few short months. What McLean does brilliantly is look at the human side of how and why Enron took the path it did.
Chairman of the board Kenneth Lay, a personal friend of George W. Bush, once lobbied for a deregulated energy market – and he got his wish. McLean examines this watershed moment for Enron in great detail and how it allowed the company to manipulate energy prices in its favor, at one stage leaving half of Northern California with no electricity.
Another tragic figure is Jeffrey Skilling, who sat in the chief executive seat during the most “productive” era in Enron’s history. McLean gives an insight into Skilling’s character with the story of his Harvard Business School application. Asked if he thought he was smart, Skilling responded: “I’m f***ing smart.”
The third prominent figure in the downfall of Enron is Andrew Fastow, a fiercely ambitious and ultimately tragic figure who arranged a series of structure finance vehicles to hide Enron’s debt – all with the board of directors’ approval.
The authors leave no detail behind as they explain how greed and hubris took over inside the gleaming Houston skyscrapers that Enron called home. The firm’s share price was continuously monitored, employees were told to invest their entire pensions into company stock and anyone who threw rocks at Enron was given the boot.
When an investment banking analyst asked Jeffrey Skilling to explain some of the numbers Enron had posted in a quarterly statement – he was audibly called an “a**hole” in front of fellow analysts.
As the foundations started to wobble following the original article by McLean, more and more people began to ask similar questions and eventually the walls caved in. The book concludes by demonstrating the real culture of Enron. While thousands of employees were left with no job and no pension, tainted by their attachment to Enron, the directors made off with millions in the bank and no hint of remorse.
Lay made it out with $300m, Skilling took around $250m for himself while Andrew Fastow took home around $45m. All three were subsequently sent to jail, which is where the book ends.
Readers will be left in sheer disbelief at the goings-on inside one of the most famously tragic cases in corporate America’s history. But it is by all measures a must-read.