May 25, 2006
News & Opinion: Re-opening the books on Enron
With todays verdict coming down, this seems a good day to remind you of two superb books on Enron. I just finished Conspiracy of Fools by Kurt Eichenwald last night, and it is a great book. Eichenwald holds together his huge amount of reporting through clear writing and an extreme focus on the key players responsible for the destruction of Enron: Jeff Skilling, Ken Lay, Andrew Fastow, and their close colleagues. He recreates many encounters between these players, and details the myriad complicated financial gimmicks the company created to make it appear profitable at a time when operations were failing to produce. While CFO Andrew Fastow emerges as the leading villain in his book, he details how the foibles of those who relied on Fastow essentially enabled him to spawn the special purpose entities that were crucial to Enrons demise. Of course, The Smartest Guys in the Room by Bethany McLean and Peter Elkind is just as compelling. These two offer a broader perspective on the disaster, recounting more personal background on the players, providing more scenes on the Enron culture, and limning a bit more of the infallibility complex that spurred the company to make so many dreadful decisions. This book helps explain how the defense of Lay and Skilling could make an argument that the company wasnt doing anything wrong, and merely living by the rules: it appears that Enron leaders believed that an absence of operational profits could simply be overcome by trading profits and hedging strategies. Having read both books, I must confess a mixed feeling about todays verdict. It strikes me that these guys were guilty of the crimes they were charged with. But on a broader level, they were also the logical extension of a bad argument. This was a company whose pure focus became one of financial engineering, most of which went to enrich a chosen few. This is a crime that many companies and executives get away with. Whlie they were charged and now convicted of crimes, I'm not sure that there are sufficient safeguards to prevent this from happening again. Theres a third book on Enron that I havent had time to read, titled Pipe Dreams by Robert Bryce. In his front material of the book, Bryce shares the stock gains realized by key Enron members between 1998 and 2001, right before the company crashed. Among the startling numbers are two board members, Robert Belfer, who made $111 million from his stock in that time, and Ken Harrison, who grossed $75 million in that time. Wow.