Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron [Hardcover]

Bethany McLean (Author), Peter Elkind (Author)

Book Description

Release date: October 13, 2003

Until the spring of 2001, the Houston energy giant Enron epitomized the triumph of the new economy. Feared by rivals, worshiped by investors, Enron seemingly could do no wrong. Its profits rose every quarter; its stock price surged ever upward; its leaders were hailed as visionaries.

Then a young Fortune writer named Bethany McLean wrote an article posing a simple question - How, exactly, does Enron make its money? - and the company's house of cards began to collapse. Though other business scandals would follow, none has had the shattering effect of Enron's bankruptcy, which caused Americans to lose faith in a system that rewarded top insiders with millions of dollars while small investors, including many Enron employees, lost everything.

Despite enormous media coverage of Enron, the definitive story of its astonishing rise and fall comes alive for the first time in this gripping narrative, by McLean and her Fortune colleague Peter Elkind. Drawing on a wide range of private documents and well-placed sources, many of them exclusive, McLean and Elkind lead you behind closed doors and deep into Enron's past, to pierce the veil of secrecy that has surrounded the company's inner workings and corrupt culture.

The Smartest Guys in the Room is fundamentally a human drama -- of people drunk on their own success, people so ambitious, so certain of their own brilliance, so fueled by greed and hubris that they believed they could fool the world. The book explores the motives, thoughts, and secret fears of a fascinating array of characters, including:

* Ken Lay, the genial but clueless CEO who reveled in the trappings of his office but ducked the responsibilities. From the earliest days of Enron, his weakness allowed greedy lieutenants to run amok.

* Jeff Skilling, the brooding, mercurial genius who was the architect of Enron's greatest triumphs-and its ultimate disgrace. "I am Enron," he once boasted. As the company unraveled, so did Skilling.

* Rebecca Mark, the glamorous "It" girl of Enron International who raced around the globe in high style and battled Skilling for control of the company.

* Andy Fastow, the brutally ambitious, deeply insecure whiz kid. Inside Enron his colleagues marveled at how his complex schemes allowed the company to scam Wall Street-not realizing that he was secretly scamming Enron.

* Ken Rice, the Midwestern farm boy who was seduced by Enron's fast-money culture and who cashed in while hyping a high-tech business that didn't exist.

* Cliff Baxter, the manic deal maker and Skilling confidant who resented Fastow's murky self-dealing. "He's a goddamn master criminal," Baxter would rail.

Just as Watergate was the defining political story of our time, so Enron is the biggest business story of our time. And just as All the President's Men was the one Watergate book that gave readers the full story, with all the drama and nuance, The Smartest Guys in the Room is the one book you have to read to understand this amazing business saga.

Editorial Reviews

Amazon.com Review

Like its subject, The Smartest Guys in the Room is ambitious, grand in scope, and ruthless in its dealings. Unlike Enron, the Texas-based energy giant that has come to represent the post-millennium collapse of 1990s go-go corporate culture, it's also ultimately successful. Penned by Fortune scribes Bethany McLean and Peter Elkind, the 400-page-plus chronicle of the scandal digs deep inside the numbers while, wisely, maintaining focus on the "smart guys" deep-frying the books. The likes of paternal but disengaged CEO Ken Lay (dubbed "Kenny Boy" by George W. Bush, one of many prominent public figures with whom he rubbed shoulders), cutthroat man-behind-the-curtain Jeff Skilling, and ethically blind numbers whiz Andy Fastow vividly come to life as they make a mockery of conventional accounting practices and grow increasingly arrogant and bind to their collective hubris. They're not a likable lot, and the writers find it difficult to suppress their astonishment and revulsion with the crew who rapidly went from golden boys and girls of the financial world to pariahs when the bill finally came due. The authors' unrepressed sarcasms are more than often unnecessarily given the scope of the outrage. Enron's leading lights were or a time celebrated for their ability to concoct nearly unfathomable business schemes to hide mounting shortfalls and keeping track on their machinations can be a chore, but, by sticking hard to the story behind the fall, McLean and Elkind have reported and written the definitive account of the Enron debacle. --Steven Stolder

From Publishers Weekly

Fortune reporter McLean's article in early 2001 questioning Enron's high valuation was cited by many as an early harbinger of the company's downfall, but she refrains from tooting her own horn, admitting that the article "barely scratched the surface" of what was wrong at America's seventh-largest corporation. The story of its plunge into bankruptcy (co-written with magazine colleague Elkind) barely touches upon the personal flamboyances highlighted in earlier Enron books, focusing instead on the shady finances and the corporate culture that made them possible. Former CEO Jeff Skilling gets much of the blame for hiring people who constantly played by their own rules, creating a "deeply dysfunctional workplace" where "financial deception became almost inevitable," but specific accountability for the underhanded transactions is passed on to others, primarily chief financial officer Andrew Fastow, whose financial conflicts of interest are recounted in exacting detail. (Skilling seems to have cooperated extensively with the authors, though clearly not to universal advantage.) A companywide sense of entitlement, particularly at the top executive levels, comes under close scrutiny, although the extravagant habits of those like Ken Lay, while blatant, are presented without fanfare. The real detail is saved for transactions like the deals that led to the California energy crisis and a 1986 scandal, mirroring the problems faced a decade later, that left the company "less than worthless" until a last-minute rescue. The book's sober financial analysis supplements that of Mimi Swartz's Power Failure, while offering additional perspectives that flesh out the details of the Enron story.
Copyright 2003 Reed Business Information, Inc.

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Product Details

• Hardcover: 464 pages
• Publisher: Portfolio Hardcover; First Edition edition (October 13, 2003)
• Language: English
• ISBN-10: 1591840082
• ISBN-13: 978-1591840084
• Product Dimensions: 9.5 x 6.5 x 1.4 inches
• Shipping Weight: 2 pounds
• Average Customer Review: 4.6 out of 5 stars  See all reviews (175 customer reviews)
• Amazon Best Sellers Rank: #93,311 in Books (See Top 100 in Books)
  • #25 in Books > Law > Business > Corporate Law

Most Helpful Customer Reviews

222 of 238 people found the following review helpful

5.0 out of 5 stars Who will be among the smartest guys in a federal prison? November 3, 2003

By Robert Morris HALL OF FAMETOP 100 REVIEWERVINE™ VOICE

Format:Hardcover

This book will be especially valuable to those who have a keen interest in "the amazing rise and scandalous fall of Enron." I also commend to their attention Smith and Emshwiller's 24 Hours: How Two Wall Street Journal Reporters Uncovered the Lies that Destroyed Faith in Corporate America. The "smartest guys in the room" included Kenneth Lay, Jeffrey Skilling, Rebecca Mark, Andrew Fastow, Kenneth Rice, and Clifford Baxter. Whereas Smith and Emshwiller explored the same company as investigative reporters, McLean and Elkind seem (to me) to have approached their subject as corporate anthropologists. Both books reach many of the same conclusions as to what happened...and why.

Two significant differences are that Smith and Emshwiller limit their attention primarily to a period in 2001 extending from October 16th (when Enron announced huge losses caused by two partnerships) to December 3rd (when Enron filed for Chapter 11 bankruptcy); McLean and Elkind cover a two-year period of the company's "amazing rise and scandalous fall." Also, McLean and Elkind devote far more attention to each of the "smartest guys"; Smith and Emshwiller seem far less interested in them, except in terms of the impact of their mismanagement and corruption. Let's say there are two books about the collapse of the twin towers at the World Trade Center; one focuses on the human tragedies associated with it whereas a second book addresses design, construction, and structural issues. Obviously, both approaches are valid.

McLean and Elkind suggest that the eventual collapse of Enron was caused less by the greed of senior-level Enron executives than it was by their arrogance and incompetence. Their lack of basic business acumen is astonishing as is their defiance of regulatory agencies and contempt for customers. None of them seems to have had a moral "compass." They exemplified, indeed nourished a culture of brutal competition between and among their subordinates. Each used Enron as a personal ATM as well as a means by which to structure all manner of corporate partnerships and high risk/high yield investments without fear of any personal liability. If one prospered, so did they. If it failed, the loss was Enron's. On to another.

Primary blame for all this must be shared by Lay, Skilling, and Fastow. McLean and Elkind rigorously examine the inadequacies of each, suggesting that if only one of the three had not been involved, it is probable that Enron would not have had the problems it did. Attorneys, accountants, brokers (notably Merrill Lynch) and bankers (especially Citibank and JP Morgan Chase) apparently were aware of Enron's bending and then breaking of various laws but were earning so much in fees that they chose to remain at the Enron "trough" side-by-side with Lay, Skilling, Fastow, and other Enron executives.

Consider this brief excerpt from Chapter 10 (page 149):

Here's how another former employee explains the process: "Say you have a dog, but you need to create a duck on the financial statements. Fortunately there are specific accounting rules for what constitutes a duck: yellow feet, white covering, orange beak. So you take the dog and paint its feet yellow and its fur white and you paste an orange plastic beak on its nose, and then you say to your accountants, `This is a duck! Don't you agree that it's a duck?' And the accountants say, `Yes, according to the rules, this is a duck.' Everybody knows that it's a dog, not a duck, but that doesn't matter, because you've met the rules for calling it a duck."

There are so many other brief, equally revealing excerpts which I am tempted to include but won't. Earlier, I suggested that McLean and Elkind display in this volume many of the skills of a corporate anthropologist. I also commend them on their skills as storytellers. Of course, it helps to have many colorful characters and such an interesting narrative. Among business books, this is one of the rare "page turners." If Enron remains a classic example of organizational dysfunction, my guess is that this book will remain the definitive analysis of the causes and effects of that dysfunction.

116 of 125 people found the following review helpful

4.0 out of 5 stars Not For Lay People March 26, 2004

By John Van Wagner

Format:Hardcover

There's blame galore to go around for the spectacular downfall of Enron Corp in that sober year of 2001. Accountants, rating agencies, regulators, lawyers, consultants, bankers--and these are just the bad actors outside the corporation. Look inside, where Bethany McLean and Peter Elkind treat their readers to a thorough journalistic scouring, and the smell of the rot almost wafts off the pages.

The authors rightly spend the vast majority of the book examining the personalities and circumstances that allowed the company to become what it was at the end of its life. Mix a potion that's one part hardscrabble Harvard MBAs, one part energy deregulation, and one part hysterical bull market, and you've got a financial molotov cocktail. Sadly, as we all know now, it was largely the little guy who paid the price for all the hubris of the players in this story, a fact that tends to get lost in the authors' painstaking recreation of the most complicated shell game in history.

But the story of Enron's fallout could provide the material for a whole other book. In this one we get the tale of the players, people like Ken Lay, Jeff Skilling, Rebecca Mark and Andy Fastow, all filled with an equal mix of remarkable brilliance and fatal arrogance. All are indicted by these authors as rabid players in a game they made up themselves, deeming themselves beyond the petty world of rules and regulation. But coming in for equal excoriation is the system itself, the web of enablement and intimidation that allowed Andy Fastow to quietly hammer together the company's coffin in the form of a maze of phantom accounting entities designed to prop of the appearance of the corpse inside. The most unnerving theme the book treats indirectly is the effect of mass psychology--the way exceptional personalities distort and transform reality on a systemic scale. And it offers little in the way of how something like this could ever be prevented in the future.

One word of warning for people not acquainted with basic finance: this is a complicated story, about erstwhile geniuses in the arcane use of financial products and regulatory loopholes. Though it's enjoyable even if one can't follow every detour down each accounting scheme, some knowledge of Wall Street and its workings seems necessary to understand the implications of the book overall. Given the fact that most experts didn't understand what went on here, the authors do their best to keep things as simple as possible, often using helpful metaphors and simple summations after a few pages of analysis, but they have no choice but to assume a level of sophistication among their readers.

Which leads to one gripe. In "The Smartest Guys In the Room" not a single institution or individual player involved with Enron escapes the authors' finger-pointing notice, with but one exception. Where were the journalists in all this? Why did short-sellers have to be the ones to ask all the tough questions? Bethany Mclean should take understandable pride in being the first one to pry the door open on Enron's malfeasance, but she was just a little late. One would think that with the mass of financial journalists on CNBC, the Journal, the Times, etc., that just one would have bucked the collective cheering squad and dug deeper into what this supposedly invincible company was up to. But of course, this was the bull market. A time when everyone was exuberant when they should have been scared.

33 of 37 people found the following review helpful

5.0 out of 5 stars Corporate Character December 20, 2003

By A Customer

Format:Hardcover

The authors describe a complicated critical mass of personalities that caused the Enron meltdown. McLean and Elkind have written a book about human behavior in a pressure cooker where top dogs vie for power. Enron executives cannibalized their own company with Wall Street's help. Financial engineering may have assisted these people, but their willingness to do it in the first place is a question of character.

I also recommend a book that explains how structured finance can be used to funnel money out of companies and which explains Enron's disguised loans: Tavakoli's "Collateralized Debt Obligations and Structured Finance."