Enron - the Smartest Guys in the Room

dir: Alex Gibney
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Based on the book The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron by Bethany McLean and Peter Elkind, this documentary tracks the rise and fall of one of the most fraudulent and corrupt companies in corporate history. That we know of.

Enron’s existence and eventual demise is an incredibly powerful modern tale about the poisonous organisational culture that can exist under the gleaming PR-heavy corporate exterior, the laxity of corporate governance in contemporary business, the ‘embedded’ and tame nature of business journalism, shameless dishonesty and personal hubris.

But it’s also an ode to human stupidity. That so many could be sucked in by such an obvious, nonsensical scam is an indictment of contemporary society. And it makes modern civilisation look dumber as a consequence.

How did it happen? Perhaps people were so completely blinded by greed that they were happy to believe anything as long as the company’s share price kept going up.

The business reporters who would have ordinarily sniffed out and exposed such a fiasco were captive, collaborators in the system, which only seems to keep chugging along if journalists keep quiet about all the glaring illegalities they must surely know about or suspect.

The documentary painstakingly builds its case chronologically to expose the rotten core beneath the glitzy facade. Narrated with authority by actor Peter Coyote (who you may remember from such films as Roman Polanski’s romantic comedy Bitter Moon, and as the nice but still evil Government Scientist in ET: the Extraterrestrial) gets across the appropriate tone of conspiratorial gossiping and thinly-disguised outrage as he relates the tragic tale.

As is the case with the way most films and documentaries are structured, it starts at the end, describing the utter destruction of several companies and the lives of tens of thousands of people, and then tracks back to lay blame squarely at the feet of those in power. It is a logical way to structure it, but it doesn’t exactly make the almost 2 hour running time fly by.

The movie will probably of interest to those intrigued by the machinations of the business world, or those who delight in the downfall of tall and mighty poppies.

And also for those who love seeing the corporate world brought down a peg or two, as if to call into question the very validity of capitalism. Apart for such Marxists and other breeds of ideologue, it has narrow appeal.

But for those who delight in the shaming of the shameless, it is a great documentary on the topic of corporate malfeasance and impropriety.

These men; Kenneth Lay, Jeff Skilling, Andy Fastow and their willing henchmen, took an energy company and turned it into a dream factory. With the help of a friendly federal government, who facilitated the deregulation of the energy industry, they were able to convince the world that they were actually doing something productive and useful, and generate massive profits at the same time. All the while they were producing nothing, and reporting whatever profits they felt were appropriate.

At a crucial point in this scam’s development, the company changed its accounting system to a mark to market system , which essentially meant the company’s profit reports no longer had to reflect actual revenues and expenses; they simply reflected whatever those in charge wanted.

They over-reported imaginary profits for years. The stock market, which if nothing else reflects expectation and speculation rather than anything tangible, saw these profits and sent the company’s share price sky rocketing.

As long as the company kept reporting massive profits, the shareholders and the market were ecstatic, and the business magazines and newspapers held up Enron as the paragon of the new era. The business media, the ones equipped, you’d expect, with the appropriate skills and scepticism necessary to be useful in these contexts, essentially rolled over and let the company men scratch their collective bellies.

People might mistake this era for being the dot.com bubble burst of the late 90s. Enron unravelled after that time. Enron did however capitalise on the same naivety and greed that allowed intangible entities to accrue massive value with nothing to show for it apart from radical new business models that seemed far more profitable in theory than they were in reality.

Buoyed by their success, blinded by their arrogance, the architects of this fiendish charade decided to go further. They tell their employees and shareholders that they’re going to trade in bandwidth. As in, people with broadband internet access, who don’t use it all the time, could trade it through Enron on a futures market.

I’m not making any of this up, it is documented in the film, and there are scenes of Jeff Skilling giving speeches and relating these plans to the kind of Kool Aid-addled employee audiences that any cult leader would be proud of.

He is even recorded saying that the company was planning on trading the weather on the market. Honest to god: the weather.

That people bought these shenanigans for so long either points to these executives possessing an almost supernatural ability to control people’s minds, or to the sheer gullibility of thousands of people who should have known better.

Apart from this mystifying example of the Emperor’s New Clothes seducing so many for so long, the story, which does its best to illuminate the characters of the people involved, really nails its subject when it outlines the actions of the company in the deregulated Californian electricity market.

Multiple recordings are played at this late stage of the film, which clearly show, if nothing else, that this disregard for the law and for people trickled down to the lowest levels of the company, infecting its traders with the same contempt for those outside the company.

With electricity itself becoming a tradable commodity, of course the next step for the company is to figure out ways to maximise their mark-up on the trade. So they create an artificial energy crisis by telling electricity plants to shut down production at particular times in order to generate artificial scarcity. Homes, businesses, hospitals lose their power and blame the Governor of California Gray Davis for their troubles.

To add to the surrealism of the world created by Enron, Davis is then replaced with Arnold Schwarzenegger.

The one-year energy crisis cost the state of California approximately $30 billion and disrupted the lives of millions of residents.

When the top guys know the fan is about to be hit by some form of organic matter, they start dumping their own stock, whilst telling their employees (on camera) to keep investing their retirement funds in the company’s stocks.

In the final call, $1.2 billion in retirement funds and $2 billion in pension funds disappeared in weeks; 20,000 employees lost their jobs from Enron and 29,000 others lost their jobs when Enron’s accounting firm, Arthur Anderson, collapsed due to its role in the fraud. Never have so few been able to screw over so many so comprehensively.

Not everyone in the companies involved knew what was going on. But the companies’ cultures rewarded wrongdoing and dishonesty, so what incentive would there be for employees to come forward and risk branding themselves traitors and troublemakers?

The few employees that come out of this clean are not the ones, like Chief Financial Officer Andy Fastow, who cut a deal to reveal what really went on when he’d already been charged, and chose to roll over to minimise his own jail time (he’s been convicted and jailed for ten years); it’s the people like Sherron Watkins and Amanda Martin-Brock who revealed the true extent of the fiasco and testified in order to set the record straight.

Since the collapse of Enron, Anderson and Worldcom, which were the biggest scam bankruptcies of their day, another company has come along and decided to top even them: European multinational Parmalat, whose directors are scurrying out of the light like cockroaches under the magnifying glass of prosecutors. So clearly this phenomenon is not restricted to the US.

In Australia we’ve had our own brushes with corrupt companies going down and taking as many people with them as they can: Christopher Skase and the Pyramid fiasco, merchant bank Tricontinental, One.tel, several mining companies, and the last season of Dancing With the Stars, which was clearly rigged.

Clearly, as long as the business world continues to preach corporate responsibility and practice duplicity and thuggery, and as long as the business journalists, worried about their own behinds keep this knowledge from the public, these corporate scams on a grand scale will keep happening again and again.

7 times greed isn't just good, it's great for business out of 10

"Analyst: You are the only financial institution that can't produce a balance sheet or cash flow statement with their earnings...
Jeffrey Skilling: You, you, you... Well, uh... thank you very much. We appreciate it... asshole." - charming behaviour, Enron: The Smartest Guys in the Room