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

First, let me add that I knew about the Enron debacle, and I watched the video. This added to the intensity of the book. This story is really mind numbing! I cringed with every chapter on how in the world they (leadership, executives) could get away with what they did. Bottom line: Greed! From Everyone- Leadership, Executives, Bankers, Lawyers, Accountants... The authors do a great job of outlining all the players (Lay, Skilling, Fastow, Mark, Whalley, Rice, Kopper, and more) with their bios, which helps the reader SEE WHY these individuals took the actions they did. You will learn in detail how the DEBT some $38 billion was hidden from Income Statements. When that chapter rolls around you will learn about the SPE's, JEDI, CaLPERS, LJM, LJM1, LJM2, LJM3, Raptors, and more. I'm not an accountant, so this chapter and how Fastow, Kopper, and Gilsan engineered this was mind numbing! However, after rereading this chapter and other chapter discussions I can parallel what and how when I compare it to the Mortgage Backed Security Meltdown in 2008. Basically, Fastow and his henchman securitized the debt. Meaning they created OFF BALANCE SHEET vehicles that were filled with the debt of deals that Enron made...oh, and there were plenty! They then found investors to back buy the packages above Raptors, etc. These were backed by ENRON STOCK which was going growing at an incredible rate because the leadership lied every quarter about it's numbers. The ties to the MBSecurity example is that the banks took those HIGH RISK MORTGAGES that paid high rates (balloon loans etc) and bundled them for sale to EVERYONE back in 2006-2008. Those securities paid HIGH RATES on investment. SURE, they paid as long as HOMEOWNERS were able to make the high mortgage payments; hence mortgage backed. Well, once people defaulted it became a house of cards; The interest wasn't paid on the debt the investors bought, the security emploded and was worthless. The same with ENRON! How did Enron get there? Well, the company culture was DO THE DEAL. That is all that mattered. Do the deal and we will use MARK TO MARKET accounting. So, if you sold a $200million long term gas contract for 15-20 years to a company, it would be similar to an annuity...200million over 10 years collected. WELL, Enron booked all that $200 million all at once with Mark to Market accounting. HENCE, $200m for the current quarter. So what does that leave for the NEXT 15-20 years (- 3 month qtr) to report> NOTHING!!! Hence, the culture was Get the Deal done at any cost. This was INSANE. Executives would fly anywhere, spend gobs of money to close a shaky deal...for example...a $20M deal that they spent $35 million to close. The kicker is the CULTURE paid HUGE BONUSES as soon as the deal was done; sometimes $1million bucks to the deal closer. Even if the deal was a bust 2 months after close and had to be moved into an SPE (LJM, Chewco, etc) above. Nobody cared! Close the deal, let the GRUNTS in the office figure out how to make it work, but I get my $1million!! Oh, and there is more...so, now this is going on in Every Division that Enron had; Power, Gas, Europe, Broadban, Electric, Gas, etc etc. Can you see how the debt was accumulating...and Fastow kept cranking out these DEBT SHELLS to hide it. Fastow....what a piece of dirt....He made $60m off these internal deals that ENRON had no idea he was making. Hence, POOR LEADERSHIP. Lay was useless. A puppet, a showman, and a LOSER. Skilling a briliiant man if he would have worked at it. His leadership was; I just come up with the ideas and you people make it happen...no control or oversight. Then there is Rebecca Mark...what a piece of work and her $4billion Dabhol Project failure....but she still got her $millions in closing....when she moved to Azurix the water company from Britian that they overpaid for by Billions.....she was eventually let go...BUT of course without her full pay of $715K. The Azurix deal was a total bust, they spent billions to have like a 2% return--Skilling was Livid. There is more but you have to read the book. It will fascinate you how everyone was in on the coverup and hiding debt. One of my favorite parts is when there was an INTERNAL AUDIT....they found $10m in checks from the Portland Power Company stuffed in a drawer in the back of the desk that were NEVER CASHED!!! Oh, and the Pulling of the Wool over the eyes of Wall Street with their Online Enron Trading and Broadban setup. They moved computers, desks, and hundreds of people into an empty floor of their building...Leadership powered everything up, screens with charts, trading, phones ringing hundreds of people on the phone...Wall Street analysts walk thru and are impressed!! They put recommended BUY and higher price targets on the stock. Once those analysts leave....the computers are taken away, desks removed, and the hundreds of employees go back to their offices where they really work: EES, etc. ALL A RUSE! One woman said...all I did was call my girlfriends on the phone and act busy!!! Enjoy the read...be patient with the accounting chapters..it is mind numbing. Hopefully I've helped.

Speaking as an MBA graduate, this is an excellent book with many lessons. For example, 1.) being a good consultant is a different skill set than being a good manager. 2.) good intentions do not necessarily translate into good practices, e.g. Skilling's peer evaluation system, and 3.) if you don't institute management controls, you simply don't have control (as in Ken Lay's quote on p250: “I’ve decided that budgets and management oversight is the wrong way to go. You spend so much time looking over your shoulders.”)Given that Enron's rise provided material for many case studies, and its demise then provided even more (in fact, you could even do a case study on Harvard's many case studies), this book could also serve as a background reference for all those cases.The book's biggest flaw, though, is that is has been superseded by the 2013 edition. Because the original was written in 2003, it omitted the fates of many players. Lay was convicted in 2006, but died before being sentenced. Skilling and Fastow were convicted and served time in prison. Lou Pai and Rebecca Mark -- having moved on before Enron's collapse -- largely escaped without serious consequences. The 2003 epilogues asked, "Isn't anyone sorry?" Well, if they weren't then, perhaps they are now.For that reason, I give this edition four stars, not five.

I found the title of this book to be quite ironic, yet appropriate. Only ‘smart guys’ could pull off such a scandal such as the Enron fiasco, but you then have to ask yourself “How can SMART guys also be so blindly stupid?” If one were to truly believe CEO Jeff Skilling when he said that he never felt he was doing anything immoral, yet always thought he was acting in the best interests of Enron, how could that same person believe him when he abruptly resigns from the company months before its epic bankruptcy while cashing in $60 million of his stock options?As authors McLean and Elkind tell us, the simple answer is greed. Even if you don’t believe in God nor the Bible, you have to give the author of the Good Book credit when he tells us that the love of money is the root of all evil.The ironic thing is that the Enron story is so complex, that even the most prudent financial experts in the industry had a hard time deciphering the deception. Let’s be honest, the average layman gets a bit lost when reading things such as a company’s balance sheet or a 10k report, so when the financial experts kept telling everyone how great Enron was and that they were the visionary for the future, why would anyone doubt it? Even the employees (sadly) were so convinced of the positive spin, that they had the bulk of their 401k savings invested in their own company.It was ironic that the co-author of the book (Bethany McLean) first started the ripples by throwing a small stone in the pond with an article in Fortune Magazine titled “Is Enron Overpriced?” It was all downhill for the energy mogul from there.Unfortunately, the same reason why people never could (nor can now) really understand the complex financial irregularities of the company, is the same reason why this book falters a bit. The authors spend well over half of this book going over the ill-gotten deals that Enron procured in immense financial detail. Many of the chapters read like a 30-page financial statement. In other words, if you have a PhD in Finance, you might find the bulk of the material in the book readable, but for the rest of us, it’s just too much, and we get lost. I found myself skimming over many of the chapters describing the many endeavors that the company embarked on with the simple task of masquerading the fact that they weren’t actually making any money.The chapters I found more interesting were the ones where the authors were describing some of the key players at the top of the Enron food chain, and how their misguided morals influenced not only how they did business, but how they lived their personal lives as well. It’s seems as though most of the senior players had gotten a divorce at some point while they were raking in millions, and I lost track of all of the illicit romantic affairs going on between the key players. It’s also fascinating (yet not surprising) to read about how most of the top-level employees hated each other, and the immeasurable amount of backstabbing that went on amongst the leaders.The book I read was a ’10-year anniversary’ edition, and the authors discuss in the coda that, sadly, things in the business world haven’t changed as much as they probably should in lieu of the Enron scandal. As long as there is greed, there will always be corruption. In that sense, the Enron story should be a model for companies everywhere. Fortunately, I would say that more and more companies are embracing a culture of teamwork and truly being more philanthropic, but there are still companies out there that advocate that, in order to be successful, you have to step on everyone else’s neck to get to the top – even if that neck belongs to someone else in the company. Such was the culture that Skilling and his minions encouraged.A fascinating, yet depressing story. Good, but overall, I would have liked more personability and less minutia around the many complex financial dealings.

So well written that the complications of it all, seem pretty straightforward and make for a relatively easy read. In my business career, I saw many of these behaviours - but on a much smaller, more contained scale. Thankfully, most businesses have more effective constraints in place. Like, some moral values, for a start. But also, the most basic elements of good corporate governance. Here we have spelled out, extreme capitalism, in its most self-serving, evil and destructive form. But can we believe it could never happen again? A ripping tale, just wish it were not true...

This book is generally acknowledged to be the definitive account on Enron and the creative accounting era. And it is a truly overwhelming piece of research.In contrast with "Barbarians", "When Genius Failed" or the more recent "Billionaire's Apprentice", it does not read like a narrative, and that's because it really can't. Enron was a lot more complex than a single transaction or a single hedge fund. It was an agglomeration of businesses, each with its own specific character. You can't go over the whole thing linearly.It starts like a narrative. The authors start by painting a portrait of the main characters of the book, namely Lay and Skilling, weaving their bios and their credos well into the tale of the genesis of Enron through the merger of a couple gas businesses and the adoption of mark-to-market accounting for long-term projects and markets. But then the authors have to branch out.They do a very commendable job of describing how Enron developed its sundry lines of business, from trading gas, to trading power, to financing power plants across the planet. This comes complete with deep profiles of the Enron managers in charge of these businesses.Finally, the book homes in on the last three to four years of Enron when an obsessive focus on the share price, combined with a brash get-rich-quick attitude amongst the narrow leadership of Enron (but not necessarily the rank and file) led the company to a series of insane business decisions (like the creation of two enormous new divisions out of nothing) as well as to aggressive and eventually fraudulent business practices. Again, you get complete portraits of Andrew Fastow, who did most of the accounting magic, and his team.The book is a tremendous source of information. God knows how much digging and how many interviews were distilled into these 400 pages. That said, this is an unfinished book. You find out who did what and when. But the book leaves as many questions open as it provides answers to. Most importantly, you don't get a good idea of whether Enron ca. 1997, before the crazy accounting practices and business schemes became the norm, was a valid business or not.The authors are incredibly good at digging, less good at interpreting. I personally never figured out if this was Murder on the Orient Express, where everybody shared a bit in the crime, or a single perpetrator or even death from (expedited) natural causes. Was it the arrogance? Was it the pay structure? Was it the massive leverage? Was is the accounting practices? Was it the nature of the business? Which business? Would a sounder company have withstood the revelation of the fraud? Finally, no sense is given for how Enron ranked vis a vis its corporate peers in terms of playing fast and loose with its accounting and if they also shared similar compensation structures, corporate structures etc.Regardless, there's a lot of food for thought here. And I guess if you want a tight narrative, there's always the movie!

Just when you think the authors have revealed the most outrageous anecdote or ridiculous scheme or pathological behaviour, they pull yet another out of the seemingly bottomless pit that was Enron. The book is a detailed semi-chronological account of Enron from ‘cradle to grave’. However, the authors enrich and colour the story by giving in-depth descriptions of the members of Enron management, and by dropping in helpful context from elsewhere in the timeline. One can only imagine the pains the authors went to to synthesize and rationalize dozens of interviews and thousands of documents spanning over 15 years of one the most opaque and counter-intuitive businesses ever to have existed! The result is readable, understandable and enjoyable. An expert piece of journalism.

I love the play and film that are based on this book but the actual book itself is not my favourite. I had difficulty motivating myself to want to read this and most of the time I'd read a couple of pages and put it down for another day. In the space of two weeks, I'd only read 150 pages. This was interesting in concept but so dull to read. I think I will stick to the documentary in future.

Unputdownable. A bit like RBS, Enron grew like a massive version of Lord of the Flies. Utterly useless, hypocritical, self deluding top mangement allowed a vicious cult of lying, cheating and bare faced robbery to flourish. It is barely believable that such a gargantuan crime could occur over such an extended period, blatantly visble to the whole of the financial world but just sucking everyone into the enormous con; the biggest pig trough in history.You read this and you can be absloutely assured that 2008 will happen again only potentially more devasting.The question is do you hate these nasty, vicious, amoral, self congratulatory bullies or do you deep down wish you could , like them, pocket millions upon millions for just telling lies?