01:00 AM EDT on Wednesday, June 8, 2005
BERKELEY, Calif.
FILMMAKER ALEX GIBNEY, the man behind the recently released film about Enron, entitled The Smartest Guys in the Room, has done us a great service. He has reminded us that, 3 1/2 years after the company's befuddling bankruptcy made bombshell news, the Enron story is still as infuriating as ever, and perhaps, thanks to Gibney's film, even more so.
And yet, the very brilliance of the film -- devilish, devastating portraits of Enron's gang of gonifs, Ken Lay, Jeffrey Skilling, Andrew Fastow, and friends -- may distract from the political message that the film seems to be trying to get at: that Enron was as much a product of the collective evil genius of Lay, Skilling, and Fastow as it was the product of the Arthur Andersen and Merrill Lynch firms, energy deregulation, and an entire financial press, which was far more the reckless cheerleader than the mindful watchdog.
Enron was a rotten apple, sure, but it needed rotten soil and a rotten climate to make it so. Unfortunately, film culture being what it is -- to entertain for two hours -- one can't get lost in too many big-picture details. There must be characters, personal conflict, human tragedy, and, of course, suicide and strippers. Fortunately, the tortuous path of Enron provided plenty of all of the above.
Indeed, the film is a treasure trove of the real-life tragicomedy that was Enron's insatiable hubris, including some priceless internal footage of Jeffrey Skilling laughingly telling Enron employees to put all their 401(k) money into Enron stock -- and, even better, an internal video of Skilling parodying himself, suggesting that he had come up with a new form of accounting known as "HPV," or hypothetical future-value accounting, which would boost Enron's profits even higher.
The joke, of course, is that Enron's mark-to-market method of accounting (which was approved by the once-trusted gatekeepers known as Arthur Andersen and the Securities and Exchange Commission) was actually just that: outlandish predictions about future profits on such business schemes as trading weather derivatives, booked as if they were current earnings.
Of course, now we know that they were making it up, whole-cloth. And so it's both fascinating and instructive to see exactly how they did it: from the fudged accounting to the political connections that helped deregulate energy markets for the manipulating (the film has choice footage of both Presidents Bush and their Enron connections) to the creatively named shell companies used to hide debt in a game of 3,000-subsidiary monte so ridiculously complex that in the end only Andy Fastow could figure it out (and so rewarded himself with $45 million off the top).
Watching Enron build and build is a heck of a ride, a roller coaster of corporate insatiability, in which every new height promises an even more terrifying plummet -- because we in the audience know that it ends in a train wreck. And as Enron climbs to ever higher heights, we can't help enjoying a little Schadenfreude in seeing Enron's leaders sweat. On an investor call in 2001, Skilling refers to a Wall Street analyst as an obscenity for having asked how exactly Enron makes its money.
Late in 2001, Lay reads a question during an employee session: "Are you on crack? If you are, that might explain a lot of things. If you aren't, maybe you should be." (In another priceless moment, Lay compares Enron's being under attack to 9/11.)
Yet the $30 billion question remains: How did it happen? Was it just a brilliant scheme concocted by "The Smartest Guys in the Room"? If so, why was Enron far from alone in the cascade of corporate scandals that rocked the economy in 2002?
What about WorldCom, which managed to overstate its earnings by $11 billion -- more even than Enron -- with a far less complicated fraud? (Both Enron and WorldCom did share the accounting expertise of Arthur Andersen.) And why are we still seeing accounting scandals, with AIG's complex offshore dealings merely the latest iteration?
On screen, Enron's testosterone-soaked culture exasperates, it is hardly unique. Nor was Enron the only company to remind employees of the company stock price by posting it in such places as the elevator -- making very clear what mattered -- and it was far from the only company to pit employees against each other by firing the worst performers.
And though the film shows us Enron's energy traders exchange snide comments as they make millions by manufacturing California's energy crisis (the traders' commentary is wonderfully juxtaposed with car accidents and other forms of suffering caused by their behavior), Enron was just one of 70 energy and utility companies accused of artificially driving up prices during the California energy crisis.
Nor is it clear that the minds behind Enron -- or the leaders at any of the companies that have recently collapsed under the weight of their own arrogance -- could have accomplished so much on their own. Big accounting firms gave the company's financial statements their then-meaningful seal of approval. Lawyers signed off on dubious deals -- of which many of the worst were made possible by major financial institutions.
For example, four Merrill Lynch executives were recently sentenced to prison for having helped Enron hide debt through a fraud involving the sale of Nigerian barges. And between 1997 and 2001 Citigroup sold $167 million of financial services to Enron.
Then there are the numerous state and federal regulatory agencies that should have detected something -- as should have the financial press.
Thanks to Gibney's The Smartest Guys in the Room, we have a lasting and engaging testimony of Enron's financial and moral bankruptcy. Nevertheless, those who care about the integrity of the economy must remember that Enron was not merely a stunning tale about a bunch of evil geniuses. It was also an indictment of an economic and political system that allowed a company based almost entirely on hot air become the seventh-largest firm in America.
Unfortunately, the latter is a much more difficult story to tell.
Lee Drutman, a frequent contributor, is the author of The People's Business: Controlling Corporations and Restoring Democracy (Berrett-Koehler).
http://www.projo.com/opinion/contributors/content/projo_20050608_08lee.1db5d77.html
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