The smartest guys in the room12 Jun 2006
This weekend I watched The Smartest Guys in the Room, a documentary about the Enron scandal. Even though I knew the basics about the scandal, I still appreciated the in-depth look at the major players in the case, and a lot of the little details I missed when reading about it in the news. I highly recommend it for anyone remotely curious about the details in the case. Even my wife and sister found it interesting, and they wouldn't classify themselves as business geeks in any way. (There sis, I mentioned you in my blog. Happy?)
The documentary stimulated a lot of thought from me over the weekend. In some ways, the Enron case is old news, but many of the lessons are still relevant. Here are a few of the things going through my head about the case:
It's disgusting to watch how Enron leaders blatantly deceived employees and investors. Cut from a company meeting where executives encourage employees to invest 100% of their 401K in Enron to the lineman talking about how he watched his 401K tank from about $350,000 to $1,200. How leaders froze employee accounts so they couldn't cash Enron stock at the same time that they dumped their own stock to the profit of millions of dollars. How Enron traders joked about how much money they were making from California wildfires and hoping the state would just fall into the Pacific. How traders called up power plants instructing them to shut down in order to run up energy prices while small business owners were forced to close shop and poor citizens went without heat. And so on.
I think it's scary how many people were involved in this scandal, and how apparent it is that this kind of corruption is probably behind the scenes in a lot of companies today. Think about the politicians that voted to deregulate the energy market in California in a way that benefited companies like Enron. Or the state and national administrations that sat by and did virtually nothing while Californians were taken advantage of. Or the accountants and auditors that approved Enron's cooked books every quarter. Or the lawyers that helped Enron set everything up. Or the stock analysts that were in Enron's pocket. Or the banks that helped Enron finance obviously shady deals. The news has focused on Lay, Skilling and Fastow, but there were hundreds of other players involved that are doing business as usual today.
Admittedly, the documentary is very much one-sided. Not that I would trust anything Lay, Skilling, or Fastow say publicly about the scandal, but they're the only ones who can answer one of the biggest remaining questions — where did things go wrong? The documentary touched on it somewhat in discussing whether people do bad things because they're inherently bad people, or because they slowly get trapped into a cycle of doing bad things and get out of control. I tend to believe that the latter's closer to the truth, and that Lay started the company decades ago with more noble intentions.
But if that's true, then could most business owners get trapped into the same cycle of greed and deceit? How easy would it be to convince yourself to employ "creative accounting" to smooth out the numbers while under intense pressure from investors? How many of us really have that in us?