Enron: The Smartest Guys in the Room

Based on and named after the bestseller book Smartest Guys in the Room, this documentary provides an insightful look into the scandalous fall of Enron Corp. There are no actors in this documentary and yet it is dramatic. Such were the factors leading to the 'amazing rise and scandalous fall' of Enron that even a documentary featuring events preceding that historic day in December 2001, when Enron filed for the largest bankruptcy in the corporate US history, seems like a tale of epic imagination.

This documentary is neither as detailed nor as insightful as the book, but it does a great job of providing an insightful and reasonably detailed account of the Enron saga. Overall, it is not of any incremental value for the people who have read the book. However, if you can't go through 464 pages, this does a great job of enlightening you on the drama that Enron was.

Enron was the US energy company that "Fortune" named as "America's Most Innovative Company" for six consecutive years and, at its height, it employed 22,000 people and claimed revenues of around $100 billion. It went bankrupt at the end of 2001 and this documentary was released in 2005, but I did not see it until four years later. By then, we had experienced 'the end of capitalism as we've known it' and the most serious collapse in financial markets since the Wall Street Crash. What Enron and the wider market crash have in common is the murky world of derivatives, an excessive exuberance for risk, and simple avarice and hubris, while the mother and father of both crises are deregulation.

Alex Gibney co-wrote, co-produced and directed this work which, though occasionally complex, is compelling viewing and a lesson to us all on corporate greed and regulatory failure. Interviews with key observers and extracts from Congressional hearings are linked by a narration from Peter Coyote. The heroines of the story are Bethany McLean, the financial journalist who first questioned the valuation of Enron, and Sherron Watkins, the senior manager who blew the whistle on the company. The villains are a long list of men headed by Enron Chairman Kenneth Lay and Chief Executive Jeffrey Skilling. Maybe there is a gender lesson here as well - as many financial and political ones.

I agree with previous posts: "Enron: The Smartest Guys in the Room" is right up there with the biggest horror films of our time. And this one is scarier because it's real.

It's hard to say what boggles the mind most:

the complicity of Arthur Andersen, the banks, and the traders in this elaborate scheme of making a failing company look profitable;

the fact that the executives cashed out their stock at high prices and froze the employees' stock accessibility until it was worth nothing;

the derisive laughter of the traders over the Enron-caused blackouts in California ("let them fall into the ocean - let them use candles);

that Lu Pi, a guy who ran a failing Enron company, left that company with $250 million in his pocket;

or the fact that Ken Lay died before they could convict him of anything. Take your pick, it's all disgusting.

When one of the California power companies called Enron and said there was a fire in the plant, the trader chuckled and said, "Burn, baby, burn."

That sums up Enron's, the banks, the traders', and Arthur Andersen's attitude toward the common man - burn, baby, burn. Let's hope that's what Ken Lay is doing right now.

This is a great documentary even if you don't understand business. The only part I didn't quite get were these dummy corporations that Flatow started up to hide Enron's losses which were then invested in by the banks.

That was a little complicated, but you'd think someone would have realized that the CFO of Enron running companies that were supposedly selling to Enron was a conflict of interest. Funny, no bank picked it up. They won't give you a mortgage, but they'll pay a fortune to a dummy corporation.

Probably my favorite part was the mark to market accounting system employed by Enron and signed off on by Arthur Andersen. I have no understanding of a reliable accounting firm allowing such a thing.

In other words, if I have a book proposal, I can report a profit of, say, $30,000 on the book even though it isn't sold and I haven't seen a dime. And one wonders how they cooked their books. With help, that's how.

Even after reading Kurt Eichenwald's "Conspiracy of Fools: A True Story", I was not prepared for the near-Greek tragedy presented in this smartly produced documentary of the Enron scandal based on yet another book by journalists Bethany McLean and Peter Elkind. Directed by Andy Gibney, the 2005 film follows the complicated rise and fall of Enron in an easy-to-follow, chronological order since the mid-1980's, using actor Peter Coyote's lucid voice-over narration. Enron started as a moderate-sized Houston gas-pipeline company that grew exponentially, reaping benefits for shareholders and far more so for the Enron executive team for a long, uninterrupted stretch. Billions of dollars were collected due to speculative mark-to-market accounting techniques approved by the SEC, and Enron consequently became one of the world's largest natural-gas suppliers.

What resonates most from this searing film is how circumstantially pathological the chief villains are in this true corporate morality story. While the infamous Ken Lay comes across as the corrupt figurehead we have already come to know through news reports, it's really Enron CFO Andy Fastow (dubbed appropriately "The Sorcerer's Apprentice") and especially President and COO Jeff Skilling, who are mercilessly exposed here. Skilling is portrayed as a brilliant leader and a corporate Darwinist, whose favorite book is Richard Dawkins' "The Selfish Gene", which he apparently translated into a bloodless performance review policy that worked like a genetic algorithm for people. Employees were rated on a 1-5 scale based on the amount of money one made for the company. Skilling mandated that between 10-15% of employees had to be rated as 5's (worst). And to get a rating of 5 meant that one was immediately fired. This review process was dubbed "rank and yank". Such was a typical example of his survivalist thinking.

The corruption spread throughout the company, as Enron was responsible for, among other things, gaming the Northern California "rolling blackouts" in 2001, whereby the company profited as huge parts of the state were plunged into darkness. Citizens were threatened by a deregulation plan that essentially enabled a number of immoral Enron traders (led by Tim Belden) to place calls that drove up energy-market prices and took advantage of power-plant shutdowns. Of course, the Bush family dynasty does not come across unscathed in the Enron story and justifiably so according to their inextricable ties to Lay. Gibney effectively uses video footage from testimony at congressional hearings, as well as interviews with disillusioned former employees such as Mike Muckleroy and whistle-blower Sherron Watkins (who uses some effective pop culture references like "Body Heat" and Jonestown to get her points across).

There are some amusing vignettes and images that tie some of the disparate elements together with excessive glibness. The documentary is best when it sticks to the facts, for this is one inarguable case where fact is truly stranger than fiction. Extras are plentiful on the 2006 DVD. Gibney provides an informative albeit verbose commentary track, and four deleted scenes, about twenty minutes in total, are included that become redundant with the film's portrayal of corporate malfeasance. There is also a fourteen-minute making-of featurette, as well as a "Where Are They Now?" snippet on the principals and three separate conversations with McLean and Elkind on how they got the story, how they validated their findings, and their enthusiastic reaction to the film. Other bonus materials include Gibney reading from scripts of skits performed at Enron and a Firesign Theater sketch about Enron's demise, as well as Fortune Magazine articles written by McLean and Elkind and a gallery of editorial cartoons.

How did Enron become the world's largest corporate bankruptcy? A culture of greed, and fraud, coupled with an accounting system ripe for abuse, was part of it. But one also needs to understand the way that markets work (ironically, since Enron claimed to know this better than anyone else). The rise in Enron's share price had all the hallmarks of a classic pyramid scheme, whereby, if you claim to be making enough money, you can get away without proving it, because investors all want in, not out. Meanwhile, Enron bankrolled its regulators with the money it did have to stop them asking about the money it didn't. Finally, when all this was exposed, the firm was worthless, even though there had been at least some successful businesses within it, because, fundamentally, like all businesses, Enron has sold confidence and now this commodity was in very short supply; but Chief Executive Jeff Skilling's claim that "it was a classic run on the bank" is disingenuous to say the least, given that the real money that Enron did (at one time) make was earned through deliberately operating with very low reserves. 'The Smartest Guys in the Room' tells some of the story of Enron's collapse: and it's a compelling tale, although I found the use of background music rather annoying (the story is divided up into titled sections, with each section being the name of a song, which feels rather heavy-handed and obvious). But is gives a good flavour of what went on at Enron, although it doesn't go into the full details of the crooked financial transactions, and (like all the books I have read on the same subject) doesn't manage to answer the killer questions: what were, year-on-year, Enron's real profits and losses? and who knew what, when? Probably, these are impossible questions to answer: the picture that emerges is of a company where the bosses didn't want to know, everybody's job was to keep their superior happy and rich, and if you could do this, they wouldn't ask how you had managed it (or how rich you had made yourself in the process); a happy conspiracy until, eventually and inevitably, the money ran out. And as I said before, the irony is that this company that tried and failed to buck the markets was itself the high priest of market capitalism. If Enron's failure at least induces a dose of scepticism about the self-proclaimed (and invariably loaded) champions of market economics, some good at least will have emerged from what is otherwise a sorry tale.