I watched the documentary on Enron over the weekend and a few months back, I had read the book on which it is based. Of all the corporate scandals, Enron is called the corporate crime of the century with some justification. As Bethany McLean, co-author of the book notes (and who originally asked a simple question – How exactly does Enron make money? – in an article in Fortune magazine), it is also a story not just of numbers or complicated accounting but a tale of hubris, greed, ambition, pride and arrogance that has all the hallmarks of a Greek tragedy.
I liked the documentary better than the book though many parts of the Enron saga like its disastrous foray into emerging markets are omitted. The documentary keeps a tight focus on the three architects of Enron’s swift downfall: Ken Lay, Jeff Skilling and Andy Fastow. Ken Lay was the visionary who had founded Enron and lobbied for the deregulation of the natural gas markets and Jeff Skilling was the man with the big idea that transformed Enron from a sleepy utility to an energy trader. The rest of the character cast is made of the “guys with spikes”, individuals with something extreme about them. The black sheep of the group was Andy Fastow, the young CFO who cooked the books hiding Enron’s massive debt in off-balance sheet arrangements.
The one key lesson from the Enron story is to trust no one, not the executives who encouraged their employees and investors to invest in their company while simultaneously selling their stake, not the analysts who were in bed with Enron to land investment banking deals, not the lawyers and accountants who rubber stamped the company’s financials and definitely not the bankers who knew helped Enron arrange the deals for guaranteed profits, when it comes to managing your money.
Last week a jury in Houston convicted Ken Lay and Jeff Skilling on various charges of conspiracy and fraud. I think the guilty verdicts were richly deserved when you watch rank-and-file employees losing their life savings while senior executives are quietly selling stock:
At one time things were really rosy for us. We all had some really nice looking 401(k)’s and pensions and then it peaked and then it just started going down and it went lower and lower and lower. At the peak I had about $348,000 and I sold it all for $1200. That was what I got for it when it was done.
– Al Kaseweter, a Portland General Electric Company (a utility acquired by Enron) Lineman
When you contrast this with Ken Lay, who sold about $300 million worth of stock and Jeff Skilling who cashed in about $200 million and other insiders who sold hundreds of millions of Enron stock, it makes your blood boil. If you haven’t seen the movie, I highly recommend renting it.
