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房间里最精明的人
房间里最精明的人:安然破产案始末》读来恢宏大气、酣畅淋漓，既有对重大事件的详尽剖析，又有生动真实的细节支撑，对安然从飞速崛起到彻底衰败的全过程进行了客观深透的报道，其文字叙述不仅散发着新闻记者中立精准的气质和金融分析师严谨睿智的个性，同时还间或隐现出一种身为美国人对此一事件特有的复杂情绪。2001年年末，位于休斯敦的能源巨头安然（Enron）在其如日中天之时突然崩溃，从此引发美国公司接连爆出丑闻的多米诺效应，也结束了华尔街历史上最长的一个大牛市。曾经以“世界上最伟大的公司”名震天下的安然，现在却成了记录美国公司所犯全部错误的标签。安然的破产，不仅仅标志着一家公司的灭亡，而且是一个时代的终结。关于安然成败的经验之书，至今已有一打以上，但仍未有一部足够翔实、足够权威的作品出现。直至现在，美国最权威的《财富》杂志两位高级撰稿人交出了“作业”：作为当年最早公开质疑该公司交易的分析师和记者，《房间里最精明的人:安然破产案始末》的两位作者历时 16个月深入调查、详细访问终于完成了此书。正如书中所言：“不管你对安然了解多少，《房间里最精明的人:安然破产案始末》所揭露的事实都会让你感到震惊”。
448 pages, Paperback
First published January 1, 2003
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40786 people want to read
About the author
Bethany McLean
10 books426 followersBethany McLean is a contributing editor to Vanity Fair magazine, and known for her work on the Enron scandal. She had been an editor at large and columnist for Fortune magazine.
McLean grew up in Hibbing and received her BA in English and mathematics at Williams College in 1992. After college and prior to joining Fortune, she worked as an investment banker for Goldman Sachs.
McLean grew up in Hibbing and received her BA in English and mathematics at Williams College in 1992. After college and prior to joining Fortune, she worked as an investment banker for Goldman Sachs.
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July 8, 2020
Great Expectations
This is the definitive case history of the demise of the most admired company in America. What it demonstrates is that the failure of Enron, although facilitated by the greed and moral indifference that is typical in corporate life, was at root down to its excellence in precisely that set of skills for which it was most admired: corporate finance.
Jeff Skilling, a former McKinsey colleague of mine, was the 'vector' by which the infectious scourge of financial theory found its way into the company and eventually killed it. Corporate finance is what passed, and still passes, for intelligent business practice and spread like a cancer to every level of the company. Widespread corporate organ failure was triggered by an almost insignificant mutation in a rather insignificant limb.
What McLean and Elkins show is that Skilling, who received top honours from the Harvard Business School and rose to an exceptionally young partnership at McKinsey, had a devotion to corporate finance of religious intensity. He established it as the pervasive ethos of the company. He also sold this ethos to the people who provided finance to Enron, the investment banks, analysts and advisors who set the fashion for business rationality.
Skilling did not have to sell very hard. He merely had to push on the door that had been unlocked by years of academic indoctrination of the young MBA's in all these institutions who were eager to show just how savvy they were in the theory of corporate finance. On the face of it this theory is as esoteric as quantum mechanics. But this is of course is part of its charm: only the insiders, the experts, can understand it. Those who can't can be ignored as relics of business-past.
But in truth the modern theory of finance is based on a very simple, and as it turns out, a very stupid idea: value is prospective. That is, it doesn't have to do with whats in the bank, or in the warehouse, or, in general, what's been achieved; those things are matters for the stodgy accountants. Value is a function of expectations, of what is expected to come about because of our business plans. Specifically its about the cash flows that are anticipated far into the future.
The fly in this business ointment, of course, is whose expectations count and how reliable are they? It doesn't take much thought to realise that the only people who have the capacity to formulate expectations are the managers of the company. It is they, after all, who make the decisions and have access to the detailed information on things like operating costs and likely sales, etc. All the managers have to do is convince the banks and analysts and advisors that their numbers are credible. At this Skilling was a pro. They bought it.
But what goes around comes around. If you pay people down the line based on the expected value of what they do, they too hold most of the cards. And the house of cards grows and grows. Estimates of expected value expand, as it were, to meet the internal as well as external market demand.
The maximum level of these expectations was never touched simply because the finance director made a small error. In order to be able to get expected values into the accounts, the company set up a complex network of shell companies which became co-investors in Enron businesses. As long as these shell companies were less than 50% owned by Enron they didn't appear in the company's consolidated accounts. More importantly Enron could sell these companies parts of Enron investments at prices based on Enron's valuations. These sales could enter the audited accounts. Hey presto, corporate finance is baptised by accounting.
So far everything is legally kosher. But the FD got a little careless. One of the hundreds of shell companies technically controlled by friendly investment banks and their customers, was owned at slightly more than 50% by Enron. This is the snowflake that caused the avalanche of disaster. At one go the entire facade of valuation based on management expectations became visible and all came tumbling down.
Without doubt, Skilling had created the boldest experiment in corporate finance ever seen. Until it was seen to be what it actually was, an irrational game of chicken which could only have one outcome. Surprisingly, as far as I am aware neither McLean nor Elkind, despite their follow-on book on the crash of 2008, have generalised their analysis to a full-blown critique of corporate finance. We live in hope.
Postscript: Arguably the most influential populariser of corporate financial theory is Al Rappaport, a former professor of business at Northwestern University. His book, Creating Shareholder Value, is still in print after more than three decades (https://www.goodreads.com/book/show/1...). Rappaport and several others started a financial consulting firm to commercialise his ideas. This firm was bought out by myself and two other partners in the mid-90’s. To my great and lasting shame I helped peddle these daft ideas to a number of banks and commercial companies. Despite the growing evidence of their destructiveness, my former partners maintain a virtually religious devotion to them. This is proof to me that human beings can rationalise even the most damaging and stupid behaviour.
This is the definitive case history of the demise of the most admired company in America. What it demonstrates is that the failure of Enron, although facilitated by the greed and moral indifference that is typical in corporate life, was at root down to its excellence in precisely that set of skills for which it was most admired: corporate finance.
Jeff Skilling, a former McKinsey colleague of mine, was the 'vector' by which the infectious scourge of financial theory found its way into the company and eventually killed it. Corporate finance is what passed, and still passes, for intelligent business practice and spread like a cancer to every level of the company. Widespread corporate organ failure was triggered by an almost insignificant mutation in a rather insignificant limb.
What McLean and Elkins show is that Skilling, who received top honours from the Harvard Business School and rose to an exceptionally young partnership at McKinsey, had a devotion to corporate finance of religious intensity. He established it as the pervasive ethos of the company. He also sold this ethos to the people who provided finance to Enron, the investment banks, analysts and advisors who set the fashion for business rationality.
Skilling did not have to sell very hard. He merely had to push on the door that had been unlocked by years of academic indoctrination of the young MBA's in all these institutions who were eager to show just how savvy they were in the theory of corporate finance. On the face of it this theory is as esoteric as quantum mechanics. But this is of course is part of its charm: only the insiders, the experts, can understand it. Those who can't can be ignored as relics of business-past.
But in truth the modern theory of finance is based on a very simple, and as it turns out, a very stupid idea: value is prospective. That is, it doesn't have to do with whats in the bank, or in the warehouse, or, in general, what's been achieved; those things are matters for the stodgy accountants. Value is a function of expectations, of what is expected to come about because of our business plans. Specifically its about the cash flows that are anticipated far into the future.
The fly in this business ointment, of course, is whose expectations count and how reliable are they? It doesn't take much thought to realise that the only people who have the capacity to formulate expectations are the managers of the company. It is they, after all, who make the decisions and have access to the detailed information on things like operating costs and likely sales, etc. All the managers have to do is convince the banks and analysts and advisors that their numbers are credible. At this Skilling was a pro. They bought it.
But what goes around comes around. If you pay people down the line based on the expected value of what they do, they too hold most of the cards. And the house of cards grows and grows. Estimates of expected value expand, as it were, to meet the internal as well as external market demand.
The maximum level of these expectations was never touched simply because the finance director made a small error. In order to be able to get expected values into the accounts, the company set up a complex network of shell companies which became co-investors in Enron businesses. As long as these shell companies were less than 50% owned by Enron they didn't appear in the company's consolidated accounts. More importantly Enron could sell these companies parts of Enron investments at prices based on Enron's valuations. These sales could enter the audited accounts. Hey presto, corporate finance is baptised by accounting.
So far everything is legally kosher. But the FD got a little careless. One of the hundreds of shell companies technically controlled by friendly investment banks and their customers, was owned at slightly more than 50% by Enron. This is the snowflake that caused the avalanche of disaster. At one go the entire facade of valuation based on management expectations became visible and all came tumbling down.
Without doubt, Skilling had created the boldest experiment in corporate finance ever seen. Until it was seen to be what it actually was, an irrational game of chicken which could only have one outcome. Surprisingly, as far as I am aware neither McLean nor Elkind, despite their follow-on book on the crash of 2008, have generalised their analysis to a full-blown critique of corporate finance. We live in hope.
Postscript: Arguably the most influential populariser of corporate financial theory is Al Rappaport, a former professor of business at Northwestern University. His book, Creating Shareholder Value, is still in print after more than three decades (https://www.goodreads.com/book/show/1...). Rappaport and several others started a financial consulting firm to commercialise his ideas. This firm was bought out by myself and two other partners in the mid-90’s. To my great and lasting shame I helped peddle these daft ideas to a number of banks and commercial companies. Despite the growing evidence of their destructiveness, my former partners maintain a virtually religious devotion to them. This is proof to me that human beings can rationalise even the most damaging and stupid behaviour.
July 15, 2025
“The tale of Enron is a story of human weakness, of hubris and greed and rampant self-delusion; of ambition run amok; of a grand experiment in the deregulated world; of a business model that didn’t work; and of smart people who believed their next gamble would cover their last disaster—and who couldn’t admit they were wrong.”
― Bethany McLean, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron
Man, if this book does not get you outraged...
This book tells the story of Enron. I am sure most people have heard of Enron. And not in a good way I am afraid.
So one might ask why read a book about a bunch of sociopaths who cheated their employees out of millions? Well first off, I am into psychology and found the book fascinating from that perspective. I have always hated the corporate world and the people of Enron are a great example of all there is to hate about it.
But the book goes into great detail about exactly what happened and it is chilling. One wonders what company or companies maybe doing the same thing right now. In a world, where the rich, the powerful seem to get away with just about everything this is a powerful read, even if it made me hate corporate America ever that much more.
There is also a Docufilm on same subject, same title and it is worth watching just as this book is worth reading.
― Bethany McLean, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron
Man, if this book does not get you outraged...
This book tells the story of Enron. I am sure most people have heard of Enron. And not in a good way I am afraid.
So one might ask why read a book about a bunch of sociopaths who cheated their employees out of millions? Well first off, I am into psychology and found the book fascinating from that perspective. I have always hated the corporate world and the people of Enron are a great example of all there is to hate about it.
But the book goes into great detail about exactly what happened and it is chilling. One wonders what company or companies maybe doing the same thing right now. In a world, where the rich, the powerful seem to get away with just about everything this is a powerful read, even if it made me hate corporate America ever that much more.
There is also a Docufilm on same subject, same title and it is worth watching just as this book is worth reading.
March 11, 2009
That I am an internal auditor at a major oil and gas company undoubtedly contributed to my interest in this book. Nonetheless, McLean and Elkind's ability to present a convoluted and complex topic in an intriguing way culminate in this page-turner that anyone with even a moderate interest in business, accounting, economics, or current affairs will enjoy. The authors strike an effective balance between providing the nitty-gritty details of the accounting, the bigger picture, and the gossip.
In many ways, the Enron tale is a classic one. A large number of the main characters in this saga came from humble beginnings. Ken Lay, Jeff Skilling, Andy Fastow, and Rebecca Mark all came from humble or modest families. Their abilities, ambition, and effort coalesced into a drive to succeed that forged a respectable company--at least for a time. For about a decade starting in 1985, Ken Lay espoused the economic benefits of energy deregulation while Jeff Skilling created a new industry centered on natural gas and power trading. This is how it worked: as the energy markets were deregulated around the country, utility rates were no longer set by law with built-in profit margins. Suppliers and consumers of energy needed to find one another at the best prices. Enron centered itself as the trading hub by acting as a market-maker. They would buy supplies from producers and guarantee those supplies to consumers or utilities on the back end. They had a series of pipelines to transport the gas, extensive computer networks that ran Enron Online where a large percentage of all trades in the country took place, and massive overseas energy projects that included pipelines and power plants.
The culture at Enron valued winning above all else, and Enron defined winning as bringing in new revenue and meeting Wall Street's earnings expectations. Ironically, the company didn't care at all about cutting costs or saving money despite the fact that it can be an easier and potentially more effective means of accomplishing a similar goal. Jeff Skilling, the de facto leader of the company from the mid 1990's through early 2000, believed in almost exclusively hiring academically gifted people with degrees from elite institutions and encouraging them to compete with one another. The competition would sharpen their abilities and produce the best results for the company, much like deregulation had increased competition and efficiency for the industry. That was the theory anyway.
This prevailing attitude led to a business strategy and compensation structure with perverse incentives. Because promotions and bonuses were given on a strict bell-curve, much effort was spent on politicking, bargaining, and backstabbing, which necessarily detracted from cooperation and putting the company's best interests first. Mark-to-market accounting meant employees were often rewarded based on their own rosy estimates for long-term projects even if these projects never actually made money. Enron actually booked projected future earnings on their current earnings reports before they ever received a dime! Therefore, employees had strong incentives to close new deals and didn't care about actually following through with the deals or ensuring they were successful later on. In this culture, the most ruthless or those with the most flexible morals such as Jeff Skilling, Andy Fastow, and Ben Glisan naturally rose to the top.
It's hard to say exactly when Enron first stepped over the line; it's more of a gradual slope than a steep cliff. However, the company officially had to restate earnings from 1997 through 2001 before it declared bankruptcy in late 2001. The two major accounting problems that the book repeatedly mentions are mark-to-market accounting and Special Purpose Entities (SPE's). The value of an asset can be accounted for on a historical cost basis (what you paid for it when you bought it) or the market value (what it would be worth if you tried to sell it today). Fund managers who control money invested in the stock market use mark-to-market accounting because the price of a highly liquid asset such as a share of stock is easily attainable. Less liquid assets like power plants or pipelines or international projects are harder to determine the market value for. Enron used this uncertainty to repeatedly deceive investors about the state of its finances. It also used Special Purpose Entities to keep debt off its balance sheet and manage its earnings. This ensured that creditors wouldn't lower its rating, it would meet Wall Street's expectations, and the stock would continue to rise.
LJM and LJM2 were SPE's run by Fastow (and were the initials of his wife and kids) while he was CFO. If Enron wanted to buy a power plant for $1 billion, it could finance it by taking out a loan or issuing new stock. Neither of these appealed to Enron, so, instead, it turned to LJM, which was technically an independent entity. LJM would fund the acquisition by taking out loans of its own, but the lenders would require Enron stock as collateral, which worked as long as the stock remained high. So, in reality, Enron was on the hook for the loan, but it wasn't required to report this inconvenience on the balance sheet. LJM would receive hefty fees from Enron in exchange for removing the debt or adding additional earnings as needed. Fastow had a clear conflict of interest because gains for LJM invariably came at the expense of Enron, and Fastow worked for both; but, amazingly, Arthur Andersen and the Board of Directors at Enron waived the conflict at least twice, which allowed Fastow to personally clear over $60 million from LJM. The Board did so because it helped the stock (and presumably their wallets if they were compensated in stock) while Andersen received tens of millions of dollars from Enron for their consulting services on various accounting transactions or issues.
The investment banks, the law firms, and Arthur Andersen all got their bread buttered by Enron. They had conflicts of interest and were unwilling to question the suspect, sketchy, and then illegal machinations of Enron's executives.
In the end, Enron's games with SPE's and accounting manipulations faltered when the tech bubble burst and dragged down the entire market. In desperation, Enron tried to contradict their own very narrow interpretation of the accounting rules governing the reporting of earnings and debt, but Andersen finally decided floating interpretations were untenable. This forced Enron to restate prior periods and miss their earnings target, subsequently triggering a massive sell-off, the unwinding of all the SPE's that were backed by Enron stock, a downgrading of their credit rating, a requirement to post cash collateral that they didn't have for all trades, the loss of liquidity, and ultimately the failure of the company. It went bankrupt, but not before Lay, Fastow, Lou Pai, Glisan, Kopper, and other high-ranking execs walked away with tens of millions of dollars from cashing out their Enron shares. Many lower-ranked Enron employees lost their retirements because they were forbidden from selling shares while the company changed retirement plan administrators.
No one ever took the blame. Lay blamed Skilling and Fastow; The Board blamed Lay, Skilling, and Fastow; Skilling blamed the media, his underlings, and Andersen; Fastow blamed Skilling, Lay, and the Board; Andersen blamed Enron; analysts blamed Andersen; the credit agencies blamed Enron and Andersen; etc. Clearly, they are all partially responsible. Lay and Skilling must have known enough that ignorance is not a viable defense in this scenario. The accounting and law firms needed to segregate duties to avoid conflicts of interest. The Board is rewarded handsomely for staying on top of these issues, and they fell asleep at the wheel. The accountants like Fastow and Glisan in the trenches must know the difference between following the letter of the law and the spirit. The bottom line is that no one asked, "Is this right?" Instead, they asked, "Can we get away with this?"
Lay, Skilling, Fastow, Glisan, and others couldn't get away with it. All of them were convicted and sentenced to varying lengths of time in prison.
I like the comedian Lewis Black's law: "If you have a company, and it can't explain in one sentence... what it does... it's illegal."
Other points:
There's no link between intelligence and integrity.
WorldCom was actually a bigger bankruptcy than Enron.
The management pressure, accounting manipulations, and failure of Fannie Mae under Franklin Raines, now advisor to President Obama, strike me as eerily similar to Enron's story. The faltering Fannie Mae far outshines WorldCom and Enron combined in terms of potential liabilities. Thank God for Armando Falcon, Jr. for blowing the whistle and standing up to unbelievable Democratic congressional pressure as the cronies tried to distract and cover their tracks.
The OFHEO special examination report can be found here: http://www.fhfa.gov/webfiles/747/FNMS...
A WSJ article on this topic can be found here: http://online.wsj.com/article/SB10968...
Even though Enron's statements were convoluted, there were people who sifted through them and realized the trouble. Richard Grubman shorted Enron and made a fortune.
Despite Lay's professed love of free markets and deregulation, between 1989 and 2001, about 20 governmental and quasi-governmental agencies including OPIC, the World Bank, and the Export-Import Bank, approved $7.2 billion in public financing for 38 separate Enron International projects. Surely Enron and Lay can not be seen as genuine stewards of free markets.
The Lays abused company assets and deals for personal and familial gain. For example, they used an Enron jet to fly daughter Robyn's bed to Monaco, and Ken's sister's travel agency handled Enron's business to the tune of $4.5 million.
The executives openly encouraged employees to invest significant portions of their 401k's in Enron stock while they sold out significant portions of their own Enron stock.
Fastow's Southampton partnership deal through LJM2 brought the Fastow Family Foundation a 17,765 percent return.
John Olson was an analyst for Merrill Lynch who repeatedly complained about Enron's accounting. Although he was right the whole time, Merrill fired him because the Enron fees were too large to be bothered with the truth.
Memorable quotes:
"I'm fucking smart." - Jeff Skilling, who will spend much of the rest of his life in jail, is evidently too smart by half.
"What if an analyst tried to get beyond Enron's pat explanation of the business? Executives would imply that they were slow and stupid, and most of the other analysts would agree with that assessment."
"[Skilling:] had a good McKinsey trick...if you asked a question that he didn't want to answer, he would dump a ton of data on you. But he didn't answer. If you were brave and said you still didn't get it, he would turn on you. 'Well, it's so obvious,' he'd say. How can you not get it?'"
"...otherwise intelligent people were reduced to nodding their heads in agreement."
In many ways, the Enron tale is a classic one. A large number of the main characters in this saga came from humble beginnings. Ken Lay, Jeff Skilling, Andy Fastow, and Rebecca Mark all came from humble or modest families. Their abilities, ambition, and effort coalesced into a drive to succeed that forged a respectable company--at least for a time. For about a decade starting in 1985, Ken Lay espoused the economic benefits of energy deregulation while Jeff Skilling created a new industry centered on natural gas and power trading. This is how it worked: as the energy markets were deregulated around the country, utility rates were no longer set by law with built-in profit margins. Suppliers and consumers of energy needed to find one another at the best prices. Enron centered itself as the trading hub by acting as a market-maker. They would buy supplies from producers and guarantee those supplies to consumers or utilities on the back end. They had a series of pipelines to transport the gas, extensive computer networks that ran Enron Online where a large percentage of all trades in the country took place, and massive overseas energy projects that included pipelines and power plants.
The culture at Enron valued winning above all else, and Enron defined winning as bringing in new revenue and meeting Wall Street's earnings expectations. Ironically, the company didn't care at all about cutting costs or saving money despite the fact that it can be an easier and potentially more effective means of accomplishing a similar goal. Jeff Skilling, the de facto leader of the company from the mid 1990's through early 2000, believed in almost exclusively hiring academically gifted people with degrees from elite institutions and encouraging them to compete with one another. The competition would sharpen their abilities and produce the best results for the company, much like deregulation had increased competition and efficiency for the industry. That was the theory anyway.
This prevailing attitude led to a business strategy and compensation structure with perverse incentives. Because promotions and bonuses were given on a strict bell-curve, much effort was spent on politicking, bargaining, and backstabbing, which necessarily detracted from cooperation and putting the company's best interests first. Mark-to-market accounting meant employees were often rewarded based on their own rosy estimates for long-term projects even if these projects never actually made money. Enron actually booked projected future earnings on their current earnings reports before they ever received a dime! Therefore, employees had strong incentives to close new deals and didn't care about actually following through with the deals or ensuring they were successful later on. In this culture, the most ruthless or those with the most flexible morals such as Jeff Skilling, Andy Fastow, and Ben Glisan naturally rose to the top.
It's hard to say exactly when Enron first stepped over the line; it's more of a gradual slope than a steep cliff. However, the company officially had to restate earnings from 1997 through 2001 before it declared bankruptcy in late 2001. The two major accounting problems that the book repeatedly mentions are mark-to-market accounting and Special Purpose Entities (SPE's). The value of an asset can be accounted for on a historical cost basis (what you paid for it when you bought it) or the market value (what it would be worth if you tried to sell it today). Fund managers who control money invested in the stock market use mark-to-market accounting because the price of a highly liquid asset such as a share of stock is easily attainable. Less liquid assets like power plants or pipelines or international projects are harder to determine the market value for. Enron used this uncertainty to repeatedly deceive investors about the state of its finances. It also used Special Purpose Entities to keep debt off its balance sheet and manage its earnings. This ensured that creditors wouldn't lower its rating, it would meet Wall Street's expectations, and the stock would continue to rise.
LJM and LJM2 were SPE's run by Fastow (and were the initials of his wife and kids) while he was CFO. If Enron wanted to buy a power plant for $1 billion, it could finance it by taking out a loan or issuing new stock. Neither of these appealed to Enron, so, instead, it turned to LJM, which was technically an independent entity. LJM would fund the acquisition by taking out loans of its own, but the lenders would require Enron stock as collateral, which worked as long as the stock remained high. So, in reality, Enron was on the hook for the loan, but it wasn't required to report this inconvenience on the balance sheet. LJM would receive hefty fees from Enron in exchange for removing the debt or adding additional earnings as needed. Fastow had a clear conflict of interest because gains for LJM invariably came at the expense of Enron, and Fastow worked for both; but, amazingly, Arthur Andersen and the Board of Directors at Enron waived the conflict at least twice, which allowed Fastow to personally clear over $60 million from LJM. The Board did so because it helped the stock (and presumably their wallets if they were compensated in stock) while Andersen received tens of millions of dollars from Enron for their consulting services on various accounting transactions or issues.
The investment banks, the law firms, and Arthur Andersen all got their bread buttered by Enron. They had conflicts of interest and were unwilling to question the suspect, sketchy, and then illegal machinations of Enron's executives.
In the end, Enron's games with SPE's and accounting manipulations faltered when the tech bubble burst and dragged down the entire market. In desperation, Enron tried to contradict their own very narrow interpretation of the accounting rules governing the reporting of earnings and debt, but Andersen finally decided floating interpretations were untenable. This forced Enron to restate prior periods and miss their earnings target, subsequently triggering a massive sell-off, the unwinding of all the SPE's that were backed by Enron stock, a downgrading of their credit rating, a requirement to post cash collateral that they didn't have for all trades, the loss of liquidity, and ultimately the failure of the company. It went bankrupt, but not before Lay, Fastow, Lou Pai, Glisan, Kopper, and other high-ranking execs walked away with tens of millions of dollars from cashing out their Enron shares. Many lower-ranked Enron employees lost their retirements because they were forbidden from selling shares while the company changed retirement plan administrators.
No one ever took the blame. Lay blamed Skilling and Fastow; The Board blamed Lay, Skilling, and Fastow; Skilling blamed the media, his underlings, and Andersen; Fastow blamed Skilling, Lay, and the Board; Andersen blamed Enron; analysts blamed Andersen; the credit agencies blamed Enron and Andersen; etc. Clearly, they are all partially responsible. Lay and Skilling must have known enough that ignorance is not a viable defense in this scenario. The accounting and law firms needed to segregate duties to avoid conflicts of interest. The Board is rewarded handsomely for staying on top of these issues, and they fell asleep at the wheel. The accountants like Fastow and Glisan in the trenches must know the difference between following the letter of the law and the spirit. The bottom line is that no one asked, "Is this right?" Instead, they asked, "Can we get away with this?"
Lay, Skilling, Fastow, Glisan, and others couldn't get away with it. All of them were convicted and sentenced to varying lengths of time in prison.
I like the comedian Lewis Black's law: "If you have a company, and it can't explain in one sentence... what it does... it's illegal."
Other points:
There's no link between intelligence and integrity.
WorldCom was actually a bigger bankruptcy than Enron.
The management pressure, accounting manipulations, and failure of Fannie Mae under Franklin Raines, now advisor to President Obama, strike me as eerily similar to Enron's story. The faltering Fannie Mae far outshines WorldCom and Enron combined in terms of potential liabilities. Thank God for Armando Falcon, Jr. for blowing the whistle and standing up to unbelievable Democratic congressional pressure as the cronies tried to distract and cover their tracks.
The OFHEO special examination report can be found here: http://www.fhfa.gov/webfiles/747/FNMS...
A WSJ article on this topic can be found here: http://online.wsj.com/article/SB10968...
Even though Enron's statements were convoluted, there were people who sifted through them and realized the trouble. Richard Grubman shorted Enron and made a fortune.
Despite Lay's professed love of free markets and deregulation, between 1989 and 2001, about 20 governmental and quasi-governmental agencies including OPIC, the World Bank, and the Export-Import Bank, approved $7.2 billion in public financing for 38 separate Enron International projects. Surely Enron and Lay can not be seen as genuine stewards of free markets.
The Lays abused company assets and deals for personal and familial gain. For example, they used an Enron jet to fly daughter Robyn's bed to Monaco, and Ken's sister's travel agency handled Enron's business to the tune of $4.5 million.
The executives openly encouraged employees to invest significant portions of their 401k's in Enron stock while they sold out significant portions of their own Enron stock.
Fastow's Southampton partnership deal through LJM2 brought the Fastow Family Foundation a 17,765 percent return.
John Olson was an analyst for Merrill Lynch who repeatedly complained about Enron's accounting. Although he was right the whole time, Merrill fired him because the Enron fees were too large to be bothered with the truth.
Memorable quotes:
"I'm fucking smart." - Jeff Skilling, who will spend much of the rest of his life in jail, is evidently too smart by half.
"What if an analyst tried to get beyond Enron's pat explanation of the business? Executives would imply that they were slow and stupid, and most of the other analysts would agree with that assessment."
"[Skilling:] had a good McKinsey trick...if you asked a question that he didn't want to answer, he would dump a ton of data on you. But he didn't answer. If you were brave and said you still didn't get it, he would turn on you. 'Well, it's so obvious,' he'd say. How can you not get it?'"
"...otherwise intelligent people were reduced to nodding their heads in agreement."
March 10, 2011
The Smartest Guys In the Room is a well-written, well-researched attempt to unravel the financial shenanigans that led to Enron’s bankruptcy. It’s a compelling (and sometimes soapy) indictment of the worst side of business, and it queasily foreshadows the financial crisis of 2008.
I can’t say enough about how well McLean and Elkind present the material in this book, but the fact remains that (a) it’s really, really long, and (b) it’s about finance. I learned a lot about securitization (etc.) as a result of this book, but nonetheless, there were times when I just couldn’t stay engaged with all the accountancy blah blah blah stuff.
I started this book at Christmas and I’m just now finishing it in March. Yeah, it was a long slog.
Worth reading, but one that I’m glad to finally boot off my nightstand.
I can’t say enough about how well McLean and Elkind present the material in this book, but the fact remains that (a) it’s really, really long, and (b) it’s about finance. I learned a lot about securitization (etc.) as a result of this book, but nonetheless, there were times when I just couldn’t stay engaged with all the accountancy blah blah blah stuff.
I started this book at Christmas and I’m just now finishing it in March. Yeah, it was a long slog.
Worth reading, but one that I’m glad to finally boot off my nightstand.
January 7, 2016
I never thought accounting would provide so much entertainment. Since I knew little of exactly what occurred with Enron I wanted to give this a shot and it did not disappoint.
September 3, 2022
If you're looking for a book that is going to give you an in-depth look at the Enron scandal, then "The Smartest Guys in the Room" is definitely the one for you. However, be prepared for a lot of dense financial terminology, as this book goes deep into the complex web of financial dealings that brought down one of America's most successful companies.
Don't let that scare you off though – because despite the fact that it can be a bit dry at times, "The Smartest Guys in the Room" is an absolutely fascinating read. It tells the story of how a small Texas energy company managed to become one of the biggest and most respected businesses in America, before eventually crashing and burning in one of the biggest corporate scandals in history.
It's a tale that is filled with ambition, greed, and hubris – as well as a healthy dose of incompetence and bad luck. And it's all narrated by Bethany McLean and Peter Elkind, two journalists who were instrumental in uncovering the Enron story, and who have done an excellent job of telling it here.
If you're at all interested in business, economics, or just plain ol' scandalous tales, then "The Smartest Guys in the Room" is definitely worth your time. Just be prepared for a lot of numbers and financial jargon – because when it comes to recounting one of history's biggest business failures, this book doesn't mess around.
Don't let that scare you off though – because despite the fact that it can be a bit dry at times, "The Smartest Guys in the Room" is an absolutely fascinating read. It tells the story of how a small Texas energy company managed to become one of the biggest and most respected businesses in America, before eventually crashing and burning in one of the biggest corporate scandals in history.
It's a tale that is filled with ambition, greed, and hubris – as well as a healthy dose of incompetence and bad luck. And it's all narrated by Bethany McLean and Peter Elkind, two journalists who were instrumental in uncovering the Enron story, and who have done an excellent job of telling it here.
If you're at all interested in business, economics, or just plain ol' scandalous tales, then "The Smartest Guys in the Room" is definitely worth your time. Just be prepared for a lot of numbers and financial jargon – because when it comes to recounting one of history's biggest business failures, this book doesn't mess around.
November 7, 2015
A solid 3 stars but a book I find difficult to recommend.
At its heart this is a story of several dislikable Icaruses (Icari?) with a Greek chorus consisting of the Enron trading employees. Unfortunately, to get to that story you must wade through much accounting arcana. The accounting aspects are central to the story so I don’t think there’s an easy way around it.
While the book deserves credit for being the first comprehensive telling of the Enron debacle, 12+ years after it was first published I think this aspect works against it. An early discussion of issuing new shares of stock to boost net profits struck me as wrong (raise cash, yes; profits, no) and there were a small handful of typos along the way. Some basic elements of accounting were explained in more detail than necessary and some of the complex accounting situations remained puzzling after the authors attempted to demystify them. And there were just so many thoroughly unlikable Enronians it felt at times like the authors were piling on just to raise the hate level.
Enron is such a deep and complicated story I think a book written many years after its collapse would do a better job than one written soon after (i.e. this book). I don’t think you can go wrong reading this book, I just think you can do a lot better with something else.
At its heart this is a story of several dislikable Icaruses (Icari?) with a Greek chorus consisting of the Enron trading employees. Unfortunately, to get to that story you must wade through much accounting arcana. The accounting aspects are central to the story so I don’t think there’s an easy way around it.
While the book deserves credit for being the first comprehensive telling of the Enron debacle, 12+ years after it was first published I think this aspect works against it. An early discussion of issuing new shares of stock to boost net profits struck me as wrong (raise cash, yes; profits, no) and there were a small handful of typos along the way. Some basic elements of accounting were explained in more detail than necessary and some of the complex accounting situations remained puzzling after the authors attempted to demystify them. And there were just so many thoroughly unlikable Enronians it felt at times like the authors were piling on just to raise the hate level.
Enron is such a deep and complicated story I think a book written many years after its collapse would do a better job than one written soon after (i.e. this book). I don’t think you can go wrong reading this book, I just think you can do a lot better with something else.
January 4, 2020
Recently I realized that I basically knew nothing about the Enron scandal. I was eleven years old when it first hit the news, so I wasn’t paying attention at the time. And in the years since all I’d really gleaned was that it was a corporate scandal….. and they did…. shady things with money?
I’m glad I read this book so that I now have more of an understanding of what went down at Enron. However, because so much of this was dealing with complex economic stuff, a lot of it went over my head. Even when the authors would dumb stuff down, it was still sometimes hard to grasp. Although, I guess that’s expected since a lot of what allowed Enron to operate for so long was how complex and convoluted they made their business and accounting practices.
I’m not sure if I would recommend this book. It’s not the most readable non-fiction. It’s definitely not super dense academic text, but it’s pretty dry and hard to follow with all the different people and terms. I think if you have a passing interest in learning more, it would probably be better to watch a documentary.
I’m glad I read this book so that I now have more of an understanding of what went down at Enron. However, because so much of this was dealing with complex economic stuff, a lot of it went over my head. Even when the authors would dumb stuff down, it was still sometimes hard to grasp. Although, I guess that’s expected since a lot of what allowed Enron to operate for so long was how complex and convoluted they made their business and accounting practices.
I’m not sure if I would recommend this book. It’s not the most readable non-fiction. It’s definitely not super dense academic text, but it’s pretty dry and hard to follow with all the different people and terms. I think if you have a passing interest in learning more, it would probably be better to watch a documentary.
January 3, 2022
I don't love true crime, unless it's white-collar crime, then I am all in. Recently, I listened to the Wall Street Journal's Bad Bets podcast and the first season is about Enron. Listening to that encouraged me to pick up this book, which I actually added to my TBR six years ago. This is very well done and I feel like I have a really good understanding of what happened in this case.
July 30, 2022
The definitive corporate morality tale that depicts exactly why regulation is good, and why allowing enormous companies to cook their books for years on end and straight-up lie about their financial status is bad. I don't know how many times I shook my head about the behavior of the executive jerks in this book, but it was enough that I started to get dizzy after a while.
June 9, 2025
What Michael Jordan is to basketball, what Messi is to soccer (or football—don’t get mad at me, non-Americans), what Starbucks is to overpriced coffee—Enron is to fraud. There’s simply no modern corporate collapse as staggering, absurd, or cautionary as this one. The only comparable implosion I can think of is FTX—and even that, at its peak, was worth $32 billion during an era of inflated assets. Enron? A jaw-dropping $70 billion. FTX was a toddler in corporate years, barely three years old; Enron had been around for over two decades.
I was just 10 when Enron collapsed—too young to grasp the magnitude. But after encountering countless references to it in other books, I finally decided it was time. I’ll admit, I hesitated. I worried it would validate my unfair biases against the “MBA crowd”—a recurring theme in my reviews. I’ve joked (and not entirely in jest) that MBAs are the lowest form of human life. This book didn’t challenge that bias—it poured gasoline on it.
This is a dense, intellectually exhausting read—less a book than a saga. You’ll need an Advil nearby just to get through the accounting schemes. Within the first 70 pages alone, there are already enough scandals to make your jaw drop. Enron’s board was negligent, often willfully, repeatedly turning a blind eye when star employees bent or broke ethical boundaries—as long as they were making money.
Let’s start with CEO Kenneth Lay. He was more figurehead than operator—a religious, politically conservative advocate for deregulation who positioned himself as a respectable public face while treating Enron’s private jets like a personal Uber for his entire family. Lavish personal expenses were charged to shareholders, and this attitude trickled down: Enron’s culture was one of obscene excess. I’ve read about nearly every major corporate failure in American history, and nothing touches Enron in terms of waste. Even while barreling toward bankruptcy, executives were flying private and staying in luxury suites. At one point, junior employees could rent private jets just to avoid traffic.
Enron’s internal culture? Toxic, arrogant, cutthroat. The company obsessed over hiring MBAs from elite schools—Jeff Skilling, the architect of Enron’s madness, believed pedigree trumped experience. Six months at Enron could turn someone into a backstabbing, self-serving egomaniac. Employees got equity in the deals they closed—regardless of whether those deals turned out to be disastrous. As a result, people had no incentive to ensure long-term success—just short-term wins and big payouts. Failure was rewarded, not punished. One year, over 200 employees made more than a million dollars; 20 made over ten million. These weren’t Wall Street bonuses—they were Enron bonuses.
Now for the accounting wizardry: Enron used “mark-to-market” accounting, meaning if they signed a 20-year, billion-dollar deal, they’d book all the profits immediately. Reality, of course, doesn’t work that way. Delays, overruns, and cancellations happen—but Enron pretended it was all smooth sailing. They also disguised one-time windfalls as recurring revenue, hid losses inside profitable divisions, and assigned imaginary profits to businesses that didn’t make a dime. It was fiction dressed up as finance.
Their obsession with stock price bordered on fanaticism. Enron didn’t care about building products, services, or anything of tangible value—they cared about perception. They engineered deals purely to impress Wall Street analysts, hoping to inflate their stock price and keep the illusion going. The contrast with a company like Amazon is stark: Amazon was mocked for investing in AWS when its stock was $5 a share. Decades later, AWS brings in $69 billion annually. Wall Street didn’t get it—but Amazon stayed the course. Enron did the opposite: it built its house on sand, and prayed no one noticed the foundation was crumbling.
Eventually, the convoluted debt structures and margin loans caught up to them. Their stock plunged from over $80 to $4, triggering a cascade of liabilities they couldn’t cover. The company essentially lost track of who it owed money to. Executives walked away with millions; average employees and mid-level staff were left holding the bag. And for years, they fooled analysts, shareholders, and even themselves into believing the myth.
My favorite part? Harvard Business School praised Enron in countless case studies as a shining example of corporate brilliance—while the company was committing fraud in broad daylight. Enron execs gave speeches on “values” while lying, cheating, and bleeding shareholders dry. You couldn’t make it up if you tried.
The Smartest Guys in the Room isn’t just a story of corporate failure. It’s the definitive tale of what happens when hubris, greed, and delusion take control. It’s cultural rot in a three-piece suit. A must-read for anyone who wants to understand just how far a company can fall—and how blind people can be along the way.
5 stars. Phenomenal book.
I was just 10 when Enron collapsed—too young to grasp the magnitude. But after encountering countless references to it in other books, I finally decided it was time. I’ll admit, I hesitated. I worried it would validate my unfair biases against the “MBA crowd”—a recurring theme in my reviews. I’ve joked (and not entirely in jest) that MBAs are the lowest form of human life. This book didn’t challenge that bias—it poured gasoline on it.
This is a dense, intellectually exhausting read—less a book than a saga. You’ll need an Advil nearby just to get through the accounting schemes. Within the first 70 pages alone, there are already enough scandals to make your jaw drop. Enron’s board was negligent, often willfully, repeatedly turning a blind eye when star employees bent or broke ethical boundaries—as long as they were making money.
Let’s start with CEO Kenneth Lay. He was more figurehead than operator—a religious, politically conservative advocate for deregulation who positioned himself as a respectable public face while treating Enron’s private jets like a personal Uber for his entire family. Lavish personal expenses were charged to shareholders, and this attitude trickled down: Enron’s culture was one of obscene excess. I’ve read about nearly every major corporate failure in American history, and nothing touches Enron in terms of waste. Even while barreling toward bankruptcy, executives were flying private and staying in luxury suites. At one point, junior employees could rent private jets just to avoid traffic.
Enron’s internal culture? Toxic, arrogant, cutthroat. The company obsessed over hiring MBAs from elite schools—Jeff Skilling, the architect of Enron’s madness, believed pedigree trumped experience. Six months at Enron could turn someone into a backstabbing, self-serving egomaniac. Employees got equity in the deals they closed—regardless of whether those deals turned out to be disastrous. As a result, people had no incentive to ensure long-term success—just short-term wins and big payouts. Failure was rewarded, not punished. One year, over 200 employees made more than a million dollars; 20 made over ten million. These weren’t Wall Street bonuses—they were Enron bonuses.
Now for the accounting wizardry: Enron used “mark-to-market” accounting, meaning if they signed a 20-year, billion-dollar deal, they’d book all the profits immediately. Reality, of course, doesn’t work that way. Delays, overruns, and cancellations happen—but Enron pretended it was all smooth sailing. They also disguised one-time windfalls as recurring revenue, hid losses inside profitable divisions, and assigned imaginary profits to businesses that didn’t make a dime. It was fiction dressed up as finance.
Their obsession with stock price bordered on fanaticism. Enron didn’t care about building products, services, or anything of tangible value—they cared about perception. They engineered deals purely to impress Wall Street analysts, hoping to inflate their stock price and keep the illusion going. The contrast with a company like Amazon is stark: Amazon was mocked for investing in AWS when its stock was $5 a share. Decades later, AWS brings in $69 billion annually. Wall Street didn’t get it—but Amazon stayed the course. Enron did the opposite: it built its house on sand, and prayed no one noticed the foundation was crumbling.
Eventually, the convoluted debt structures and margin loans caught up to them. Their stock plunged from over $80 to $4, triggering a cascade of liabilities they couldn’t cover. The company essentially lost track of who it owed money to. Executives walked away with millions; average employees and mid-level staff were left holding the bag. And for years, they fooled analysts, shareholders, and even themselves into believing the myth.
My favorite part? Harvard Business School praised Enron in countless case studies as a shining example of corporate brilliance—while the company was committing fraud in broad daylight. Enron execs gave speeches on “values” while lying, cheating, and bleeding shareholders dry. You couldn’t make it up if you tried.
The Smartest Guys in the Room isn’t just a story of corporate failure. It’s the definitive tale of what happens when hubris, greed, and delusion take control. It’s cultural rot in a three-piece suit. A must-read for anyone who wants to understand just how far a company can fall—and how blind people can be along the way.
5 stars. Phenomenal book.
June 11, 2018
an outstanding, riveting book. glad i finally got around to it. one star deducted due to the authors' tedious repetition that the Enron executives were "white, privileged, men". most of the executives discussed grew up pretty poor, so let's leave the identity politics aside, please. other than that, an absolute page-turner.
November 11, 2016
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!
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!
August 20, 2017
The Smartest Guys in the Room is a very well researched and exhaustive account (haha, see what I did there?) of, as the subtitle suggests, the rise and fall of Enron. The book does a very good job of explaining the history of the company, Ken Lay's involvement in it, and his mentality and motivations. I did find that the middle of the book dragged on a little too much; after 200 pages of examples of different special purpose entities designed to hide Enron's debt, I didn't need another example. I also found that too many different characters were given attention, which diverted the narrative from its key points and was confusing. In fact, the beginning of the book lists about 4 pages of people and what their roles were: this index was absolutely necessary. However, I do think that some of the complexity in the narration was inevitable and accurately reflected the many people who played roles in this drama.
As the book moved to its latter stages, I could not put it down until I saw what the conclusion would be, despite already knowing what happened, more or less. Ultimately, the key men at Enron got so engrossed in company culture, became slaves to earnings, and lost all moral bearings. In the end I couldn't help but feel a little bit sorry for them. I'm sure none of them set out to be criminals, and no one person was responsible for the shift from legitimate company to fraudsters. Ken Lay in particular came off as a guy who might have legitimately been unaware of most of the illegal dealings happening under him. The CFOs and accountants, however, cannot make that excuse.
Overall, this is a very good case study of corporate fraud, set against the background of irrational exuberance in the late 90s.
As the book moved to its latter stages, I could not put it down until I saw what the conclusion would be, despite already knowing what happened, more or less. Ultimately, the key men at Enron got so engrossed in company culture, became slaves to earnings, and lost all moral bearings. In the end I couldn't help but feel a little bit sorry for them. I'm sure none of them set out to be criminals, and no one person was responsible for the shift from legitimate company to fraudsters. Ken Lay in particular came off as a guy who might have legitimately been unaware of most of the illegal dealings happening under him. The CFOs and accountants, however, cannot make that excuse.
Overall, this is a very good case study of corporate fraud, set against the background of irrational exuberance in the late 90s.
March 23, 2012
A great depiction of one of the biggest example, in modern history, of the "mafia" evolution to the highest levels, where the street violence and the low-level crime become high volume bribery and financial crimes that are capable of hitting way more people than the mob of the 70s.
I read the book in a few months... very interesting but hard to follow between so many numbers, episodes and not an easy narrative plot. When I was done with it I found the documentary on Netflix and after those 2 hours I would totally suggest the latter than reading this book.
I read the book in a few months... very interesting but hard to follow between so many numbers, episodes and not an easy narrative plot. When I was done with it I found the documentary on Netflix and after those 2 hours I would totally suggest the latter than reading this book.
June 7, 2022
It was good but like could have been half the length and maybe made easier to understand and follow by people who couldn’t give 2 shits about economics (me)
June 23, 2025
starting to believe that if you look hard enough you will find that mckinsey & company is intimately involved in every evil thing that has ever happened
September 25, 2013
I had read about the scandalous fall of Enron while studying in graduation but it was just a news for me that time which was like any other news in the business page. It was much later that I started seeing the refernce of Enron in various corporate stories while reading and that is how my curiousity started building. And i must confess I would have never ever understood the significance of the entire Enron story if not for this great book. Enron has gone on to become a master case study to set and define various corporate rules in USA and is still the 6th largest bankruptcy ever filed in the corporate history. It was America's seventh biggest company at a time with revenues going above $100 billion and the company's share price came down from $83 a year ago to a jaw dropping $1 when finally New York Stock exchange de-listed the company. People still wonder how did a company, with nearly 21,000 employees in over 30 countries and stated revenues of more than $100 billion, run out of cash to even run the company for a single day when it finally declared itself broke?
Enron also led to the demise of one of the oldest and reputed Consultancy firm- Arthur Andersen which was formed in 1913 and was one of the "Big Five" accounting firms till 2001 when it had to surrender the license in the aftermatch of this huge scandal. A new verb, "Enron-ed" was coined by John M. Cunningham, the former Arthur Andersen Director, to describe the demise of Arthur Andersen. From a high of 28,000 employees in the US and 85,000 worldwide, the firm is now down to around 200, based primarily in Chicago. Most of their attention is on handling the lawsuits and presiding over the orderly dissolution of the company which happened because of this one single account which they had held for almost 15 years.
Honestly this book must be one of the best documentary ever written and is a must read for all those who love reading/knowing about companies. This story is much more than the gigantic fall of a huge huge company; it is a story of human greed and weakness; rampant self-delusion and breathtaking risks being taken by a group of smart people who always believed that their next gamble would cover their last disaster as they are the smartest bunch working together till the very last day!
Enron also led to the demise of one of the oldest and reputed Consultancy firm- Arthur Andersen which was formed in 1913 and was one of the "Big Five" accounting firms till 2001 when it had to surrender the license in the aftermatch of this huge scandal. A new verb, "Enron-ed" was coined by John M. Cunningham, the former Arthur Andersen Director, to describe the demise of Arthur Andersen. From a high of 28,000 employees in the US and 85,000 worldwide, the firm is now down to around 200, based primarily in Chicago. Most of their attention is on handling the lawsuits and presiding over the orderly dissolution of the company which happened because of this one single account which they had held for almost 15 years.
Honestly this book must be one of the best documentary ever written and is a must read for all those who love reading/knowing about companies. This story is much more than the gigantic fall of a huge huge company; it is a story of human greed and weakness; rampant self-delusion and breathtaking risks being taken by a group of smart people who always believed that their next gamble would cover their last disaster as they are the smartest bunch working together till the very last day!
March 14, 2025
The Smartest Guys in the Rooms is undoubtedly my favourite book so far about corporate crime.
It’s incredibly well-written - all the complex financial shenanigans and misdeeds that go on are well-explained for anyone who is unfamiliar with the territory (which I would guess is most people!)
Bethany McLean and Peter Elkind have a real understanding of the industry, the different players, and the problems they encountered.
The story also benefits from a satisfactory resolution. The crimes are uncovered. The bad decisions are brought to light while (most) of those involved are still alive. Many other stories about corporate crime do not get a satisfactory outcome - this is no fault of the authors, as they are reporting the facts!
There are some very unlikeable people in this book. You get to pick your own personal least favourite! For me, that was Jeff Skilling. Yours may be different.
I learned so much from this book.
I learned a lot about scams and fraud. The authors do a great job of taking you into the detail of the scams. You can see how it came about, how it was cooked up, the excuses that were made, the possible exit points, and ultimately the choices that were made to keep it going, to keep propping up the charade for as long as they could.
I learned a lot about how appearances can be deceiving. I think a lot of the time we think about scams as being small-time operations, quite seedy and bit grungy. Well, this was a scam that had fancy offices, corporate respectability, a pension plan. But it was still fraudulent and the success was built on absolute lies.
A little while ago, I picked up this book to check something, to see if I had remembered it correctly, and I was immediately drawn back into the story. I kept reading and reading, finishing the book again!
Overall it’s a wonderful and interesting piece of investigative journalism!
It’s incredibly well-written - all the complex financial shenanigans and misdeeds that go on are well-explained for anyone who is unfamiliar with the territory (which I would guess is most people!)
Bethany McLean and Peter Elkind have a real understanding of the industry, the different players, and the problems they encountered.
The story also benefits from a satisfactory resolution. The crimes are uncovered. The bad decisions are brought to light while (most) of those involved are still alive. Many other stories about corporate crime do not get a satisfactory outcome - this is no fault of the authors, as they are reporting the facts!
There are some very unlikeable people in this book. You get to pick your own personal least favourite! For me, that was Jeff Skilling. Yours may be different.
I learned so much from this book.
I learned a lot about scams and fraud. The authors do a great job of taking you into the detail of the scams. You can see how it came about, how it was cooked up, the excuses that were made, the possible exit points, and ultimately the choices that were made to keep it going, to keep propping up the charade for as long as they could.
I learned a lot about how appearances can be deceiving. I think a lot of the time we think about scams as being small-time operations, quite seedy and bit grungy. Well, this was a scam that had fancy offices, corporate respectability, a pension plan. But it was still fraudulent and the success was built on absolute lies.
A little while ago, I picked up this book to check something, to see if I had remembered it correctly, and I was immediately drawn back into the story. I kept reading and reading, finishing the book again!
Overall it’s a wonderful and interesting piece of investigative journalism!
December 11, 2020
Fascinating and infuriating at the same time. The Smartest Guys in the Room is a perfect example of why I love nonfiction so much. If this was a novel it would seem to far fetched to be true and yet it is true.
I was vaguely aware of the Enron bankruptcy when it happened but I only knew that it was a shocking collapse of a large and seemingly successful company. I had no idea what had caused it.
Bethany McLean did a great job of researching and presenting this tangled web and believe me its a tangled web. Kenneth Lay, Jeffrey Skilling and Andy Fastow are the three top executives/criminals behind this massive fraud but unfortunately there were many other conspirators. One of the keys to the fraud was how complex the web was with multiple subsidiaries and shell companies used to enrich the scumbags and hide billions in losses. It seems obvious that they used the complexity to hide what they were doing from everyone including the low level employees, the IRS, the stock holders and the press among others. Kudos to the few who smelled a rat.
As shocking as it was to see all of the top executives of a huge company participating in the blatant fraud it was the corruption of the supposed watchdogs that really blew me away. The employees at Arthur Anderson tasked with overseeing Enron and vouching for the accuracy of the financial numbers being reported were in on the big lie. Where was the IRS? How could these massive banks have been so duped. A truly remarkable story.
I would recommend this book for anybody interested in business corruption.
I just wish a lot more of the people involved were sent to prison. Too many of the guilty walked away with millions.
I was vaguely aware of the Enron bankruptcy when it happened but I only knew that it was a shocking collapse of a large and seemingly successful company. I had no idea what had caused it.
Bethany McLean did a great job of researching and presenting this tangled web and believe me its a tangled web. Kenneth Lay, Jeffrey Skilling and Andy Fastow are the three top executives/criminals behind this massive fraud but unfortunately there were many other conspirators. One of the keys to the fraud was how complex the web was with multiple subsidiaries and shell companies used to enrich the scumbags and hide billions in losses. It seems obvious that they used the complexity to hide what they were doing from everyone including the low level employees, the IRS, the stock holders and the press among others. Kudos to the few who smelled a rat.
As shocking as it was to see all of the top executives of a huge company participating in the blatant fraud it was the corruption of the supposed watchdogs that really blew me away. The employees at Arthur Anderson tasked with overseeing Enron and vouching for the accuracy of the financial numbers being reported were in on the big lie. Where was the IRS? How could these massive banks have been so duped. A truly remarkable story.
I would recommend this book for anybody interested in business corruption.
I just wish a lot more of the people involved were sent to prison. Too many of the guilty walked away with millions.
May 31, 2007
Another excellent work that provides insight into how financial incentive regimes (Regulations, Markets, Competitor Behavior)influence the actions of micro-players (CEO's, divisional managers, etc) in the business world.
Enron's collapse is a case study of what can go wrong in an economic system that lacks adequate checks and balances coupled with the increasing disempowerment of other important economic actors (labor unions etc). Unfortunately whatever lessons have been learned from Enron have yet to materialize into a meaningful change in business practices (I understand opponents of Sarbanes-Oxly may disagree). I attribute this to the voyeuristic nature of contemporary Western society where the collapse of Enron is viewed more as reality TV (Girls of Enron in Playboy etc) rather than an opportunity to reflect on business practices that threaten the health of the international economy.
Readers will also benefit by the simple explanations offered for complex financial schemes such as the monetization of assets, securitization etc.
One of my favorite paragraphs so far:
".."say you have a dog, but you need to create a duck on the financial statements. Fortunately, there are specific accounting rules for what constitutes a duck: yellow feet, white covering, orange beak. So you take the dog and paint its feet yellow and its fur white and you paste an orange plastic beak on its nose, and then you say to your accountants, 'This is a duck! Don't you agree that it's a duck?' And the accountants say, 'Yes, according to the rules, this is a duck.' Everybody knows that it's a dog, not a duck, but that doesn't matter, because you've met the rules for calling it a duck."
Enron's collapse is a case study of what can go wrong in an economic system that lacks adequate checks and balances coupled with the increasing disempowerment of other important economic actors (labor unions etc). Unfortunately whatever lessons have been learned from Enron have yet to materialize into a meaningful change in business practices (I understand opponents of Sarbanes-Oxly may disagree). I attribute this to the voyeuristic nature of contemporary Western society where the collapse of Enron is viewed more as reality TV (Girls of Enron in Playboy etc) rather than an opportunity to reflect on business practices that threaten the health of the international economy.
Readers will also benefit by the simple explanations offered for complex financial schemes such as the monetization of assets, securitization etc.
One of my favorite paragraphs so far:
".."say you have a dog, but you need to create a duck on the financial statements. Fortunately, there are specific accounting rules for what constitutes a duck: yellow feet, white covering, orange beak. So you take the dog and paint its feet yellow and its fur white and you paste an orange plastic beak on its nose, and then you say to your accountants, 'This is a duck! Don't you agree that it's a duck?' And the accountants say, 'Yes, according to the rules, this is a duck.' Everybody knows that it's a dog, not a duck, but that doesn't matter, because you've met the rules for calling it a duck."
July 15, 2007
Detailed history of Enron from its foundation to collapse, with particular attention paid to the critical characters (Ken Lay, Jeffrey Skilling, Andrew Fastow, etc.) Interesting if you think fall of Enron is an interesting subject (I do, but don't blame you if you don't). My biggest takeaway was the question of whether getting "the smartest guys" all together in a room will lead to good results, since it was clearly such a catastrophe in this case. And, if getting the smartest guys together in a room isn't the answer, how else should we run corporations and governments and other big organizations?
This book made me want to read The Best and the Brightest, David Halberstram's account of the star-studded cabinet (Robert McNamara, etc.) that disastrously led the US into the Vietnam War. Same theme, different time period and sphere, possibly even worse outcome than Enron, in the grand scheme of things.
The down side of the level of research and detail is that the book gets a bit long.
This book made me want to read The Best and the Brightest, David Halberstram's account of the star-studded cabinet (Robert McNamara, etc.) that disastrously led the US into the Vietnam War. Same theme, different time period and sphere, possibly even worse outcome than Enron, in the grand scheme of things.
The down side of the level of research and detail is that the book gets a bit long.
May 20, 2012
Very well-researched and detailed book, sometimes too detailed. It's pretty well-written, but I gave it three stars because you can really get bogged down in the all the financial mumbo-jumbo. It's also kind of exhausting to read because you will be irritated by how arrogant and stupid the Enron leaders were, and as they make the same mistakes over and over, it's easy to lose interest as a reader. If you are someone who really likes reading about financial markets and business, though, this will be like reading a soldier's war memoir. If you are like me and get bored by this stuff, you should still stick it out because you will learn a few things.
December 2, 2021
20 years ago today, Enron filed bankruptcy. Once the darling of energy and even had the Houston Astros stadium named after it, the egos of the top officials(especially Skilling) is still breathtaking.
Google Skilling and you find he is out of jail and running a Texas oil company. Recently Texas oil had a complete breakdown and the rest of America stepped in to pay higher prices- cooincidence-HMM??
Google Skilling and you find he is out of jail and running a Texas oil company. Recently Texas oil had a complete breakdown and the rest of America stepped in to pay higher prices- cooincidence-HMM??
August 5, 2023
really well-written and well-researched. unfortunately, it turns out that the world of finance bores me to tears🙃
February 14, 2025
Good look into white collar crime! My pea brain understood at least 80% of what Enron execs did and why it was so bad. The markets seemed to have dictated, and even still dictate, the reality of corporations and how profitable they are, despite the inner workings of said company.
February 17, 2023
Very well researched and easy to read. I’ll be buying this book for all my accountant friends at Christmas time.
April 15, 2015
I enjoyed the documentary based on this book when it came out a few years ago and the book is fantastic as well. The book goes into a lot of detail about the chaotic profit-obsessed groundwork that led to the eventual scandals at the company. For example, years before their bankruptcy, Enron became so enamored with hotshots from Ivy League schools that they started ONLY hiring hotshot Ivy Leaguers who wanted to close big deals but had no interest in doing the grunt work necessary to make those deals work once they were signed. This led to a huge amount of pressure to close deals and to nab the bonuses without doing the due diligence about what the long-term workload would be and how that would impact the company.
I will say that the "scandals" don't come across as juicy in the book as they did onscreen. Sure, the executives hung out at strip clubs, and there's a funny part about using corporate cards at such establishments, but that was more a symptom of the macho culture and not spending that doomed the company. What actually happened is an accounting scandal where the company hid losses with accounting tricks and inflated profits at the same time. It wasn't executives showing up to meetings high on coke while getting extorted by strippers - so unless spreadsheets get you all hot and bothered, it is a pretty granular takedown of a dysfunctional corporate culture that may feel a bit tedious if you're looking for outrageous personal behavior.
The authors do a nice job of fleshing out all the characters - the PR-obsessed Ken Lay, the bitter and personally ambitious Andrew Fastow, and the arrogant Wall Street darling Jeff Skilling. One thing that consistently cracked me up was the snotty know-it-all tone of the writing - it was fun to join the authors in casting judgement on the idiocy of senior executives of a massively successful company even when I, as the reader, had only a dim idea what they were doing wrong. As the reader, you get to tut-tut and say to yourself, "Skilling wants to use mark-to-market accounting for energy deals!? What a buffoon!" The tone makes it a lot of fun to read. Another personal highlight was understanding how short sales work for roughly ten minutes.
I would recommend this book to anyone interested in company dynamics and corporate culture, not just people that love scandals. Overall, great book.
I will say that the "scandals" don't come across as juicy in the book as they did onscreen. Sure, the executives hung out at strip clubs, and there's a funny part about using corporate cards at such establishments, but that was more a symptom of the macho culture and not spending that doomed the company. What actually happened is an accounting scandal where the company hid losses with accounting tricks and inflated profits at the same time. It wasn't executives showing up to meetings high on coke while getting extorted by strippers - so unless spreadsheets get you all hot and bothered, it is a pretty granular takedown of a dysfunctional corporate culture that may feel a bit tedious if you're looking for outrageous personal behavior.
The authors do a nice job of fleshing out all the characters - the PR-obsessed Ken Lay, the bitter and personally ambitious Andrew Fastow, and the arrogant Wall Street darling Jeff Skilling. One thing that consistently cracked me up was the snotty know-it-all tone of the writing - it was fun to join the authors in casting judgement on the idiocy of senior executives of a massively successful company even when I, as the reader, had only a dim idea what they were doing wrong. As the reader, you get to tut-tut and say to yourself, "Skilling wants to use mark-to-market accounting for energy deals!? What a buffoon!" The tone makes it a lot of fun to read. Another personal highlight was understanding how short sales work for roughly ten minutes.
I would recommend this book to anyone interested in company dynamics and corporate culture, not just people that love scandals. Overall, great book.
August 10, 2018
I worked right down the street from the Enron building for several years before and during its implosion. Some of my colleagues whom I'd known for years, that I attended NADOA conferences and local HADOA luncheons with, worked for Enron at the time and were devastated emotionally, financially, and professionally when those scuzzbag dirtballs in the executive suite destroyed that company. Many people don't know that Enron transferred its most lucrative assets, its offshore Gulf of Mexico wells, into a fund they internally nicknamed the "The Yoda Fund," a name inspired by Star Wars. In public documents the fund was called Mariner Energy. The Fund was valued at over $1 Billion the day before bankruptcy was filed. Investors bought Mariner in 2004 from the bankruptcy trustee for a mere $100 million while it was valued at more than $250 million by the bankruptcy court. Just 6 years later, in April of 2010, Apache Corporation--the company I was working for at the time--bought Mariner through merger, for $3.4 Billion--that's with a "b"--turning a whopping 3,300% profit! That was a 550%-per-year return on their 6-year investment!!
My jaw rested on the floor almost the entire time it took me to read this book--3 days, because I couldn't put it down. All of it happened right under my nose while I was working down the street for Calpine Natural Gas Company, a company sucked down by the Enron collapse because they essentially were in bed with Enron. I bailed and landed another division order analyst job elsewhere before Calpine filed for bankruptcy. This world is entirely too small.
My jaw rested on the floor almost the entire time it took me to read this book--3 days, because I couldn't put it down. All of it happened right under my nose while I was working down the street for Calpine Natural Gas Company, a company sucked down by the Enron collapse because they essentially were in bed with Enron. I bailed and landed another division order analyst job elsewhere before Calpine filed for bankruptcy. This world is entirely too small.
January 5, 2009
This book is a must for just about everyone. It reads like a novel, but unfortunately its all non- fiction. This book proves that truth is sometimes stranger than fiction.
For anyone who has an interest in protecting your wealth and hard earned money, this is a must reead. I learned how important it is how your personal actions and behaviours can have such a detrimental affect not only to those around you but way beyond those that might seem unafected. The enron scandal was something that everyone should learn from; and if i might add an editorial comment; that scandal was a precuser to our financial meltdown of 2008, and it illustrates that everyone needs to be responsible and accountable to someone.
I just cant imagen how currupt that whole company was and how they managed to stay in bussiness all those years.
Well i recommend this book; it is well written and very interesting; It should also be required reading in finance, accounting, ethics, and poly sci majors of study to name a few.
This book needs to be required reading in all colleges.
For anyone who has an interest in protecting your wealth and hard earned money, this is a must reead. I learned how important it is how your personal actions and behaviours can have such a detrimental affect not only to those around you but way beyond those that might seem unafected. The enron scandal was something that everyone should learn from; and if i might add an editorial comment; that scandal was a precuser to our financial meltdown of 2008, and it illustrates that everyone needs to be responsible and accountable to someone.
I just cant imagen how currupt that whole company was and how they managed to stay in bussiness all those years.
Well i recommend this book; it is well written and very interesting; It should also be required reading in finance, accounting, ethics, and poly sci majors of study to name a few.
This book needs to be required reading in all colleges.
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