The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron

by Bethany McLean

In addition to its external auditing, Andersen at various times also had consulting contracts to handle Enron’s internal auditing and was in charge of auditing Enron’s internal-control system. Even that doesn’t begin to describe how close Andersen and Enron were. Over the years, Enron hired at least 86 Andersen accountants, who were lured by the promise of higher pay and Enron stock options. Over time, many important finance jobs at the company were held by people who had worked on the Enron account at Arthur Andersen. Andersen often complained that Enron was raiding its staff, but the firm was also rather proud of it. Although Arther Andersen’s Houston office was just a few blocks from the Enron building, most of the 100 or so Andersen employees who worked on the Enron account spent almost no time there; their offices were at Enron, where they worked alongside the company’s own accountants. They adopted the same business-casual style that was prevalent at Enron, making it hard to tell who was the auditor and who was the client. “It was like these very bright geeks at Andersen suddenly got invited to this really cool, macho frat party,” Leigh Anne Dear, a former Andersen accountant, told the Chicago Tribune.

Enron’s nearly incomprehensible financial statements? Nobody worried about them. The related-party transactions buried in the footnotes? Who bothered with footnotes? That Skilling himself sometimes seemed unable to give a coherent explanation of Enron’s business—at times, he got by with saying “We’re a cool company”—bothered no one. All that mattered was that the stock was going up.

By early 2000, Lay owned 5.4 million shares of Enron stock, worth some $380 million, and Skilling owned 2.3 million shares, worth about $160 million. For his work in 1999, Lay got a $1.3 million salary and a cash bonus of $3.9 million, plus another $1.2 million under the performance unit plan, which handed out money based on the performance of Enron’s stock relative to other investments. The board also handed Lay almost a million additional options and shares of restricted stock. Skilling, whose salary was $850,000, got a cash bonus of $3 million. And it wasn’t just the top-tier executives. According to an analysis by the Joint Committee on Taxation, in 1998, Enron’s 200 most highly compensated employees took home a total of $193 million in salaries, bonuses, and various forms of stock. In 1999, that leaped to $402 million; in 2000, they took home $1.4 billion. For their work in 2000—the last full year before Enron went bankrupt—each of the top 200 employees made over $1 million; 26 executives made over $10 million. In 2001, the year Enron went bankrupt, at least 15 employees made over $10 million.