Saturday, May 07, 2005

The smartest guys in the room

Today I saw the movie about Enron called "The Smartest Guys in the Room". This movie is about the bankruptcy of Enron, and reviews many of the major characters, including:

  • Ken Lay, the CEO / Chairman who plays dumb today but has a PhD in economics and once was a big force in energy deregulation. If you want a laugh look at the web site that he maintains for his innocence... I laughed so hard I almost cried
  • Jeff Skilling, the guy who was the CEO but resigned right before the final implosion. Bizarrely enough, he is the brother of Tom Skilling, the weather man for Channel 9 in Chicago. Skilling is from McKinsey, the famous "know it all" consulting firm that only deals with CEO's and comes across as a pompous jackass throughout
  • Andrew Fastow, the CFO who raised money for their continuous frauds and also benefitted immensely from off-balance sheet entities used to hide losses by taking a "cut" of the proceeds - recently pleaded guilty and is getting a 10 year sentence when the Feds went after his wife
  • Cliff Baxter, the guy who masterminded the Enron deals and blew his brains out as everything fell apart

This movie brought back a flashback of all the events at this time. I used to work at Arthur Andersen, the company that fell apart after the scandal broke. I can't say I was surprised that they went down - when I was at the firm they did anything they could to please the client and this attitude seemed to be increasing day by day, when CPA's are supposed to look out for the public trust, not just make money (ever think of why professional is in the CPA title?). I can only imagine how warped things would have gotten with 5-8 more years of client butt-kissing going on. Enron was paying AA $1MM / week at the end, so they had every incentive to keep the relationship going.

I also worked in the energy industry. It is hard to imagine now, but Enron was the absolute darling of the industry, and everyone was going crazy trying to emulate their success (which, in retrospect, was all crap). It all seems like a bad dream now.

The amazing thing about the movie is that they ran out of time to show all of the horrible fallout from this mess. Things they missed (I assume they know, but can't cover everything):

  • Dynegy (another energy company) tried to buy Enron as it circled the drain for billions; this deal fell apart, and later Dynegy managers went to jail (for a LONG time - 24 years - child molesters don't even go that long) for manipulating cash flow in something called project Alpha
  • Kopper invested in Fastow's off balance sheet entities along with his gay partner and pleaded guilty and went to jail - pretty lurid for Houston (it ain't San Francisco down there)
  • The entire Sarbanes - Oxley litigation explosion, where CEO's and CFO's have to sign off on the public financials and if something is wrong they can face prison later - is really a reaction to Ken Lay and Jeff Skilling's defense that they didn't know what was going on. Now that defense is no longer valid, and a blizzard of paperwork now buries everyone in corporate America, even the good guys, as a direct result of their actions. The cost of this effort is clearly in the billions
  • Pacific Gas and Electric, a giant utility in Southern California, went bankrupt. And Southern California Edison almost went down, as well. This impacted thousands of employees and shareholders
  • The biggest, and most subtle result of the implosion, is that the self-regulation concept is effectively dead. People now assume that CEO's will loot the company unless measures like Sarbanes are put in place, and Elliot Spitzer is going after all kinds of industries with good success. CEO's used to walk on water, to be kings, but now they are subject to much higher levels of scrutiny. People know now that if everything goes down, they will actually be going to jail, so it would be harder to pull off something like Enron today. There will always be scandals, but it will be harder to get everyone on the same page nowadays because no one wants to do the "perp walk" if they can possibly avoid it

It is interesting because movie reviewers, who typically know squat about business and energy, review this movie and focus on the weirdest things. In the Chicago Reader they talked about the fact that there was inappropriate music used in the movie. I really don't think that they can tell apart something that is real from a Michael Moore "mockumentary", for example, although to their credit they liked it.

Go see the movie, it will send a shudder down your spine.

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