Apparently it is corruption and scandal month on Political Staples. I received a copy of the new documentary Enron: The Smartest Guys in the Room and it dovetails quite nicely into what has become my hobbyhorse. The fatal flaw…if there was one you say it was pride. But then it was arrogance, intolerance, greed.” I sense that these must be the magic ingredients in any scandal, be it Enron, Adscam or Oil-for-Food.
First things first, this movie is definitely anti-capitalist and anti-Republican although done in a milder manner than would be done by Michael Moore. The movie begins by pointing out that Ken Lay gave campaign contributions to then-Governor Bush. Also we are shown the clip of President Reagan pronouncing, “Government is not the solution to our problems, government is the problem” and proclaiming the ‘magic of the market place”. Later we are shown that Jeff Skilling followed a Darwinistic view of business and based his thinking on the book “The Selfish Gene”.
At this point in the documentary I began to get annoyed with the background music. We were told that Ken Lay was a son of a preacher, so they play son of a preacher man and hear President Reagan talk about the magic of the markets so the director plays that old black magic. It was far too heavy-handed and distracting to be effective.
Enron was based on Jeff Skilling’s idea of a new way to deliver energy; to make a stock market for natural gas. For the idea to work he insisted on mark to market accounting which allowed them to book future profits before they were realized. Arthur Anderson signed-off and the SEC approved. This is a common theme in the movie. Enron had many willing accomplices.
One of the contributing factors to the Enron scandal was the feeding-frenzy around the bull market of the last ‘90’s. The movie touches on this but not to any great detail. This makes sense because it spreads the blame to the average investor as well as Enron and their institutional backers. Jim Collins, author of Built to Last and Good to Great wrote an excellent article before the collapse of Enron entitled Built to Flip which explains the insanity of the ‘90’s market. The institutionalized money was looking to get rich quick and as long as the +25% returns were there for the average investor no one thought to question it. The movie goes to lengths to explain the great injustice to those who held all Enron stock in their 401K’s. One employee of a company who was bought out by Enron had his 401K go from $348.000 to $1,200. It was completely unethical and immoral that the senior management was able cash out when others were frozen but why didn’t the employees diversify when they got these extreme levels of return? Could they have fallen to greed and hubris as well?
Another contributing factor to the scandal was the business school concept that you wanted senior managements interests to be aligned with the shareholders. Therefore you reward them with stocks and bonuses based on the share price. This provided yet another proof of the law of unintended consequences and produced the culture of pump and dump and focus on quarterly profits. The movie did a really good job of linking all parties on this. It wasn’t just Enron, it was their Accounting Firm, their Lawyers and their investment Bankers. This was summarized by the clip of Senator Lieberman saying, “Why were the analysts blinded to the companies deceit?”
This part of the movie seems to be building to a nice conclusion and there is a good presentation of how the house of cards came crashing down. It also presents a good summary of how crazy it must have been in California during the rotating black-outs. Unfortunately it breaks down into a new (for me anyway) conspiracy theory that President Bush didn’t step in and fix it so he could bring down his future rival in Governor Gray Davis.
Anyways, you are snapped back to the anti-capitalist message through the distracting music track once again and you are told that the “free market is god damn expensive to the customers”. Not exactly are fair representation but it is somewhat saved by the author of The Smartest Guys in the Room asking, “The Enron Traders never seemed to step back and say, wait, it what we are doing ethical? Is it our best long-term interests? Does it help us if we totally rape California? Does that help our goals of nation-wide deregulation?” This is free markets. Enron went for short-term gain; broke every run rule to ensure and it caused their own demise.
The take-away for me is that any system needs checks and balances to keep it on the straight and narrow. Since the collapse of Enron accounting firms have had to split off their consulting divisions and banks have had to build a better “Chinese-wall” between analysis and investment banking divisions. Too bad so many people had to suffer to bring in such logical measures.
Enron: The Smartest Guys in the Room is a good summary of what happened with Enron but I found that it was too long and/or it had weak pacing. As I mentioned above I found the soundtrack to be annoying. Either make your point with the narration or make it with the music, don’t use both to say the same thing at the same time. It was a fairly good documentary but could have been much better with tighter editing. I would give it a 6 out of 10.
