Enron: The Smartest Guys in the Room
Enron: The Smartest Guys in the Room is a 2005 American documentary film based on the best-selling 2003 book of the same name by Fortune reporters Bethany McLean and Peter Elkind. The film examines the 2001 collapse of the Enron Corporation, which resulted in criminal trials for several of the company’s top executives. It contains a section about the involvement of Enron traders in the 2000-01 California electricity crisis. Lay hires Jeffrey Skilling, a visionary who joins Enron on the condition that they use mark-to-market accounting. Skilling imposes his version of a Darwinian worldview on Enron by establishing a review committee that grades employees and annually fires the bottom fifteen percent.
This creates a highly competitive and brutal working environment. With its success in the bull market, Enron seeks to beguile stock market analysts by meeting their projections. Enron’s CFO Andrew Fastow creates a network of shell companies designed solely to do business with Enron, for the ostensible dual purposes of sending Enron money and hiding its increasing debt. Fastow has a vested financial stake in these ventures and uses them to defraud Enron of tens of millions of dollars. Using mark-to-market accounting, Enron is able to record non-existent profits for these ventures.
Enron is one of the few internet-related companies to survive the dot-com bubble relatively unscathed. In 2000, Enron is named the “most admired” corporation by Fortune magazine for the sixth year running. Public perception of Enron begins to change due to its role in the 2000-01 California crisis. The film includes tape-recorded conversations between Enron traders who seem to derive enjoyment from their exploitation of the crisis and then cites the Milgram experiment as a means of explaining their behavior. It also explores the strong political connections Ken Lay and Enron had, particularly to the administrations of President George H. W. Bush and his son, President (and earlier Governor of Texas), George W.Bush.
Enron CEO Jeff Skilling is on the verge of a nervous breakdown as the company and its fraud start to unravel. Skilling’s odd behavior serves as a red flag to investors, who begin to question how financially healthy the company really is. The board fires CFO Fastow after discovering he had embezzled more than $30 million from the company through his shell companies. With Fastow gone, accountants issue a series of restatements that erase a majority of the company’s profits from 1997 through 2000.
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