As I’m sure is the case with many of my fellow classmates, a lot of things just bother me when I read The Smartest Guys in the Room. Maybe the word choice of “bother” is an understatement – let’s go with infuriate instead. And here’s one of the main things I simply cannot get my head around: how did Enron manage to tie every actor involved in their multiple organizational domains around their pinky finger? Furthermore, how did this mutual infatuation ultimately blow up in both Enron and everyone else’s face?
In my search for some kind rationalization or explanation for why this occurred, I came up with the following rationale: Enron simply bit off more than they could chew, were self-fulfilling, and hardly anyone thought it was possible that they could fail. Enron tried to be all possible things in the multiple organizational domains they had involvement with. Long story short, they manipulated their organizational domain handily, and the actors involved rolled over in light of Enron’s perceived success combined with the more comprehensive economic boom that had investors and the public playing the role of the eternal optimist. These affiliated domains were blind sighted.
Each entity Enron involved itself with seemed to be drinking the Enron Elixir.
Here are the main domains I saw Enron to be involved with. I’ve included a quote from the text that I believe is relevant to the relationship, as well as a brief commentary on the relationship.
By 1999, Enron’s annual government affairs budget had climbed to more than $37 million (p.173).
We all are aware of Enron’s extensive lobbying efforts for deregulation of any market they saw fit as well as some of the employee’s extensive personal connections and relationships with various government officials and institutions. But, nothing depicts this complex and mind-blowing network of relationships than this interactive chart I found online. All you really have to do is click arbitrarily on any name and continue to do so, and you will eventually find yourself staring at a huge, complex network of people and governmental entities. This really gives you a sense of how vested even the government was in Enron. (Even Madoff’s name can appear if you click enough…)
The Energy Industry:
‘You weren’t an energy banker if you weren’t banking Enron’ (p. 163).
Even though Skilling didn’t really consider Enron to be an energy company, it still was the key player in the industry.
‘It was like these very bright geeks at Anderson suddenly got invited to this really cool, macho frat party’ (p.146).
Arthur Anderson should really have been named, “Enron and Arthur Anderson”. It almost seemed as if Enron was the high-school stud and the Arthur Anderson accountants were the swooning and giggling teenage girls seeking approval and attention. Pretty sickening…but then again, doesn’t it seem that Anderson was in a catch-22: The Enron account was their most lucrative one, so if they walked away from it, they would take a huge hit to their revenue, and potentially go under. And, by choosing to stay with and support Enron and their practices, they still went under.
There were also lots of whispers in the banking world that Enron consumed incredible amounts of capital, that the company was way overleveraged…But despite the whispers – indeed, despite for knowing far more than most people about what was really going on inside Enron – few bankers were willing to stop doing business with the company. They were hooked, too (p. 165).
I guess it just must have been a rush for these banks and investment bankers to deal with Enron, and these people thrived on the rush. Again, it was a perpetual cycle that Enron lured these lenders into.
In retrospect, one wonders why Wall Street and the press were so willing – so eager, even – to swallow the idea that Enron was reinventing corporate culture. Part of it was that Skilling – and Lay, too – could make it all sound so perfect (p. 121).
Wall Street had a love affair with Enron’s yearly earnings, Enron (well, mostly Skilling) had an obsession with the stock price, and this combination continued to perpetuate itself. Clearly, not many people on Wall Street were willing to dig beyond the “perfect” messages Skilling, Lay and others were feeding them. Fool me once, shame on you; fool me twice, shame on me.
Finally, a message to all of these actors involved with Enron: you got served.