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The Smartest Guys in the Room: The Amazing Rise andScandalous Fall of EnronBethany McLean and Peter Elkind (2003)

Why Read It?

• Tells of Enron’s rise and dramatic fall from a US$70 billion company to bankruptcy.• Hailed as one of the biggest success stories in corporate America for a generation, the success was

shown to be illusory and based on deception. This book details the full story of its downfall and thegreed that led to it.

• Examines the corporate culture, where the behavior of senior executives allowed things to escalate.

Getting Started

The Smartest Guys in the Room covers the history of the celebrated and then notorious energy companyEnron from its inception to spectacular collapse, the first of a series of major corporate scandals. It detailsthe combination of intelligence and arrogance that helped create an environment that was hailed as visionarybut where financial maneuvering for profit overstepped into the illegal.

Authors

Bethany McLean (b. 1970) is editor-at-large for Fortune. In 2001 she was one of the first reporters to raisequestions about Enron. She was previously an analyst at Goldman Sachs, and has a BA in English andmathematics from Williams College.

Peter Elkind is editor-at-large for Fortune. He has twice won the World Leadership Forum’s Journalist of theYear award, and has been a guest on numerous radio and television programs. He graduated with honorsfrom Princeton University.

Context

• Bethany McLean was the first journalist to question the accounting validity of the profits that Enron wasmaking—within a year of her original article, Enron was facing the largest bankruptcy in US history.

• Tells of the top executives: CEO Kenneth Lay, Jeff Skilling, and CFO Andrew Fastow, the hugesalaries and bonuses, and the complicity of the lawyers and accountants.

• Details the stories of employees who lost their jobs, disappointed shareholders, executives receivingprison sentences, and even suicide.

• Describes the culture of landing big deals, particularly in new industries and markets, and thesubsequent failure to follow through and financially contribute to the company.

Impact

• Exposes the complicity of the investment banks, the accountants, and the lawyers that directlybenefited without looking into the details behind their profit-making.

• Questions key aspects of corporate governance, such as business performance being pegged to thestock price, so that executives ensured strong financial statements to obscure the fact that the profitswere not real.

• Examines Enron’s use of “mark to market” accounting, which was largely responsible for obscuring thelosses that had been made.

• Depicts the creative accounting methods such as hiding massive debt in off-balance-sheet schemes sothat Enron could present itself as fantastically profitable.

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Quotations

“The Enron scandal grew out of a steady accumulation of habits and values and actions that began yearsbefore and finally spiraled out of control.”

“The tale of Enron is a story of human weakness, of hubris and greed and rampant self-delusion; of ambitionrun amok; of a grand experiment in the deregulated world; of a business model that didn’t work; and of smartpeople who believed their next gamble would cover their last disaster—and who couldn’t admit they werewrong.”

“The government [indictment] portrayed Enron as a company that was operated to create the illusion ofprosperity, not the reality. In other words: a fraud.”

More Info

Books:

• Eichenwald, Kurt. Conspiracy of Fools: A True Story. New York: Broadway Books, 2005. Also on theEnron story, but portrayed in more of a novelistic style.

• Swartz, Mimi, and Sherron Watkins. Power Failure: The Inside Story of the Collapse of Enron. NewYork: Doubleday, 2003. The personal story from Watkins, who was the Enron accountant who tried toalert Kenneth Lay about the accounting improprieties.

Movie:

• Gibney, Alex (dir). Enron: The Smartest Guys in the Room. Magnolia Pictures, 2005. DVDdocumentary based on the book.

See Also

Finance Library

• Innovation Corrupted: The Origins and Legacy of Enron’s Collapse• What Went Wrong at Enron: Everyone’s Guide to the Largest Bankruptcy in US History

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