Th Smrtst Guys in th Room - Essay Example

nrol "Th Smrtst Guys in th Room Th mzing Ris nd Scndlous Fll of nron" is fundmntlly humn drm - of popl drunk on thir own succss, popl so mbitious,so crtin of thir own brillinc, so fulld by grd nd hubris tht thy blivd thy could fool th world. Th book xplors th motivs, thoughts, nd scrt frs of fscinting rry of chrctrs, including Kn Ly, th gnil but clulss CO who rvld in th trppings of his offic but duckd th rsponsibilitis. From th rlist dys of nron, his wknss llowd grdy liutnnts to run mok. Jff Skilling, th brooding, mrcuril gnius who ws th rchitct of nron's grtst triumphs - nd its ultimt disgrc. "I m nron," h onc bostd. s th compny unrvld, so did Skilling. Rbcc Mrk, th glmorous "It" girl of nron Intrntionl who rcd round th glob in high styl nd bttld Skilling for control of th compny. ndy Fstow, th brutlly mbitious, dply inscur whiz kid. Insid nron his collgus mrvld t how his complx schms llowd th compny to scm Wll Strt - not rlizing tht h ws scrtly scmming nron. Kn Ric, th Midwstrn frm boy who ws sducd by nron's fst-mony cultur nd who cshd in whil hyping high-tch businss tht didn't xist. Cliff Bxtr, th mnic dl mkr nd Skilling confidnt who rsntd Fstow's murky slf-dling. "H's goddmn mstr criminl," Bxtr would ril. McLn nd lkind suggst tht th vntul collps of nron ws cusd lss by th grd of snior-lvl nron xcutivs thn it ws by thir rrognc nd incomptnc. Thir lck of bsic businss cumn is stonishing s is thir dfinc of rgultory gncis nd contmpt for customrs. Non of thm sms to hv hd morl "compss." Thy xmplifid, indd nourishd cultur of brutl comptition btwn nd mong thir subordints. ch usd nron s prsonl TM s wll s mns by which to structur ll mnnr of corport prtnrships nd high risk/high yild invstmnts without fr of ny prsonl libility. If on prosprd, so did thy. If it fild, th loss ws nron's. Primry blm for ll this must b shrd by Ly, Skilling, nd Fstow. McLn nd lkind rigorously xmin th indqucis of ch, suggsting tht if only on of th thr hd not bn involvd, it is probbl tht nron would not hv hd th problms it did. ttornys, ccountnts, brokrs (notbly Mrrill Lynch) nd bnkrs (spcilly Citibnk nd JP Morgn Chs) pprntly wr wr of nron's bnding nd thn brking of vrious lws but wr rning so much in fs tht thy chos to rmin t th nron "trough" sid-by-sid with Ly, Skilling, Fstow, nd othr nron xcutivs. Considr this brif xcrpt from Chptr 10 (pg 149): Hr's how nothr formr mploy xplins th procss: "Sy you hv dog, but you nd to crt duck on th finncil sttmnts. Fortuntly thr r spcific ccounting ruls for wht constituts duck: yllow ft, whit covring, orng bk. So you tk th dog nd pint its ft yllow nd its fur whit nd you pst n orng plstic bk on its nos, nd thn you sy to your ccountnts, This is duck! Don't you gr tht it's duck' nd th ccountnts sy, Ys, ccording to th ruls, this is duck.' vrybody knows tht it's dog, not duck, but tht dosn't mttr, bcus you'v mt th ruls for clling it duck." Tody, Corport mric my py lip-srvic to th trm "thics," but th mn nd womn t th top don't undrstnd or cr bout th dfinition. Thr's only on word tht mns nything to th COs, COOs, nd CFOs of mjor compnis, nd it's not "thics." Instd, "grd" is th mntr by which thy liv nd work - gt rich quick nd dmn th consquncs (nd th popl crushd undrfoot during th stmpd to grb th mony). From th bordrooms to th stockrooms, survivl of th fittst mns only thos who ris th BIT kp thir jobs nd gt thir bonuss. This is Glngrry Gln Ross on lrgr scl. nd it's not fiction. Th Smrtst Guys in th Room dos two things xcptionlly wll. It provids dtild utopsy of wht hppnd (without bcoming so tchnicl tht vryon xcpt th lwyrs nd ccountnts in th udinc bcom lost) nd it wrns ginst th cultur of "synrgistic corruption" tht hs infiltrtd ll of corport mric. Thos who think this couldn't hppn gin r niv. "Th Smrtst Guys in th Room : Th mzing Ris nd Scndlous Fll of nron" dpicts how th Txs-bsd compny grw from Kn Ly's gmbl on nrgy drgultion in 1985 to th 7th lrgst corportion in 2000. In th midst of th lt-1990s stock boom, mony mgzins couldn't writ complmntry storis fst nough. Ly nd Jff Skilling, th two mn t th top of nron's pyrmid (which w vntully lrnd ws " hous of crdsbuilt ovr pool of gsolin"), wr mdi drlings, crditd with crting nw businss modl. s th rsult of cookd books, stock prics sord, vn though thr wr no rl profits to justify Wll Strt's optimism (th ccountnts wr rcording xpctd profits rthr thn ctul profits). nd th rolling blckouts in Cliforni, which wr cusd in prt by nron's rpcious mthods of buying nd slling nrgy, nrichd th compny's coffrs nough to kp things flot for fw mor months. It ll cm tumbling down in 2001 - not s suddnly nd violntly s th World Trd Cntr, but with plnty of socil dvsttion. Whil Ly, Skilling, ndy Fstow, nd othrs pocktd millions ftr dumping thir stocks bfor thy bcm worthlss, 20,000 vrg workrs wr lft without jobs, nst ggs, nd pnsions. On Dcmbr 2, 2001, nron dclrd bnkruptcy. Th story ws ovr, but its tlling hd only bgun. nd thr ws plnty of blm to go round. Crtinly, nron's officrs wr guilty, but th trring brush lso blcknd bnks, ccountnts, ttornys, nd rthur ndrsn LLP, whos rputtion took blow from which it my nvr rcovr. Until th spring of 2001, nron pitomisd th triumph of th nw conomy. Frd by rivls, worshippd by invstors, nron smingly could do no wrong. Its profits ros vry yr. Its stock pric surgd vr upwrds. Its ldrs wr hild s hros. Thn young writr, Bthny McLn, wrot n rticl, 'Is nron Ovrpricd' (publishd in Fortun mgzin) tht skd simpl qustion--how, xctly, dos nron mk its mony--nd th hous of crds bgn to collps. Within yr, nron ws fcing humilition nd bnkruptcy. Though othr businss scndls wr to follow, non hs hd th shttring ffct of nron's bnkruptcy, which ws th lrgst in US businss history. nron's collps cusd mricns to loos fith with systm tht rwrdd insidrs with millions of dollrs whil smll invstors lost vrything. It ws swiftly rvld tht nron's succss ws n illusion, fulld by billions of dollrs in trnsctions nd off-blnc sht dls tht strtchd ccounting ruls nd gv th imprssion tht nron ws hlthy, fst-growing compny. It ws n illusion tht Wll Strt ws willing to ccpt vn though mny on Wll Strt knw th truth. This book rvls tht nron ws run by xcutivs whos grd knw no bounds. Drunk on thir own succss, thy wr so crtin of thir brillinc tht thy blivd tht thy could fool th world. Ths xcutivs includd Kn Ly--th gnil but clulss CO who rvlld in th trppings of his offic but duckd rsponsibility. From th rlist dys, Ly's wknss llowd grdy liutnnts to run mok. fric, or mor prticulrly Nigri, ntrd th pictur whn nron cookd up dl to solv fmilir problm--how to cpitlis on ssts it couldn't sll. nron ws trying to sll thr 3,600t floting powr sttions built on brgs. nron wntd to sll thm so tht it could book nothr $12m in rnings nd $28m in csh flow. Wht it cm up with ws swthrt dl whr nron itslf finncd $21m intrst-fr dbt nd providd n orl gurnt tht it would rpurchs th thr brgs. Why would it do this Th nswr ws tht nron hd chosn to dopt wht ws known s 'mrk-to-mrkt ccounting' in 1992--nd rmrkbly th US govrnmnt's own Scuritis xchng Commission hd pprovd this mov--which mnt tht th compny could dclr ll futur profits, on ny dl it ntrd, on th dy it signd contrct. s th uthors point out, tkn to its bsurd xtrm, this would llow, for xmpl, motor mnufcturr to book ll th futur profits of nw cr modl t th momnt tht cr is dsignd. Th fll of nron ws much mor thn businss scndl. Lik th Wtrgt ffir, it ws n vnt tht snt shivrs round th world nd tintd th US prsidnt. It lso clld into qustion th US's corport govrnnc systms nd ccountncy prctics. In this book, th writr who first dclrd tht this prticulr mpror, nron, hd no cloths-- Bthny McLn --joins forcs with invstigtiv rportr Ptr lkind to co-uthor work tht lds th rdr bhind closd doors nd dp into nron's pst, to pirc th vil of scrcy tht hs surroundd this compny's innr workings. No mttr wht your politics, "nron: Th Smrtst Guys in th Room" will mk you md. It tlls th story of how nron ros to bcom th svnth lrgst corportion in mric with wht ws ssntilly Ponzi schm, nd in its lst dys lootd th rtirmnt funds of its mploys to buy littl mor tim. Thr is gnrl imprssion tht nron ws good corportion tht wnt bd. Th uthors rgu tht it ws con gm lmost from th strt. It ws "th bst nrgy compny in th world," ccording to its top xcutivs Knnth Ly nd Jffry Skilling. t th tim thy md tht clim, thy must hv known tht th compny ws bnkrupt, hd bn worthlss for yrs, hd infltd its profits nd concld its losss through bookkping prctics so corrupt tht th vnrbl rthur ndrson ccounting firm ws dstroyd in th ftrmth. Th book tlls how it hppnd. To kp its stock pric climbing, nron crtd good qurtrly rturns out of thin ir. On ccounting tctic ws clld "mrk to mrkt," which mnt if nron bgn vntur tht might mk $50 million 10 yrs from now, it could clim th $50 million s currnt incom. Skilling nd Ly wr lss thn circumspct t tims. Whn Nw York mrkt nlyst qustions nron's profit nd loss sttmnts during confrnc cll, Skilling cn't nswr nd clls him n "-hol;" tht cuss bd buzz on th strt. During Q& sssion with mploys, Ly ctully rds this qustion from th floor: "r you on crck If you r tht might xplin lot of things. If you rn't, myb you should b." On nron tctic ws to crt phony offshor corport shlls nd mov thir losss to thos compnis, which wr off th books. W'r shown schmtic digrm trcing th movmnt of dbt to such nron ntitis. Two of th compnis r nmd "M. Smrt" nd "M. Yss." Ths "compnis" wr nmd with rcklss hubris: On stood for "Mxwll Smrt" nd th othr on ... wll, tk out th priod nd put spc btwn "y" nd "." Wht did nron buy nd sll, ctully lctricity Nturl gs It ws hrd to sy. Th corportion bsiclly crtd mrkt in nrgy, gmbld in it nd mnipultd it. It movd on into othr futurs mrkts, vn sriously considring "trding wthr." t on point, w lrn, its gmbling trdrs lost th ntir compny in bd trds, nd covrd thir losss by hiding th nws nd producing phony profit rports tht drov th shr pric vn highr. In hindsight, nron ws corportion dvotd to mintining high shr pric t ny cost. Tht ws its rl product. It is bst whn it sticks to fct, shkir whn it gos for hvy irony. It ws McLn who strtd th hous of crds tumbling down with n innocnt qustion bout nron's qurtrly sttmnts, which did not vr sm to dd up. Th most shocking mtril in th book involvs th fct tht nron cyniclly nd knowingly crtd th phony Cliforni nrgy crisis. Thr ws nvr shortg of powr in Cliforni. Btwn 30 prcnt nd 50 prcnt of Cliforni's nrgy industry ws shut down by nron grt dl of th tim, nd up to 76 prcnt t on point, s th compny drov th pric of lctricity highr by nin tims. W hr nron trdrs lughing bout "Grndm Milli," hypothticl victim of th rolling blckouts, nd bosting bout th millions thy md for nron. s th compny gos blly up, 20,000 mploys r fird. Thir pnsions r gon, thir stock worthlss. Th usul widows nd orphns r victimizd. powr compny linmn in Portlnd, who workd for th sm utility ll his lif, obsrvs tht his rtirmnt fund ws worth $248,000 bfor nron bought th utility nd lootd it, invsting its rtirmnt funds in nron stock. Now, h sys, his rtirmnt fund is worth bout $1,200. Strng, tht thr hs not bn mor ngr ovr th nron scndls. Th cost ws inclculbl, not only in livs lost during th powr crisis, but in trsur: Th stt of Cliforni is suing for $6 billion in rfunds for nrgy ovrchrgs collctd during th phony crisis. If th crisis hd bn crtd by l Qd, if trrorists hd shut down hlf of Cliforni's powr plnts, considr how w would rgrd ths sm vnts. Yt th crisis, md possibl bcus of drgultion nginrd by nron's lobbyists, is still bing blmd on "too much rgultion." If thr ws vr corportion tht ndd mor rgultion, tht corportion ws nron. Th uthors rightly spnd th vst mjority of th book xmining th prsonlitis nd circumstncs tht llowd th compny to bcom wht it ws t th nd of its lif. Mix potion tht's on prt hrdscrbbl Hrvrd MBs, on prt nrgy drgultion, nd on prt hystricl bull mrkt, nd you'v got finncil molotov cocktil. Sdly, s w ll know now, it ws lrgly th littl guy who pid th pric for ll th hubris of th plyrs in this story, fct tht tnds to gt lost in th uthors' pinstking rcrtion of th most complictd shll gm in history. But th story of nron's fllout could provid th mtril for whol othr book. In this on w gt th tl of th plyrs, popl lik Kn Ly, Jff Skilling, Rbcc Mrk nd ndy Fstow, ll filld with n qul mix of rmrkbl brillinc nd ftl rrognc. ll r indictd by ths uthors s rbid plyrs in gm thy md up thmslvs, dming thmslvs byond th ptty world of ruls nd rgultion. But coming in for qul xcorition is th systm itslf, th wb of nblmnt nd intimidtion tht llowd ndy Fstow to quitly hmmr togthr th compny's coffin in th form of mz of phntom ccounting ntitis dsignd to prop of th pprnc of th corps insid. Th most unnrving thm th book trts indirctly is th ffct of mss psychology--th wy xcptionl prsonlitis distort nd trnsform rlity on systmic scl. nd it offrs littl in th wy of how somthing lik this could vr b prvntd in th futur. On word of wrning for popl not cquintd with bsic finnc: this is complictd story, bout rstwhil gniuss in th rcn us of finncil products nd rgultory loophols. Though it's njoybl vn if on cn't follow vry dtour down ch ccounting schm, som knowldg of Wll Strt nd its workings sms ncssry to undrstnd th implictions of th book ovrll. Givn th fct tht most xprts didn't undrstnd wht wnt on hr, th uthors do thir bst to kp things s simpl s possibl, oftn using hlpful mtphors nd simpl summtions ftr fw pgs of nlysis, but thy hv no choic but to ssum lvl of sophistiction mong thir rdrs. Which lds to on grip. In "Th Smrtst Guys In th Room" not singl institution or individul plyr involvd with nron scps th uthors' fingr-pointing notic, with but on xcption. Whr wr th journlists in ll this Why did short-sllrs hv to b th ons to sk ll th tough qustions Bthny Mcln should tk undrstndbl prid in bing th first on to pry th door opn on nron's mlfsnc, but sh ws just littl lt. On would think tht with th mss of finncil journlists on CNBC, th Journl, th Tims, tc., tht just on would hv buckd th collctiv chring squd nd dug dpr into wht this supposdly invincibl compny ws up to. But of cours, this ws th bull mrkt. tim whn vryon ws xubrnt whn thy should hv bn scrd. Thr r so mny othr brif, qully rvling xcrpts which I m tmptd to includ but won't. rlir, I suggstd tht McLn nd lkind disply in this volum mny of th skills of corport nthropologist. mong businss books, this is on of th rr "pg turnrs." If nron rmins clssic xmpl of orgniztionl dysfunction, my guss is tht this book will rmin th dfinitiv nlysis of th cuss nd ffcts of tht dysfunction. Bibliogrphy: Bethany McLean and Peter Elkind. "The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron." African Business, No. 300, July 2004 1. Gary Arnold. "Downfall of the 'Smartest'; Factual Probe of the Enron Scandal." The Washington Times, April 29, 2005. Marianne Lavelle. "Ignorance Is Bliss Ken Lay May Have Been as Clueless as His Lawyers Claim. It Shouldn't Matter." Washington Monthly, Vol. 37, March 2005. Scott Sherman "Enron: uncovering the uncovered story." Columbia Journalism Review, Vol. 40, March-April 2002 . Read More