The Bottom Line

On 25 May 2006, the last chapter in the Enron scandal, perhaps the most notorious white collar crime case to come out of the business community in the 20th century, was finally written. CEO and company champion Ken Lay, and his partner in passive wrongdoing, ex-CEO and president Jeffrey Skilling were found guilty on several substantive counts. It put a large legal coda on the very public downfall of these one-time icons of industry. For a good part of the 1990s, Enron had been a giant, a formidable fountain of growth and gains. Yet similar to other corporate titans like Worldcom and Tyco, there were issues regarding financial reporting and accounting practices. Once the truth was out in the open, the financial industry balked. As they say on Wall Street, nothing scares away investment faster than the absolute truth.

All throughout the proceedings, and even afterward, the pair proclaimed their innocence, arguing that they were clueless pawns in a power struggle played out among their executive underlings. After all, many other Enron employees had been charged as part of the company’s nuclear meltdown, and several are currently rotting away in jail. They weren’t the true cause of the chaos. Many scoffed at their self-righteous indignation, unable to believe that so-called “bosses” didn’t know what their employees were up to. Yet if we are to believe Kurt Eichenwald and his epic, 746 page dissection of the entire Enron debacle entitled Conspiracy of Fools, these future felons may have a point.

Make no mistake, Eichenwald thinks they’re guilty as sin, as page after page of facts and falsified financial sheets draw a deeper and darker picture of Lay and Skilling as bungling businessman. But the main crime they committed, according to this book, was being blinded by success and being too stupid to see how such profitable power corrupts. As the seeming scapegoats for what made this multinational corporation collapse, Lay and Skilling make fascinating characters. In this audacious book, each one has a style that easily delegates authority, yet neither wanted to hear a bad word when such entrustments went sour. Indeed, all throughout Conspiracy, Eichenwald paints the men as blissfully unaware of potentially damaging issues because of their desire to avoid confrontation—and corporate loses. If a problem arose, they simply assigned it to an underling, or worse, assumed the people in place could handle or hide it.

Unfortunately, both men had the Iago of insider dealing, Andy Fastow, as their premier go-to guy. Like the fatal flaw in tragedies of yore, Fastow failed everyone but himself in his desire to build both reputation and his secret bank accounts. If there is a clear moustache-twirling villain in Conspiracy, a man whose incompetence and petty manipulation of others drove the energy company into ruins, it is this miserable, mean-spirited man. But as he does all throughout this amazingly thorough tome, Eichenwald doesn’t want Fastow to function as a cold, callous catalyst. Neither does he want to portray him as a heartless, psychotic shit. Instead, he argues for the man’s role as creative genius, saving Enron’s ass time and time again when the company couldn’t get its moneymaking act together. He is clearly the reason the business soared, and he is obviously the cause when the bottom dropped out, but he is not pure evil.

At first, Fastow is indeed portrayed as an incomparable idea man, capable of creating immediate investment opportunities and instant profit booking from his novel approaches. He fights for and wins Enron’s right to use mark to marketing accounting, allowing millions in yet-to-be-delivered dollars to be reported. He develops complex hedge funds to protect company dealings from almost certain losses. In fact, Eichenwald suggests that Fastow liked being the savoir so much, that this upper management messiah began hankering for a little well-deserved windfall himself. Thus began a streak of secret and/or ethically questionable deals that laced the CFO of Enron with millions of unreported dollars. Conspiracy makes it clear that, while completely illegal and hopelessly shady, Fastow found some comfort in knowing that the board approved every aspect of his involvement. By the time the dime drops, Fastow has formulated so many interlocking and interlaced entities that, like a tripod table, one failure causes the entire enterprise to fall—in this case, Enron itself.

All of this makes Conspiracy a classic thriller disguised as an all-encompassing treatise on the rise and shocking plunge of a once viable business behemoth. Tracking Enron’s growth from its fragile, unsure beginnings to its place in the pantheon of wheelers and dealers. Eichenwald tosses in the obvious links to Texas politics (including both Bushes), indicts the company in the California energy debacle of 2000, proves how financial firms like Arthur Anderson aided and abetted, and finally how something as simple as a whistleblower’s letter of concern turned the tables. Much has been made of Sherron Watkins role in catching the Enron crooks (she was even Time‘s Person of the Year for 2002), but Eichenwald holds off on the deification. In fact, he presents so many divergent parties who, along the way, warned of Fastow and his Raptors and Condors, Chewcos and LJMs that for Watkins to get sole credit seems disingenuous at best, dead wrong at worst.

With a work as dense and as broad in scope as Conspiracy, we are allowed the time for side stories and subplots that are just as compelling as Enron’s end. Indeed, the main narrative is so tangled up in accounting lingo and arcane business ideas that you easily find yourself lost in the amazing minutia. Still, the obvious backbiting among the officers, the various monumental miscalculations by the international division (lead by a similarly outrageous character in the determined demagogue Rebecca Mark), the failed merges with Blockbuster and broadband, as well as the ludicrous system of bonuses and benefits all provide similarly intriguing moments. There is just so much here that, once you take it all in, you realize Enron was destined to die. No major corporation could house so many out of control elements and interpersonal rivals as this one and survive, let alone thrive.

Eichenwald also wants to dispel the myth about Enron’s stock and employee pension plans. While the media played up the fact that hundreds of people lost millions of dollars in retirement funds and planned profit sharing, the author shows how said stories conveniently avoided telling the public that, a few weeks before, the company offered the chance for their people to make modifications. Greed caused many to buy instead of sell, since Enron stock was incredibly cheap at the time, and no one could envision that their Fortune 50 company was going to collapse so soon. Even with The Wall Street Journal digging deep into their business, Enron just couldn’t fold up, right?

The answer, sadly, was ‘yes’. Amongst all the tweaked numbers and overly complicated business practices, away from the falsified quarterly reports and outright thefts, it’s the people and their personalities that really resonate from Conspiracy‘s packed pages. Eichenwald’s ability to capture these people in words is wonderful. We feel for Fastow when he finally makes the big time, and curse him when his incompetence is more than obvious. Skilling’s emotional breakdown, complete with depression and frequent crying jags pulls at our empathy, only to be smothered by his continued cluelessness. Perhaps our most perplexing feelings are saved for Lay. As CEO for a huge international entity, he was required to be the very public face of the firm. He was also the liaison between the executives and the board, and he was the father figure for hundreds of employees who felt connected to their job by this genial, gentle chief. Certainly, he made bad decisions and failed to use due diligence to ensure his underlings were steering the ship correctly. But with everything else he had to do, he couldn’t have imagined that he’d need to supervise his staff, sometimes on a daily basis, on how to do their jobs.

Like Watergate, Enron is still in its initial phases of fall out. The bad guys have been caught, some have been sentenced, others are appealing (including Skilling and Lay) and facts are being refitted and rewritten as new revelations and realizations emerge. A couple of decades from now, someone will sit down with the entire perplexing prospectus, glean the truth from the myth, and determine what really happened when one of the world’s biggest energy conglomerates just, one day, dried up and blew away. Interesting thing is, after reading Conspiracy of Fools, you’ll be convinced that it’s possible to travel back and forth in time. Unlike the scandal that sank a Presidency, no future scribe will really be needed to weed out the reality of Enron. Kurt Eichenwald has already done it, and it’s an amazing non-fiction accomplishment.