POWER FAILURE: THE INSIDE STORY OF THE COLLAPSE OF ENRON
By Mimi Swartz with Sherron Watkins
If a movie ever gets made of the Enron disaster, one hopes the producers will recognize the comic potential. The dustjacket of this “inside story” promises a dramatic account of “greed, arrogance, and raw ambition.” But it is really a high-stakes, corporate version of Dumb and Dumber, all the funnier for keeping a straight face. As an epigraph I would borrow a line from Enron’s own head of research: “Every era gets the clowns it deserves.”
The Enron Era was defined by hype and ignorance. Thus as Enron progressed through a series of visionary titles used to push its stock – “the world’s first natural-gas major,” “the word’s leading energy company,” the “World’s Leading Company” – it was really caught in a vicious downward spiral of concealed debt. Few of the supposed experts in the business media bothered to question Enron’s balance sheets, or ask whether there was any substance behind all of the “New Paradigm” clichés they were being fed (“thinking outside the box” was a favourite, and typical in its vacuity). Enron’s publicity was good enough, and in the few cases when it wasn’t there was always the intimidation card to play.
The funny part is just how stupid the people running Enron really were. Item: In her attempt to gain the ear of CEO Ken Lay in the final days, co-author and whistle-blower Sherron Watkins has to first convince Lay’s personal secretary to arrange a meeting. The secretary begins by informing Watkins that “Ken gravitates toward good news . . . It was one of his greatest strengths and one of his greatest weaknesses.” There is no explanation of why an inability to face reality at a time of crisis would be a strength, much less someone’s “greatest strength.” In the event, once she has gained an interview Watkins is told by another insider to make her presentation simple. Lay has a short attention span, making it necessary for her to distill her discoveries “into a half-hour monologue that was free of any accounting jargon.” She obligingly re-works her presentation “until it seemed to her that her two-year-old daughter could understand the problems.”
It’s not enough. The meeting is a flop. From his few interjections it is clear Lay doesn’t understand (or, to be charitable, doesn’t want to understand) a thing she is talking about.
The supporting cast is cut from the same cloth. Chief financial officer Andy Fastow appears as an aggressive loudmouth who “didn’t understand – or didn’t think he needed to understand – the fact that businesses were created.” Instead, his forte (if one can call it that) lay in “making financial structures that gave him pieces of transactions just for figuring them out” (also known as “harebrained schemes to get a piece of other people’s deals”). His brainchildren were the “special purpose entities” or SPEs used to keep Enron losses off the balance sheet while fattening his own bank account – a lose-lose proposition for the company he was supposedly working for described by the aforementioned head of research as “so stupid that only Andy Fastow could have come up with it.” Still, even this game of musical chairs passed muster with the lawyers and accountants. They were making a lot of money too.
But my personal favourite anecdote concerns Watkins’s impression of superstar CEO Jeff Skilling. It’s worth quoting at length:
Oh, she [Sherron Watkins] had seen Skilling in the halls and exchanged pleasantries, and he had dropped in on meetings, wowing everyone in the room with his quick solutions to problems that stymied everyone else. Once, for instance, Sherron had been in a conference with Fastow and another executive, fretting over the pitch for a new fund . . . No one could come up with the right language to show the synergies Enron Gas Services could provide; everything seemed too convoluted and self-serving. Then Skilling popped in, listened briefly, walked up to the floor-to-ceiling whiteboard, and grabbed a marker. Instead of words, he drew three circles, which he described as a three-legged stool, his graphic representation of EGS’s business model. Each leg represented a different service provided by the company – the physical delivery of the gas, the financing of the gas, and the risk management – yet all were interdependent and, when combined, all-encompassing for the customer. (It’s that simple! A three-legged stool! Each leg equally important!) Then he walked out. The three of them quickly scribbled a copy of the drawing, to be replicated in their pitch books. That was the Skilling effect: He moved so fast that when he left the room, you felt invigorated and stupid at the same time.
Three circles! That’s just like . . . a three-legged stool! Can’t you see how it all fits together? What a way to “wow the room”!
That the meeting wasn’t concerned with how Enron would provide services but rather how to “pitch” them is symptomatic. The business of Enron was business. What, one is led to ask, were all these would-be Masters of the Universe actually doing to make so much money? This book gives us some idea. They traveled the world. They bought expensive toys and expensive homes. They went to strip bars and used bad language. They partied! They considered anyone not as smart as themselves (which was everyone) to be a loser.
But back to the book.
Like most occasional books, Power Failure isn’t very good. Perhaps due to the “insider” status of co-author Watkins, the tone simply isn’t critical enough. The folks in charge at Enron were not visionaries and business wizards corrupted by arrogance and greed, as they are made out to be here, but a gang of spoiled, aggressive morons. Most of the book’s humour is therefore unintentional. The meeting with Jeff Skilling, for example, is offered as genuine evidence of his profound business acumen.
Elsewhere there are signs of a rush to press. The operation of the shell game operated by Andy Fastow, though not complicated in principle, is explained in such a way as to be almost too confusing to follow. The plight of Enron shareholders receives little mention. Finally, the story is not brought up-to-date with a full discussion of the legal fallout, whether in terms of justice delayed or denied.
As evidence of corporate America’s decline (and it never occupied a lofty height), Power Failure is an interesting first draft of history. But a full indictment of the spirit of this age will require not only a longer perspective but a more critical eye.
Review first published online June 25, 2003. The whole thing reads like a sequel to The Bre-X Fraud (1997). In my review of that book I said: “So many aspects of the case seem to define the ’90s: the creation of fantastic wealth almost by accident, the complete triumph of hype over substance, the fact that so many ‘experts’ (particularly among the financial community) never had any idea what they were talking about.”