The Smartest Guys in the Room chronicles the history of the Enron company, beginning from its conception as a small oil-trader, and ending with its cataclysmic bankruptcy. The focus is mostly on the three people responsible for both establishing Enron as a major player in the commodities trading mark, but also those responsible for driving the company towards shady accounting and eventual fraud.

Ken Lay, a good buddy of the Bush Family, had started the company from nothing and early on developed a tendency to look the other way on suspect dealings. CEO Jeff Skilling came along with a brilliant idea that would allow the company to report revenue when a deal was made, as opposed to when the money came in the door. This idea took the company into the big leagues, but also set the stage for the deceptive business practices that would sink Enron. Andy Fastow was later brought in as CFO, whose job it was to hide losses within other companies that were not visible to the SEC or the company’s investors. There are plenty other supporting players along the way, but most every point the movie makes can be traced to the actions of these three guys. They are, in fact, the smartest guys that the title refers to.

Skilling preached an ideal that would generate wealth, and his employees ate it up like their morning breakfast. He was absolutely right, as it turned out, and the company grew exponentially under his leadership. His philosophy fostered greed and enabled the company to utilize accounting loopholes in order to bolster their stock price, in turn enriching themselves and their stockholders. It became a corporate conspiracy of sorts, with the conspirators remaining silent based on their own acceptance of the ideal and their greed. The dirty hands were not only within the Enron offices, but also within the Arthur Anderson agency, as well as several other investors. Some of these were major, reputable financial institutions, which played a part in the fraud by looking the other way, lining their pockets along the way.

Enron’s former CEO Jeff Skilling created situations where their subordinates would conduct in unethical (or downright evil) acts based on a set of ideals. They were completely aware of their actions, but felt justified because of their “grand plan”. You could compare them to other “evil” civilizations throughout history that committed atrocities based on the twisted rhetoric of their leader. The Enron mantra was the endless pursuit of profit. This documentary highlights some of these departures from reason in many ways, but the most compelling examples are when they play actual phone conversations conducted by traders. In some of the calls, Enron employees creatively ask power plants to shut down, since doing so would drive the price of energy up. In one scene, the California brush fires are burning and an Enron voice is saying “Burn Baby Burn!”.

I found the most effective scene to be when the filmmakers question why the employees were knowingly able to engage in evil. A case study conducted during the 1950s shows that if someone is ordered to commit an evil act, assured of its necessity and alleviated of their personal responsibility, often they would go through with it. In this case study, some of the subjects would go so far as to send a lethal electric charge to someone who turned out to be an actor. The actions of the Enron employees were justified and rationalized by the ideal that the upper executives preached. There was no accountability on the employee’s part; Jeff Skillings shouldered responsibility for all unethical practices.

My only quibble with The Smartest Guys in the Room is how they failed to focus on personal stories, aside from those of the three executives. The only exception is with Lou Pai, an early executive who generated an insane amount of revenues for the company. While he was a wildly successful for the company, his wiliness extended to his social life as well, where he had an odd fixation on strippers. His story was interestingly lurid, but alas, he left the company (and the movie) early on, after a personal controversy, taking millions with him. One of the first scenes of the movie is a dramatization of executive Cliff Baxter’s suicide after Enron’s collapse. His name is thrown about often throughout the narrative, but they don’t spend enough time with the character. By the time they revisit the suicide, he has been next to forgotten.

I also wish they had spent more time showing us how deeply this affected the lower level employees. They do spend some time on an employee who came to Enron through their acquisition of his employer, Portland Gas & Electric. They interview him shortly after the acquisition, when Enron’s stock is riding high. He is naturally excited about the new pension and retirement opportunities. After the collapse they revisit him, finding that his 6-figure retirement had been reduced to 4-figures, almost overnight. He is the only true personal story that is shown, and that scene is used merely to contrast with the amount of retirement that the three core players had taken. The impact of the collapse is otherwise explained by statistics, which are interesting on their own, but the message would have been more powerful had a personality or two been assigned to it.

Despite those minor faults, the Enron story is fascinating and the filmmakers do an excellent job of presenting a clear and detailed, yet entertaining, picture of the rise and fall of the company. Not only does it give us an understanding of how it happened to this company, but it also provides plenty food for thought as to the fallibility and fragility of our financial system.

© Aaron West, May 31, 2005