The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron is a book by Bethany McLean and Peter Elkind, first published in by. There were dozens of books about Watergate, but only All the President's Men gave readers the full story, with all the drama and nuance and exclusive reporting . The Smartest Guys in the Room book. Read reviews from the world's largest community for readers. There were dozens of books about Watergate, but only.
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Praise. “The best book about the Enron debacle to date.” —BusinessWeek “The authors write with power and finesse. Their prose is effortless, like a sprinter. Drawing on a wide range of unique sources, the book follows Enron's rise from Smartest Guys in the Room is a story of greed, arrogance, and deceit-a. Read the definitive Enron book about Enron's downfall. Book summary of the Smartest Guys in the Room, by Bethany McLean. Download PDF.
The Smartest Guys in the Room: As Charlie Munger would put it , when multiple conditions mutually reinforce each other and create positive feedback loops, a massively outsized result — a lollapalooza — can happen.
These are also the warning signs you can use to detect unstable situations and desist from bad behavior. The Smartest Guys in the Room chronicles the history of Enron, from beginning to end.
Note how it began with good intentions and a believable vision, then became corrupted by deceptive accounting and a focus on short-term stock prices. In , the rise of Andy Fastow to CFO brought complicated structured-finance deals that gave Enron cash that could be kept off the books. All these machinations were meant as temporary measures while Enron bet big on its next two major businesses.
LJM would fund the acquisition by taking out loans of its own, but the lenders would require Enron stock as collateral, which worked as long as the stock remained high. So, in reality, Enron was on the hook for the loan, but it wasn't required to report this inconvenience on the balance sheet. LJM would receive hefty fees from Enron in exchange for removing the debt or adding additional earnings as needed.
The Board did so because it helped the stock and presumably their wallets if they were compensated in stock while Andersen received tens of millions of dollars from Enron for their consulting services on various accounting transactions or issues.
The investment banks, the law firms, and Arthur Andersen all got their bread buttered by Enron. They had conflicts of interest and were unwilling to question the suspect, sketchy, and then illegal machinations of Enron's executives. In the end, Enron's games with SPE's and accounting manipulations faltered when the tech bubble burst and dragged down the entire market.
In desperation, Enron tried to contradict their own very narrow interpretation of the accounting rules governing the reporting of earnings and debt, but Andersen finally decided floating interpretations were untenable. This forced Enron to restate prior periods and miss their earnings target, subsequently triggering a massive sell-off, the unwinding of all the SPE's that were backed by Enron stock, a downgrading of their credit rating, a requirement to post cash collateral that they didn't have for all trades, the loss of liquidity, and ultimately the failure of the company.
It went bankrupt, but not before Lay, Fastow, Lou Pai, Glisan, Kopper, and other high-ranking execs walked away with tens of millions of dollars from cashing out their Enron shares. Many lower-ranked Enron employees lost their retirements because they were forbidden from selling shares while the company changed retirement plan administrators. No one ever took the blame.
Clearly, they are all partially responsible. Lay and Skilling must have known enough that ignorance is not a viable defense in this scenario. The accounting and law firms needed to segregate duties to avoid conflicts of interest.
The Board is rewarded handsomely for staying on top of these issues, and they fell asleep at the wheel. The accountants like Fastow and Glisan in the trenches must know the difference between following the letter of the law and the spirit.
The bottom line is that no one asked, "Is this right? All of them were convicted and sentenced to varying lengths of time in prison.
I like the comedian Lewis Black's law: "If you have a company, and it can't explain in one sentence WorldCom was actually a bigger bankruptcy than Enron. The management pressure, accounting manipulations, and failure of Fannie Mae under Franklin Raines, now advisor to President Obama, strike me as eerily similar to Enron's story.
And there were just so many thoroughly unlikable Enronians it felt at times like the authors were piling on just to raise the hate level. Enron is such a deep and complicated story I think a book written many years after its collapse would do a better job than one written soon after i. Dec 23, Jowanza Joseph rated it it was amazing Shelves: I never thought accounting would provide so much entertainment.
Since I knew little of exactly what occurred with Enron I wanted to give this a shot and it did not disappoint. View 2 comments. Sep 08, Rishi Prakash rated it it was amazing. I had read about the scandalous fall of Enron while studying in graduation but it was just a news for me that time which was like any other news in the business page. It was much later that I started seeing the refernce of Enron in various corporate stories while reading and that is how my curiousity started building.
And i must confess I would have never ever understood the significance of the entire Enron story if not for this great book. Enron has gone on to become a master case study to set I had read about the scandalous fall of Enron while studying in graduation but it was just a news for me that time which was like any other news in the business page. Enron has gone on to become a master case study to set and define various corporate rules in USA and is still the 6th largest bankruptcy ever filed in the corporate history.
Enron also led to the demise of one of the oldest and reputed Consultancy firm- Arthur Andersen which was formed in and was one of the "Big Five" accounting firms till when it had to surrender the license in the aftermatch of this huge scandal.
A new verb, "Enron-ed" was coined by John M. From a high of 28, employees in the US and 85, worldwide, the firm is now down to around , based primarily in Chicago. Most of their attention is on handling the lawsuits and presiding over the orderly dissolution of the company which happened because of this one single account which they had held for almost 15 years. This story is much more than the gigantic fall of a huge huge company; it is a story of human greed and weakness; rampant self-delusion and breathtaking risks being taken by a group of smart people who always believed that their next gamble would cover their last disaster as they are the smartest bunch working together till the very last day!
View all 6 comments. Aug 20, Owen Tuleja rated it really liked it. The Smartest Guys in the Room is a very well researched and exhaustive account haha, see what I did there? The book does a very good job of explaining the history of the company, Ken Lay's involvement in it, and his mentality and motivations.
I did find that the middle of the book dragged on a little too much; after pages of examples of different special purpose entities designed to hide Enron's debt, I didn't need another example. I also found that too many different characters were given attention, which diverted the narrative from its key points and was confusing. In fact, the beginning of the book lists about 4 pages of people and what their roles were: However, I do think that some of the complexity in the narration was inevitable and accurately reflected the many people who played roles in this drama.
As the book moved to its latter stages, I could not put it down until I saw what the conclusion would be, despite already knowing what happened, more or less. Ultimately, the key men at Enron got so engrossed in company culture, became slaves to earnings, and lost all moral bearings.
In the end I couldn't help but feel a little bit sorry for them. I'm sure none of them set out to be criminals, and no one person was responsible for the shift from legitimate company to fraudsters. Ken Lay in particular came off as a guy who might have legitimately been unaware of most of the illegal dealings happening under him. The CFOs and accountants, however, cannot make that excuse. Overall, this is a very good case study of corporate fraud, set against the background of irrational exuberance in the late 90s.
Mar 24, Mathias rated it really liked it Shelves: Another excellent work that provides insight into how financial incentive regimes Regulations, Markets, Competitor Behavior influence the actions of micro-players CEO's, divisional managers, etc in the business world.
Enron's collapse is a case study of what can go wrong in an economic system that lacks adequate checks and balances coupled with the increasing disempowerment of other important economic actors labor unions etc. Unfortunately whatever lessons have been learned from Enron have y Another excellent work that provides insight into how financial incentive regimes Regulations, Markets, Competitor Behavior influence the actions of micro-players CEO's, divisional managers, etc in the business world.
Unfortunately whatever lessons have been learned from Enron have yet to materialize into a meaningful change in business practices I understand opponents of Sarbanes-Oxly may disagree.
I attribute this to the voyeuristic nature of contemporary Western society where the collapse of Enron is viewed more as reality TV Girls of Enron in Playboy etc rather than an opportunity to reflect on business practices that threaten the health of the international economy.
Readers will also benefit by the simple explanations offered for complex financial schemes such as the monetization of assets, securitization etc. One of my favorite paragraphs so far: Fortunately, there are specific accounting rules for what constitutes a duck: So you take the dog and paint its feet yellow and its fur white and you paste an orange plastic beak on its nose, and then you say to your accountants, 'This is a duck! Don't you agree that it's a duck?
Detailed history of Enron from its foundation to collapse, with particular attention paid to the critical characters Ken Lay, Jeffrey Skilling, Andrew Fastow, etc. Interesting if you think fall of Enron is an interesting subject I do, but don't blame you if you don't. My biggest takeaway was the question of whether getting "the smartest guys" all together in a room will lead to good results, since it was clearly such a catastrophe in this case.
And, if getting the smartest guys together in a Detailed history of Enron from its foundation to collapse, with particular attention paid to the critical characters Ken Lay, Jeffrey Skilling, Andrew Fastow, etc. And, if getting the smartest guys together in a room isn't the answer, how else should we run corporations and governments and other big organizations?
Same theme, different time period and sphere, possibly even worse outcome than Enron, in the grand scheme of things. The down side of the level of research and detail is that the book gets a bit long. Apr 15, Ben rated it it was amazing Shelves: I enjoyed the documentary based on this book when it came out a few years ago and the book is fantastic as well.
The book goes into a lot of detail about the chaotic profit-obsessed groundwork that led to the eventual scandals at the company. For example, years before their bankruptcy, Enron became so enamored with hotshots from Ivy League schools that they started ONLY hiring hotshot Ivy Leaguers who wanted to close big deals but had no interest in doing the grunt work necessary to make those d I enjoyed the documentary based on this book when it came out a few years ago and the book is fantastic as well.
For example, years before their bankruptcy, Enron became so enamored with hotshots from Ivy League schools that they started ONLY hiring hotshot Ivy Leaguers who wanted to close big deals but had no interest in doing the grunt work necessary to make those deals work once they were signed.
This led to a huge amount of pressure to close deals and to nab the bonuses without doing the due diligence about what the long-term workload would be and how that would impact the company. I will say that the "scandals" don't come across as juicy in the book as they did onscreen. Sure, the executives hung out at strip clubs, and there's a funny part about using corporate cards at such establishments, but that was more a symptom of the macho culture and not spending that doomed the company.
What actually happened is an accounting scandal where the company hid losses with accounting tricks and inflated profits at the same time. It wasn't executives showing up to meetings high on coke while getting extorted by strippers - so unless spreadsheets get you all hot and bothered, it is a pretty granular takedown of a dysfunctional corporate culture that may feel a bit tedious if you're looking for outrageous personal behavior.
The authors do a nice job of fleshing out all the characters - the PR-obsessed Ken Lay, the bitter and personally ambitious Andrew Fastow, and the arrogant Wall Street darling Jeff Skilling. One thing that consistently cracked me up was the snotty know-it-all tone of the writing - it was fun to join the authors in casting judgement on the idiocy of senior executives of a massively successful company even when I, as the reader, had only a dim idea what they were doing wrong.
As the reader, you get to tut-tut and say to yourself, "Skilling wants to use mark-to-market accounting for energy deals!? What a buffoon! Another personal highlight was understanding how short sales work for roughly ten minutes.
I would recommend this book to anyone interested in company dynamics and corporate culture, not just people that love scandals. Overall, great book. Jul 10, George rated it it was amazing. This book is a must for just about everyone. It reads like a novel, but unfortunately its all non- fiction. This book proves that truth is sometimes stranger than fiction. For anyone who has an interest in protecting your wealth and hard earned money, this is a must reead.
I learned how important it is how your personal actions and behaviours can have such a detrimental affect not only to those around you but way beyond those that might seem unafected. The enron scandal was something that everyon This book is a must for just about everyone. The enron scandal was something that everyone should learn from; and if i might add an editorial comment; that scandal was a precuser to our financial meltdown of , and it illustrates that everyone needs to be responsible and accountable to someone.
I just cant imagen how currupt that whole company was and how they managed to stay in bussiness all those years. Well i recommend this book; it is well written and very interesting; It should also be required reading in finance, accounting, ethics, and poly sci majors of study to name a few.
This book needs to be required reading in all colleges. Mar 16, Zack rated it really liked it. I watched the documentary based on this book, and while it was entertaining in a sad, "how the hell do they get away with this sort of stuff" kind of way , minutes is nowhere near enough time to unwind all of the chicanery and manipulation at the heart of the Enron scandal. The book, I'm happy to say, is far more comprehensive. And yet, although dealing with potentially dense, head-scratching issues of the structuring of complex financial instruments, it manages to be a compelling, dare i s I watched the documentary based on this book, and while it was entertaining in a sad, "how the hell do they get away with this sort of stuff" kind of way , minutes is nowhere near enough time to unwind all of the chicanery and manipulation at the heart of the Enron scandal.
And yet, although dealing with potentially dense, head-scratching issues of the structuring of complex financial instruments, it manages to be a compelling, dare i say even suspenseful financial thriller; like the classics of Greek tragedy, although you know from the outset that the principals are destined for tragedy, the thrill is watching them parlay their collective hubris into economic ruin.
If you are at all interested in the darkest threats of unrestrained capitalism, by all means check out the system at its most dysfunctional.
May 20, Leah rated it liked it. Very well-researched and detailed book, sometimes too detailed. It's pretty well-written, but I gave it three stars because you can really get bogged down in the all the financial mumbo-jumbo. It's also kind of exhausting to read because you will be irritated by how arrogant and stupid the Enron leaders were, and as they make the same mistakes over and over, it's easy to lose interest as a reader.
If you are someone who really likes reading about financial markets and business, though, this will Very well-researched and detailed book, sometimes too detailed. If you are someone who really likes reading about financial markets and business, though, this will be like reading a soldier's war memoir.
If you are like me and get bored by this stuff, you should still stick it out because you will learn a few things. Jul 18, Virgilio Pigliucci rated it it was ok Shelves: A great depiction of one of the biggest example, in modern history, of the "mafia" evolution to the highest levels, where the street violence and the low-level crime become high volume bribery and financial crimes that are capable of hitting way more people than the mob of the 70s.
I read the book in a few months When I was done with it I found the documentary on Netflix and after those 2 hour A great depiction of one of the biggest example, in modern history, of the "mafia" evolution to the highest levels, where the street violence and the low-level crime become high volume bribery and financial crimes that are capable of hitting way more people than the mob of the 70s. When I was done with it I found the documentary on Netflix and after those 2 hours I would totally suggest the latter than reading this book.
View all 4 comments. Sep 13, Daryl rated it it was amazing. Some of the explanations of the various financial instruments that Enron used are a little hard to follow, but I suspect even accounting and finance professionals had similar problems with Enron's machinations. The authors do a great job highlighting the main personalities involved in the fraud, and they keep the narrative moving even through the most complex periods in Enron's history.
Get ready for a lot of really minute details about business deals, pages of them. But they're all needed to build up the full story of what actually happened at Enron and that overall story is well worth the slog!
Highly recommend. Dec 07, Tanel Joon rated it it was amazing.
Enron was the first case study when I started in one of the Big 4 10 years ago. The real life story about Enron is fantastically educational: And as in the end of the book success has many fathers, but failure is an orphan. Long but bloody good! The book starts with the author comparing himself to Woodward and Bernstein's "All the President's men" which I found a bit presumptuous and set off a red flag.
But after reading the book, I have to agree a bit with the analogy. While there's obvious differences the author isn't even found in the book. Company versus government. Mildly complex but easy to understand vs. The book takes what is a complex series of events, and demystifies much of them. Rather than focus on the final year, or decade, the book starts at the formation of the company, and even reaches farther back on the main players like Kenneth Lay and shows his growth to the person running the business.
The book does a decent job of background on a number of key players, but does so in a way that is informative rather than just required. The book spends a decent amount of time jumping around to each branch of the business over time, but in fact handles it well. The reader learns about large spans of times for the each branches in one section, so the growth of the broadband industry isn't interrupted by discussions of Enron Online, even though they happened at the same time.
While this could be confusing with the time jumps, the book handles it perfectly. In fact much of the story stands on the edge of confusion. If a different writer tried to tell this story of enron it'd easily collapse into a mess, however Frederic P. Miller delivers the information well, and produces a clear understanding of what happened at Enron, not just at the end but the culture that produced the people involved it in.
Even better, the book all appears to be taken from official records, memos, and notes from meetings, so rather than create a fiction about what certain people said, many things are direct quotes.
This means that most of the book doesn't seem to take a stance on the action, it just focuses on clearly explaining of the actions taken by the company are taken by many companies, or showing that there's no clear line where Enron cross that changed it to a full fraud.
The author actually is never seen in the book, but beyond that, his opinion on the story feels missing, which allows a true accounting of events to be shown. The book is a bit long and a bit dry, I found it very depressing as well, but I never found it poor enough that I wanted to put it down, in fact it's quite interesting, though extremely large. It's taken me over 3 weeks to read, where I'm normally done with a book in 10 days. The only truly negative thing I can say about the book is the summation, which seems out of order, it refers to a number of convictions which caused me to look up the arrests, but then describes the arrests.
The references to the conviction however makes the reader feel out of place, and that's something the book completely avoids up to that point.
It feels odd and wrong, but is a minor issue and likely due to a number of revisions to it the original book was written in , and yet somehow my version discusses issues in in the final chapter Yes mine is the reprint version but thus if you get the wrong version, you might be missing much of the aftermath.
In addition the afterword in my version seems unnecessary, heavy handed, and opinionated. For 99 percent of the book, the author steps back, he avoids personal opinions and focuses on facts, and what has happened, and then in the afterword, the author comes out in full force trying to sway the reader.
It doesn't work, and honestly since it was written about 7 years later, it might be better to just skip the afterword. Overall though if someone was interested in learning about Enron or large scale corporate fraud, this would be the book to grab. It's interesting, in-depth, and feels unbiased.
It delivered what it promises and does so in a way that makes you feel like you truly understand much of the inner workings. Nov 03, Achtung Englander rated it really liked it Shelves: It all started with Enron. Before the banking crises that saw Lemhan Brothers file for the biggest bankruptcy in history, the word "Enron" was synonymous with failed business of a scale never heard of before.
The book is written in a gripping manner that is both easy to read without wallowing in the intricacies of its financial machinations, and delves into the personalities and politics of people who scammed the business.
You will be shaking your head in anger at the sort of money we are talkin It all started with Enron. You will be shaking your head in anger at the sort of money we are talking here. The top brass like Ken Lay, Jeff Skilling and Andy Fastow were quite frankly taking the piss with the sort of salaries, compensation packages and dirty schemes they ran, all at the expense of prudent business, their fellow employees and their customers, such as the Californian state.
They literally scammed almost anyone and anything so long as Enron stock went up and they made tens of millions of dollars each as ill gotten reward. Ultimately Enron path to ruin was pretending to investors and shareholders that the company was a lot richer than reality by booking future revenue that had yet been banked all in one big lump sum upfront.
The company hid losses off the balance sheet and created dummy companies so Enron could hedge against itself. All for the sake of creating an image that stock was up and up. All for the sake of getting rich. Interestingly the book does not dwell on this subject but towards the end you get the feeling that none of the schemers were actually happy and that all that money only made them feel worse because they became so greedy.
I gave this book 4 stars because at times it did concentrate a little too much on the backgrounds of people that did not really add to anything and not enough on what motivated them to do what they did.
We have a board of directors who were clueless and probably could not read a balance sheet , the auditors Arthur Anderson looked the other way so long as they kept charging Enron millions of dollars they certainly paid the price for that stupidity and greed and banks and investors who did not ask too many question so long as Enron kept on writing big fat cheques which it ultimately could not honour.
The book is excellent and worth a read to get an understanding that hubris and greed in CEOs and CFOs can be a major force of destruction. The book ends in and it is a shame it was not updated to include the early death of Lay most likely from stress and Pai suicide , the jailing of Skilling and Fastow and the current atonement of Fastow. On a personal note - I used to work for Nortel Networks and that company also rode the high wave of spending more than it was earning, run my arrogant management who took a successful profitable company and ran it into the ground due to misdirection and stubbornness.