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Smartest Guys In The Room [Hardcover]

Bethany Mclean , Peter Elkind
4.4 out of 5 stars  See all reviews (37 customer reviews)

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Book Description

Sept. 15 2003
Until the spring of 2001, the Houston energy giant Enron epitomized the triumph of the new economy. Feared by rivals, worshiped by investors, Enron seemingly could do no wrong. Its profits rose every quarter; its stock price surged ever upward; its leaders were hailed as visionaries.

Then a young Fortune writer named Bethany McLean wrote an article posing a simple question - How, exactly, does Enron make its money? - and the company's house of cards began to collapse. Though other business scandals would follow, none has had the shattering effect of Enron's bankruptcy, which caused Americans to lose faith in a system that rewarded top insiders with millions of dollars while small investors, including many Enron employees, lost everything.

Despite enormous media coverage of Enron, the definitive story of its astonishing rise and fall comes alive for the first time in this gripping narrative, by McLean and her Fortune colleague Peter Elkind. Drawing on a wide range of private documents and well-placed sources, many of them exclusive, McLean and Elkind lead you behind closed doors and deep into Enron's past, to pierce the veil of secrecy that has surrounded the company's inner workings and corrupt culture.

The Smartest Guys in the Room is fundamentally a human drama -- of people drunk on their own success, people so ambitious, so certain of their own brilliance, so fueled by greed and hubris that they believed they could fool the world. The book explores the motives, thoughts, and secret fears of a fascinating array of characters, including:

* Ken Lay, the genial but clueless CEO who reveled in the trappings of his office but ducked the responsibilities. From the earliest days of Enron, his weakness allowed greedy lieutenants to run amok.

* Jeff Skilling, the brooding, mercurial genius who was the architect of Enron's greatest triumphs-and its ultimate disgrace. "I am Enron," he once boasted. As the company unraveled, so did Skilling.

* Rebecca Mark, the glamorous "It" girl of Enron International who raced around the globe in high style and battled Skilling for control of the company.

* Andy Fastow, the brutally ambitious, deeply insecure whiz kid. Inside Enron his colleagues marveled at how his complex schemes allowed the company to scam Wall Street-not realizing that he was secretly scamming Enron.

* Ken Rice, the Midwestern farm boy who was seduced by Enron's fast-money culture and who cashed in while hyping a high-tech business that didn't exist.

* Cliff Baxter, the manic deal maker and Skilling confidant who resented Fastow's murky self-dealing. "He's a goddamn master criminal," Baxter would rail.

Just as Watergate was the defining political story of our time, so Enron is the biggest business story of our time. And just as All the President's Men was the one Watergate book that gave readers the full story, with all the drama and nuance, The Smartest Guys in the Room is the one book you have to read to understand this amazing business saga.

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Like its subject, The Smartest Guys in the Room is ambitious, grand in scope, and ruthless in its dealings. Unlike Enron, the Texas-based energy giant that has come to represent the post-millennium collapse of 1990s go-go corporate culture, it's also ultimately successful. Penned by Fortune scribes Bethany McLean and Peter Elkind, the 400-page-plus chronicle of the scandal digs deep inside the numbers while, wisely, maintaining focus on the "smart guys" deep-frying the books. The likes of paternal but disengaged CEO Ken Lay (dubbed "Kenny Boy" by George W. Bush, one of many prominent public figures with whom he rubbed shoulders), cutthroat man-behind-the-curtain Jeff Skilling, and ethically blind numbers whiz Andy Fastow vividly come to life as they make a mockery of conventional accounting practices and grow increasingly arrogant and bind to their collective hubris. They're not a likable lot, and the writers find it difficult to suppress their astonishment and revulsion with the crew who rapidly went from golden boys and girls of the financial world to pariahs when the bill finally came due. The authors' unrepressed sarcasms are more than often unnecessarily given the scope of the outrage. Enron's leading lights were or a time celebrated for their ability to concoct nearly unfathomable business schemes to hide mounting shortfalls and keeping track on their machinations can be a chore, but, by sticking hard to the story behind the fall, McLean and Elkind have reported and written the definitive account of the Enron debacle. --Steven Stolder

From Publishers Weekly

Fortune reporter McLean's article in early 2001 questioning Enron's high valuation was cited by many as an early harbinger of the company's downfall, but she refrains from tooting her own horn, admitting that the article "barely scratched the surface" of what was wrong at America's seventh-largest corporation. The story of its plunge into bankruptcy (co-written with magazine colleague Elkind) barely touches upon the personal flamboyances highlighted in earlier Enron books, focusing instead on the shady finances and the corporate culture that made them possible. Former CEO Jeff Skilling gets much of the blame for hiring people who constantly played by their own rules, creating a "deeply dysfunctional workplace" where "financial deception became almost inevitable," but specific accountability for the underhanded transactions is passed on to others, primarily chief financial officer Andrew Fastow, whose financial conflicts of interest are recounted in exacting detail. (Skilling seems to have cooperated extensively with the authors, though clearly not to universal advantage.) A companywide sense of entitlement, particularly at the top executive levels, comes under close scrutiny, although the extravagant habits of those like Ken Lay, while blatant, are presented without fanfare. The real detail is saved for transactions like the deals that led to the California energy crisis and a 1986 scandal, mirroring the problems faced a decade later, that left the company "less than worthless" until a last-minute rescue. The book's sober financial analysis supplements that of Mimi Swartz's Power Failure, while offering additional perspectives that flesh out the details of the Enron story.
Copyright 2003 Reed Business Information, Inc.

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It is no accident that Ken Lay's career in the energy business began-and, most likely, ended-in the city of Houston, Texas. Read the first page
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Front Cover | Copyright | Table of Contents | Excerpt | Index | Back Cover
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Customer Reviews

Most helpful customer reviews
3 of 3 people found the following review helpful
5.0 out of 5 stars Who Are These Guys June 12 2004
I chose the above title quote from "Butch Cassidy and the Sundance Kid" to highlight my review. The authors provide a biography of many of the Enron players that lets us know what these guys were all about at their core. For example, Jeff Skilling spent almost all his after-school time working at a television station. Yet, he went to college without a dime because he blew all his pay in the stock market-buying stocks on margin. Never mind though because he got an impressive academic scholarship anyway because of his "brilliance." The authors provide other telling stories about the other major players. Ken Lay, the Baptist preacher's boy who preached exemplary corporate values, had an affair with his secretary, and later divorced his first wife to marry her. Yes, this is the same lady who went on television complaining about being broke while her family still owned millions of dollars in real estate. Lay's number two guy-not Skilling-who shacked up with a different Ken Lay secretary at Enron, costing himself annointment as Lay's successor. By the way, this guy now is a billionaire. Having that affair with Lay's secretary, later marrying her, was the smartest thing he ever did because he left Enron to found his own high-flying energy company. Rebecca Mark got a leg up from another Enron mentor by having a tempestous affair with him. The stories like this go on and on.
The authors provide far more detail about company history and the accounting conspiracies that brought it down. As a professional accountant, I am even more convinced now that Arthur Andersen deserved to fail for approving many of the tricks that Enron used to book fictitious profits.
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1 of 1 people found the following review helpful
3.0 out of 5 stars Missed opportunity May 24 2004
Excellent journalism and very well articulated research from McLean and Elkind make this a gripping read for anyone who wants to understand the forces that drive corporate greed. Banks, rating agencies, lawyers and accountants are not spared in what is a scathing criticism of profitability over ethics and plain common sense. What disapponted me, however, was the authors' obvious decision to skim over the political elements of the whole scandal. Kenneth Lay was one of the single largest individual contributors to the Bush campaign in 2000 and also made available corporate resources, such as company jets, on numerous occasions. Dick Cheney had secret meetings with company executives at a time that the wheels were beginning to fall off and it is impossible to believe that this was all innocuous, although in the rare instances that the authors refer to such events, they will have you believe that this was the case. Time will hopefully still reveal more about the murky political dealings of Enron, but it is a crying shame that this otherwise very well written book is not a place where you will learn anything at all about that dimension, despite there being no shortage of facts to be found elsewhere in the public domain.
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4.0 out of 5 stars A Fascinating Read With All the Gory Details May 2 2004
Enron was the largest corporate bankruptcy to date. Just a year earlier it was a 70-billion dollar company and the most respected company in the energy field. By the end of 2001 Chuck Watson of Dynegy said he wouldn't take it if it were free. What happened? How could such a large and powerful conglomerate, in which analysts hyped right to the bitter end, fall so fast. Bethany McLean and Peter Elkind take the reader from the beginning of Enron's rise to the colossal fall.
From the beginning Enron was determined to rewrite the "rules" of how the business of energy was done around the world. Ken Lay, the founder of Enron, learned the natural gas business from his early days at Florida Gas and then Transco Energy. In the early 1980's gas prices were largely regulated by the federal government. This led to gas shortages when prices were too low and oversupply when the government hiked prices. Distributors would try to lock into long-term contracts called "take or pay" to protect themselves from future shortages. These contracts were bad from the pipeline owner's point of view because they had to pay the higher rates even if lower rates were available. Lay saw a way out of this dilemma, however. He set up a fledgling spot market for natural gas. The producers who let Transco out of these long-term contracts could sell directly to their customers, paying Transco to move the gas. Lay was a hero and it would propel him toward his vision of a deregulated gas world in which customers would always have the gas they need at the best price.
When Ken Lay created Enron he had a different view of energy than anyone else in the business. When energy was deregulated in the late 19080's prices plunged. Money wasn't being made in oil; it was being made in trading oil.
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I've read most of the major Enron books that have been published and, in my opinion, this one is best in terms of delivering clear information about what happened to cause Enron's apparent success and its inevitable failure. The authors show how Enron parlayed some very bad policies and practices:
1. paying huge compensation on the basis of overly optimistic projections for projects that were really bad deals;
2. booking and reporting income by marking-to-market overly optimistic estimates of future purchases and sales;
3. creating a byzantine structure of special purpose entities built on a massive conflict of interest with its own crooked CFO and designed to keep the Ponzi scheme going to hide real results from investors and lenders;
4. paying its supposed overseers of directors, accountants and lawyers enough to get their greed to overcome their professional responsibilities;
into one of the most astounding and tragic business stories in American history.
Having praised the authors for their coverage of the story, I only rate the book as a four star effort because of the writing. The writing is straightforward, efficient reporting as one might expect given the authors' background with Fortune magazine. But, I believe that truly outstanding books are written by wordsmiths who are so good at telling a story that a reader finds the book hard to put down rather than being hard to pick up and slog through. Too often for my taste I found myself working at reading to the end of this book rather than savoring it. To me, that's the difference between a well chronicled story and an exceptional book.
Should you read this book? I'd say definitely yes if you're interested in the Enron story. Just don't expect to be entertained very much while you're being informed.
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Most recent customer reviews
5.0 out of 5 stars A must for the non-sceptic
My blood ran cold reading of how long the officers of this firm managed to pull the wool over the investment community's eyes, aided and abetted by the deleriction of duty of those... Read more
Published on July 9 2004 by Dave Pratt
2.0 out of 5 stars Hindsight is 20/20
Monday morning quarterbacks. I would have been far more impressed if the writers had actually done due diligence as the caompany was engaging in such flagrant abuses, and blown the... Read more
Published on May 23 2004
5.0 out of 5 stars The Best Enron Expose Out There
Whether you're an experienced corporate player, a business school whiz, or just interested in what preceded Enron's 2001 fall, this is the book to read if you only read one Enron... Read more
Published on April 21 2004 by David J. Firth
5.0 out of 5 stars Smartest Guys in the Room: The Amazing Rise and Scandalous F
More than any other company, Enron has become synonymous with the outrageous levels of corporate greed and hubris that lie at the root of our economic woes. Read more
Published on April 19 2004 by B. Viberg
"The Smartest Guys in the Room" is very well written, with great biographical backgrounds and telling anecdotes that will give you everything you should know and then some about... Read more
Published on April 9 2004 by Patrick Crowe
4.0 out of 5 stars Not For Lay People
There's blame galore to go around for the spectacular downfall of Enron Corp in that sober year of 2001. Read more
Published on March 26 2004 by John Van Wagner
5.0 out of 5 stars Best book on Enron
I've read everything I can find on Enron and this is by far the best. It covers all the nefarious dealings (to the extent possible for such complicated concoctions), and goes into... Read more
Published on March 24 2004
4.0 out of 5 stars Interesting and well-written
Although much of what is disclosed here could have been gleaned from the WSJ and other financial publications during Enron's downfall, this is very well-organized and insightful... Read more
Published on March 5 2004 by doug1022
5.0 out of 5 stars A Brillant Book
This book was EXCELLENT! It was extremely well written and researched. It told an incredibly complex story in a way that read like a drama. I could not put this book down. Read more
Published on Jan. 31 2004
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