No School for Scandal

Enron: The Smartest Guys in the Room

The evasive refrain of Alex Gibney’s documentary Enron: The Smartest Guys in the Room is that the disgraced energy company was a “black box.” While investors were pouring money into this innovative business, Bethany McLean, a reporter for Fortune, was working on a skeptical article about Enron. She asked a simple question: How, exactly, does the company make its money? Nobody she interviewed provided a satisfactory answer.

Unfortunately, Gibney’s Oscar-nominated movie doesn’t give one, either. It has major benefits that McLean didn’t — hindsight, legal proceedings, and an investigation by Congress — yet it does little to illuminate the basic, key question: How?

How, for instance, did Enron operate? How was its business model supposed to work? How did it work in reality? How did the company’s top executives fool shareholders, analysts, employees, and the general public? How did the company’s accounting practices follow industry standards, and how did they diverge? Audiences looking to The Smartest Guys in the Room for insight will be sorely disappointed by the movie.

Imagine Errol Morris’ A Brief History of Time if the filmmaker said early and often that Stephen Hawking’s work was just a little too complicated to delve into. Or a mystery story in which the detective started to explain the killer’s method and motive, paused 30 seconds in, and said, “It’s pretty convoluted. Let’s skip that part.”

That’s how Gibney’s movie works. It offers tantalizing details — how Enron bullied stock analysts, for example, and how the mark-for-market accounting system allowed the company to claim future profits that it knew would never materialize — but never finishes the full picture. It treats Enron like an agnostic treats God — as unknowable, and not even worth the effort of trying.

But Enron was not a “black box.” The situation was likely highly complicated — intentionally — and hard for even seasoned reporters such as McLean to grasp. As Daniel Gross wrote in Slate magazine:

“Enron and its executives thrived on accounting complexity. Over the years they built an asset-light juggernaut by continually figuring out ways to report accounting profits from deals and investments that didn’t produce real profits. Without the accounting complexity, there was no Enron.”

Gibney is either unwilling or unable to explain in detail, in everyday language, how the company operated and deceived.

But that raises the question: If the goal of the movie is not to elucidate, what exactly is the point?

The Smartest Guys in the Room uses loaded, obvious imagery — of casinos and strippers, for instance — that you might expect from a Michael Moore treatment of the topic. Yet it doesn’t even have Moore’s most appealing trait: his unfiltered indignation.

The movie is effective at demonizing. Enron executives Kenneth Lay and Jeffrey Skilling are presented in puffed-chest photos taken during the company’s heyday, and the pictures are startling. After the mighty fall, their self-satisfied grins look even more baleful and loaded with guile.

Skilling’s former pride is contrasted with his testimony at a congressional hearing. He looks downright scared, and Gibney takes clear pleasure in watching him squirm.

Enron also excels in its use of embarrassing primary materials: audio recordings of the company’s traders making jokes at the expense of Californians without electricity, footage of Kenneth Lay reading a question from an employee that asks, “Are you on crack?”

But how brave is it to eviscerate the eviscerated? It might provide some grim satisfaction for fleeced employees of and investors in Enron to throw tomatoes and hiss at Lay and Skilling, but it doesn’t get us any closer to understanding what happened. And it does nothing to prevent it from happening again.

Great post. Very relevant five years later - when we went through the financial crisis. Again there was loads of indignation but very little understanding of what actually occurred. Scary to think we are not making progress.

Enron is a black box, but it didn’t have to be. No one cares about the details.

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