With former Enron president and COO, Jeffrey Skilling set to testify next week, I watched a movie on the scandal today. The film, Enron: The Smartest Guys in the Room, details the pride and deceit that caused the downfall of this mega corporation.
As a reporter who has covered business issues for several issues, one thing struck me about the Enron story. Why did so many people look the other way for so long? Why did so many people refuse to ask basic financial questions and insist on answers? Enron's greatest trick was getting people to believe in its success without substantial proof. It became a media darling, and the PR machine took over. Few stock analysts or reporters ever challenged Enron's spectacular success. If they did, they quickly became blackballed. People were afraid to ask questions because they didn't want to buck common beliefs about the company. Enron's business model was complex, which intimated many people and caused them to blindly accept what Enron executives told them.
Probably, the most chilling aspect of the Enron scandal is that lies by a few drew in so many in the end. Major banks and accounting firms were implicated and are being sued for billions. A number of top Enron executives are going to jail. Thousands of people lost their jobs and pensions.
I am reminded of a conversation that I had shortly before the Enron collapse with a stock analyst from a major financial firm. He said that most people, including those on Wall Street don't really have a clue what is going on inside many major corporations. Companies have become adept at playing shell games and hiding problems. Eventually, the problems are exposed. But if you haven't got out by then, you get left holding the bag. My stock analyst friend said, "Chaille, I am responsible for closely covering seven companies. I talk with upper management, customers, suppliers, consultants, accountants, etc. I walk through plants, retail stores, and logistical facilities. I see a lot. I am trained as a financial analyst with years of experience. And sometimes I barely know what is going on at a company that I cover. Unlike many analysts, I do my job and still have a hard time discovering the problems if companies take extreme measures to cover them up."
His frank comments helped me to see how fragile the whole system is. While there have been some reforms put in place by Congress to deal with the problems, all the legislation in the world may not fix corporate America if companies encourage bad behavior. Smart people will find the loopholes in whatever Congress does. The Enron movie made the point that the real problem is one of human nature not accounting principles.
One thing I did not like about the movie is that it takes some pot shots at free market capitalism. While capitalism certainly has its problems and is not a divine solution to all economic problems as some suggest, it is better than many other systems in the world. Anything to the extreme can be bad that includes free markets without any sense of boundaries.
Capitalism at its worst can be very bad for those who can't cut costs. America is facing this issue now as many multinational corporations move jobs offshore. The real problem was not capitalism. Free markets made it possible for Enron to cause problems in California's energy market. But ultimately, the real problem is that few people were brave enough to ask the tough questions. Things were going so well. Few wanted to stop and ask if things were really going as well as the top brass claimed.
Enron's corporate theme was, "Ask why." It challenged employees to look for solutions and really get to the bottom of what could make a situation better. In the end, few were willing to ask why and hold Enron to its theme. That is what led to the largest corporate scandal and bankruptcy case in American history.
http://www.enronmovie.com/ (Warning: this movie is rated "R")
