Enron: The Smartest Guys in the Room

To be shown: 19 May 2008

USA 2005.
Director: Alex Gibney.
Narrator: Peter Coyote.
Certificate 15. 110 minutes.

Synopsis

This quietly devastating documentary is said to be one of the most effective indictments of the big business mentality ever committed to film. Based on a book by Fortune Magazine journalists, Bethany McClean, and Peter Elkind, the film tells of the events surrounding the collapse of the energy trading company, Enron, at the time the 7th largest corporation in the USA. When the company went bankrupt in 2001, its top executives walked away with more than $1 billion; the company's investors and employees were left with nothing.
The film tells the story the rise and fall of Enron with clinical precision, using interviews with former Enron employees from all ranks, as well as economists, stock analysts, journalists and former Governor of California, Gray Davis, mixed with documentary footage and sound recordings to lay out the facts of the case. The film largely leaves viewers to form their own conclusions, but some commentators claim that it is biased. The company's history is traced from its beginnings during the Reagan years, through the time of its remarkable stock market strength in the 1990s, to the final exposure of the false accounting tricks and other malpractices that had artificially inflated the value of Enron shares.
Through persistent forensic journalism by Bethany McClean, the public discovered that Enron was a fraud, inflated by "creative" accounting, manipulation of public utilities and the raiding of pension funds, that has its echoes this side of the Atlantic too. The essence of McClean's approach was to look at the figures in the company's accounts and not be distracted by impressive company buildings and glossy brochures. The story that emerges is a fascinating account of dodgy dealings that emerged from practices that were innovative and originally just about on the right side of the law. "The smartest guys in the room" was a description applied to themselves by Enron founder and Chairman, Kenneth Lay, and Chief Executive Officer, Jeffrey Skilling, and the film explores the lengths to which the company went to appear extremely profitable. Their win at all costs strategy included buying the approval of financial analysts by arranging lucrative contracts for their firms, hiding debts by effectively having the company lend money to itself (another trick with resonances in Britain) and using California's deregulation of the electricity market to manipulate the state's energy supply. The film shows how the top people at Enron realized what was happening, but everyone carried on as though normal. Nobody was prepared to risk ridicule or to seem to be disloyal by questioning what was happening. Indeed, asking such a question would almost certainly lead to dismissal, such was the culture of fear within the organization.
This is a cautionary tale of how greed, self-deception and criminality can infect a corporation and spread through the financial world, and just how persistent and rigorous an investigator must be to expose successfully such malpractices. The film was nominated for Best Documentary Feature at the 78th Academy Awards.

Notes

Enron's manipulation of the California energy market caused electricity power cuts in the state. The blame fell on State Governor, Gray Davis, and was one of the causes of his defeat by Arnold Schwarzenegger in a subsequent election.

The favourite book of Chief Executive Officer, Jeffrey Skilling, is Richard Dawkins's The Selfish Gene

"Vitality curve" – a management philosophy (discussed at length in the film) in which the lowest performing employees are routinely dismissed. It has been cited as one of the causes of the collapse of Enron.

Employees at Enron were fired for making less than 1000 times their salary, even when the company was recording record profits

"The Milgram experiment" – A psychological experiment to test how long a person would take an order before questioning it. The person tested is told that another individual will be shocked with electricity every time the first person pushes a button. They are told to push the button repeatedly until they decide to stop on moral grounds. On average a person would die three times over with the number of times the button was pushed

Enron's December 2001 collapse erased some $70 billion in market value, cost at least 5,000 jobs and wiped out employee pensions

Kenneth Lay received a 27-month sentence for fraud. He died in July 2006, aged 64, a few weeks after his conviction. The conviction was dismissed after his death

Jeffrey Skilling was sentenced in October 2006 to more than 24 years in prison for accounting fraud

US prosecutors have brought criminal charges against 36 defendants following Enron's collapse, including 25 former Enron employees. So far, 18 have pleaded guilty or been found guilty after trial.