Book Review — The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron

This is a posting of an old review I did (https://www.goodreads.com/review/show/973630990) for this book but never published here.

What an adventure. In short, the book describes the key players, their personalities, ambitions, and background, along with the financial forces at work that created the culture of Enron and thus the seeds for its dramatic rise and fall.

While a bit more background on the history of Northern Natural Gas (predecessor of Enron) would have been interesting, the book does a great job of describing the various markets that Enron entered (from securitizing natural gas futures to the attempts to do the same with electricity later on and the ill-fated power-play into broadband), some of the accounting techniques (such as mark-to-market), and the general atmosphere of the company at the time. Further, the continual explicit sign-posting of habits in the company that would lead to its undoing is extremely helpful, it helps the reader pay attention to particular sub-stories that are described and footnote which players to keep track of.

It is hard not to compare this book to Barbarians at the Gate: The Fall of RJR Nabisco, another excellent book about how the profits, share price obsession, and general deal-obsessed atmosphere can turn people from ambitious businessmen into legal robbers. Both have a cast of outsized characters with complex relationships that have implications for later problems. The longer timespan over which this book takes place allows one to see a slight evolution in some of the people involved, from Rebecca Mark to Ken Lay, but in some sense, many of them don't change much until after the fall, and even then it is not clear whether that change is genuine.

That this book covers the entire history of Enron, from its original birth at the Northern Natural Gas Company through the heady days of the early 1990s to the final collapse at the turn of the century, is crucial to its success in shining light on what went wrong. Ultimately this is not a story of a single person's mistakes, from Fastow's accounting to Lay's inability to steer the company strait to Mark's failed international projects, but about a culture and system that from the beginning had the wrong core values. That is a key lesson and has implications when people get more caught up in who to blame, and hoping that punishing them will solve the problem, rather than making sure the system that lead to failure has been ameliorated.

In Built to Last: Successful Habits of Visionary Companies, Collins notes that great companies adhere to their core values and purpose, that it is not the substance of the ideology so much as the execution. This book does a great job exposing that the wrong core values—that the share price is king and thus rewarding short term, individualistic, and profit driven actions—can in fact undo a company when taken to their logical conclusions. While the authors at times becomes too judgmental, especially near the end when describing the aftermath and the legals battles, it never really distracts from the books core purpose: to tell how a group of extremely bright people ended up creating one of the worst corporate disasters in history. Highly recommended.