Two significant differences are that Smith and Emshwiller limit their attention primarily to a period in 2002 extending from October 16th (when Enron announced huge losses caused by two partnerships) to December 3rd (when Enron filed for Chapter 11 bankruptcy); McLean and Elkind cover a two-year period of the company's "amazing rise and scandalous fall." Also, McLean and Elkind devote far more attention to each of the "smartest guys"; Smith and Emshwiller seem far less interested in them, except in terms of the impact of their mismanagement and corruption. Let's say there are two books about the collapse of the twin towers at the World Trade Center; one focuses on the human tragedies associated with it whereas a second book addresses design, construction, and structural issues. Obviously, both approaches are valid.

McLean and Elkind suggest that the eventual collapse of Enron was caused less by the greed of senior-level Enron executives than it was by their arrogance and incompetence. Their lack of basic business acumen is astonishing as is their defiance of regulatory agencies and contempt for customers. None of them seems to have had a moral "compass." They exemplified, indeed nourished a culture of brutal competition between and among their subordinates. Each used Enron as a personal ATM as well as a means by which to structure all manner of corporate partnerships and high risk/high yield investments without fear of any personal liability. If one prospered, so did they. If it failed, the loss was Enron's. On to another.

Primary blame for all this must be shared by Lay, Skilling, and Fastow. McLean and Elkind rigorously examine the inadequacies of each, suggesting that if only one of the three had not been involved, it is probable that Enron would not have had the problems it did. Attorneys, accountants, brokers (notably Merrill Lynch) and bankers (especially Citibank and JP Morgan Chase) apparently were aware of Enron's bending and then breaking of various laws but were earning so much in fees that they chose to remain at the Enron "trough" side-by-side with Lay, Skilling, Fastow, and other Enron executives.

Consider this brief excerpt from Chapter 10 (page 149):

Here's how another former employee explains the process: "Say you have a dog, but you need to create a duck on the financial statements. Fortunately there are specific accounting rules for what constitutes a duck: yellow feet, white covering, orange beak. So you take the dog and paint its feet yellow and its fur white and you paste an orange plastic beak on its nose, and then you say to your accountants, `This is a duck! Don't you agree that it's a duck?' And the accountants say, `Yes, according to the rules, this is a duck.' Everybody knows that it's a dog, not a duck, but that doesn't matter, because you've met the rules for calling it a duck."

There are so many other brief, equally revealing excerpts which I am tempted to include but won't. Earlier, I suggested that McLean and Elkind display in this volume many of the skills of a corporate anthropologist. I also commend them on their skills as storytellers. Of course, it helps to have many colorful characters and such an interesting narrative. Among business books, this is one of the rare "page turners." If Enron remains a classic example of organizational dysfunction, my guess is that this book will remain the definitive analysis of the causes and effects of that dysfunction.


Not For Lay People   March 26, 2004
 85 out of 94 found this review helpful

There's blame galore to go around for the spectacular downfall of Enron Corp in that sober year of 2001. Accountants, rating agencies, regulators, lawyers, consultants, bankers--and these are just the bad actors outside the corporation. Look inside, where Bethany McLean and Peter Elkind treat their readers to a thorough journalistic scouring, and the smell of the rot almost wafts off the pages.

The authors rightly spend the vast majority of the book examining the personalities and circumstances that allowed the company to become what it was at the end of its life. Mix a potion that's one part hardscrabble Harvard MBAs, one part energy deregulation, and one part hysterical bull market, and you've got a financial molotov cocktail. Sadly, as we all know now, it was largely the little guy who paid the price for all the hubris of the players in this story, a fact that tends to get lost in the authors' painstaking recreation of the most complicated shell game in history.

But the story of Enron's fallout could provide the material for a whole other book. In this one we get the tale of the players, people like Ken Lay, Jeff Skilling, Rebecca Mark and Andy Fastow, all filled with an equal mix of remarkable brilliance and fatal arrogance. All are indicted by these authors as rabid players in a game they made up themselves, deeming themselves beyond the petty world of rules and regulation. But coming in for equal excoriation is the system itself, the web of enablement and intimidation that allowed Andy Fastow to quietly hammer together the company's coffin in the form of a maze of phantom accounting entities designed to prop of the appearance of the corpse inside. The most unnerving theme the book treats indirectly is the effect of mass psychology--the way exceptional personalities distort and transform reality on a systemic scale. And it offers little in the way of how something like this could ever be prevented in the future.

One word of warning for people not acquainted with basic finance: this is a complicated story, about erstwhile geniuses in the arcane use of financial products and regulatory loopholes. Though it's enjoyable even if one can't follow every detour down each accounting scheme, some knowledge of Wall Street and its workings seems necessary to understand the implications of the book overall. Given the fact that most experts didn't understand what went on here, the authors do their best to keep things as simple as possible, often using helpful metaphors and simple summations after a few pages of analysis, but they have no choice but to assume a level of sophistication among their readers.

Which leads to one gripe. In "The Smartest Guys In the Room" not a single institution or individual player involved with Enron escapes the authors' finger-pointing notice, with but one exception. Where were the journalists in all this? Why did short-sellers have to be the ones to ask all the tough questions? Bethany Mclean should take understandable pride in being the first one to pry the door open on Enron's malfeasance, but she was just a little late. One would think that with the mass of financial journalists on CNBC, the Journal, the Times, etc., that just one would have bucked the collective cheering squad and dug deeper into what this supposedly invincible company was up to. But of course, this was the bull market. A time when everyone was exuberant when they should have been scared.


The Runaway Euphoria of the late 90's Captured Perfectly   December 26, 2005
 37 out of 40 found this review helpful

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

By Bethany McLean and Peter Elkind

I arrived at The Smartest Guys in the Room oddly enough by reading the books mentioned in the Berkshire Hathaway letter to shareholders by Warren Buffett, which looks like this (so far):

Berkshire Hathaway's letter to shareholders by Warren Buffett
/
/
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The Smartest Guys ---The Fountainhead----When Atlas Shrugged-----The Alchemist
In the Room
/
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The Intelligent
Investor
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/
When Genius--- Horatio Alger--- A History of Interest Rates 2000BC to the Present
Fails ----- Buffett:The Making of an American Capitalist---Against the Gods
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/
In an Uncertain
World
/
\
Damn Right

For much more Buffett / Munger suggested reading check out my Blog http://www.bloglines.com/blog/KevinKingston?id=84

It's very interesting to read about the personalities and drive that the dealmakers at Enron had while they were building the company. It's also a good reminder to keep a level head and a sharp sense of right and wrong while building either a company or an empire. I would bet that the Enron dealmakers did not go into business figuring they would cut every corner, lie, cheat and steal to make it to the top. Most likely their misdealings started small and escalated to the point where they could not be stopped because things were just too far out of control.

Charlie Munger says it's very important to read as much about business blunders as possible; this way you can hopefully learn from the mistakes others have made. Well I'll tell you there were a lot of mistakes at Enron so you have plenty to learn from this book.

If you like doing business deals you will appreciate this book and the, "do the deal at any cost attitude" portrayed again and again in it. Hopefully it will help you take a second look at those numbers and make sure your not doing the deal just for the sake of getting another one done.

Its also mind boggling to see just how far one of the largest companies in the world can push the envelope on all fronts, even with outside auditors, analysts and endless business partners. It's a great portrayal of business in the 90's while internet mania blinded so many and made even more feel invincible because of the rising market repeatedly bailing them out. Many of these feelings (and actions stemming from those feelings) were rampant in tech related companies during this time. Enron just took it to the next level.

The book really takes you back to almost a nostalgic time in American business when deals were being done and people were making fortunes while mistakes were covered up by a rising market. It also shows you just how far greed can take you once you let it get a grip on you.

By Kevin Kingston, author of: A 20,000% Gain in Real Estate



My Blog:
http://www.bloglines.com/blog/KevinKingston



Brilliant   October 18, 2003
 28 out of 33 found this review helpful

Like many, I followed the Enron disaster as it unfolded with a certain curiosity usually reserved for matters closer to home. Somehow, the more I learned, the more intrigued I became at the sheer magnitude of the arrogance, incompetence and irresponsible management displayed by executives who were surely thought to be `the smartest guys in the room'. Fearing the media at large was skewing the coverage afforded to Enron on a whole, I looked forward to a book or report that would serve as a definitive look into the entire Enron affair with the type of thoughtful and provocative investigation that "The Smartest Guys In The Room" provides. Having been extremely disappointed with another recently read Enron expose, I could not recommend "The Smartest Guys In The Room" highly enough. Not only do McLean and Elkind do an excellent job in uncovering the facts, they do so in a crisply entertaining and enticing manner that kept me interested and consumed the entire way through. From the opening chapter, the authors flush out the characters, establish the timeline and ultimately piece together an incredibly insightful story of greed, ignorance and outright superciliousness, worthy of anyone's time and attention. "The Smartest Guys In The Room" is an incredible section of work that deserves to be recognized as the truly inspired endeavor that it is.


Corporate Character   December 20, 2003
 27 out of 28 found this review helpful

The authors describe a complicated critical mass of personalities that caused the Enron meltdown. McLean and Elkind have written a book about human behavior in a pressure cooker where top dogs vie for power. Enron executives cannibalized their own company with Wall Street's help. Financial engineering may have assisted these people, but their willingness to do it in the first place is a question of character.

I also recommend a book that explains how structured finance can be used to funnel money out of companies and which explains Enron's disguised loans: Tavakoli's "Collateralized Debt Obligations and Structured Finance."