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Enron.
Most people are at best vaguely aware of the name "Enron" despite
it representing the single largest corporate bankruptcy of all
time. Its collapse revealed a shocking degree of corruption
and fraud at the heart of what had long been held up as a model
corporation. Thousands of workers lost everything (the energy
trading company's retirement fund had been raided to cover Enron's
operating expenses and to pay enormous bonuses to the top executives
for pulling unbelievable profits and therefore keeping the company's
stock price rising; profits which, as it turned out, were completely
imaginary) and now look set to get next to nothing even once
the cases against Enron's main players - founder and CEO Ken
Lay and President/Chief Operating Officer Jeff Skilling - wind
through the courts.
Free market advocates insist that Enron's was an isolated case, but fortunately there are a few people who have been determined to sift through the detritus and attempt to explain what happened and how it was allowed to happen to those of us who don't have higher degrees in accountancy. Two of these people - 'Fortune' magazine writers Bethany McLean and Peter Elkind - wrote the novel-length 'The Smartest Guys In The Room', a very readable examination of Enron's extraordinary rise and disastrous fall. Another such person is Alex Gibney, director of the documentary of the same name.
'Enron: The Smartest Guys In The Room' is a tremendously entertaining and informative companion to the book, illuminating the key points and expanding on others (for example, it draws a direct line from Enron's orchestration of the California "energy crisis" and the election of Republican Arnold Schwarzenegger as Governor of California, which hadn't happened when the book was published). "I felt there was a job that the film could perform, which was to make this enormously complex financial scandal comprehensible in a compressed period," Gibney explains. "I think one of ways that people in the higher echelons of the financial industry pull off these scams is to make it as complicated as possible. And that's what fooled a lot of the financial analysts in the Enron story: Andy Fastow [now-jailed former Chief Financial Officer] created these labyrinthine linkages between special-purpose entities that had everybody mystified, and they just said 'well, I guess if the accountants and the lawyers signed off, it's OK'. And it obviously wasn't OK but it would have demanded that people actually do a lot of hard work in order to understand what Fastow was going about. It's the complexity of what they do that makes it work, and I suspect that's what Lay and Skilling will do in their defence in the courtroom: they'll try to make it as complicated as possible."
One of the biggest challenges in trying to pare down 420 pages of story to under two hours of screen time must have been deciding what to leave out. For one thing, the story of single biggest money-losing division - Enron International, headed by Rebecca Mark and responsible for enormous losses to the company and a trail of polluted sites through India and South America - was left out of the film altogether.
"Well, at the end of the day that was the toughest problem: so much perfidy, so little time," Gibney chuckles. "You do much better, I find, in leaving out whole stories rather than trying to sneak a little bit of everything in, because then you can't go into anything in any detail. And Rebecca Mark's story, while it was terrifically important in showing the financial pain that Enron was in, still wasn't at the heart of the fraud. There were a lot of other good stories that we would have liked to have put in too, but there just wasn't time."
I was curious as to why Gibney chose to make the film now, since the story isn't yet over. For one thing, Lay and Skilling's trials are set to begin within weeks. "They'll be tried together, along with [Chief Accounting Officer] Rick Causey," Gibney points out, adding, "and not so coincidentally, the very first day of their trial will also be the [US] release of the DVD. But I think we could have waited forever [to make the film] until all the trials had spun themselves out, but I thought there was a certain heightened political sensitivity to the story and that people were still curious about it. At the same time, it was partially just luck: when I started to make the film the audio tapes of the Enron traders [in which the energy traders are recorded instructing California power plants to deliberately go offline, thereby limiting electricity supply and forcing the price to skyrocket] hadn't been revealed, and that was something that Peter and Bethany didn't have at their disposal. They knew about a lot of the activities, but they didn't get to hear it. And this famed meeting between Ken Lay and Arnold Schwarzenegger was also something that came out as people kept digging at the story."
The film also illuminates the strong ties between the powerful political (and almost exclusively Republican) interests and Enron, including George W. Bush's friendship with the man he called "Kenny Boy". "Oh, conspiracy theorists would have a field day!" Gibney laughs. "I mean, they're sitting around in their black tower, hatching all this stuff. I think more realistically, though, they're united by an ideology of total laissez faire: their belief was in a world of total deregulation, and that belief is what brought them all together. And part of that is not just an economic agenda, there's also the political agenda - how you get the people in place in order to enforce your [economic] ideas - and thereby Schwarzenegger came to power in California."
While the trials are likely to be complex, Gibney pauses when I ask what he thinks the likely outcome will be for Lay and Skilling. "If you look at some of the other verdicts recently [in white collar crime cases], it hasn't gone well for the defendants. Did Australia get a show called 'Hogan's Heroes'? Well, in legal circles there's a thing here called the Sergeant Schultz defence: 'I know nothing, I see nothing...'" he laughs. "And [a couple of high-profile defendants] recently tried to invoke the Sergeant Schultz defence without any success, and that's also been Ken Lay's key defence. I doubt very much that's going to cut it with a jury."
It should be a colourful trial. One of the most memorable scenes in the film is Skilling speaking before the Senate Commerce Committee: whilst most of his former colleagues hid behind the Fifth Amendment, he spoke in his own defence and seemed almost outraged that he should be questioned, let alone criticised, about his corporate conduct. Surely he's going to explode on the stand like the self-incriminating final act of a 'Law & Order' episode? "He may do," Gibney agrees. "It'll be very interesting to see whether his attorneys let him speak for himself. Skilling insisted on testifying before the House and the Senate, and I think [his lawyers] will have to tie him to the mast like Odysseus to prevent him from testifying in court on his behalf. In a funny way I think Lay is a more sympathetic character on the stand: he looks like your old grandfather, whereas Skilling looks like a more calculating character. But probably the most staggering delusion of them all is that both Skilling and Lay believe they are the victims. It's hard to reckon with but I think it's a fact."
And the facts appear to be on his side. When recently talking to dB Magazine's Lara Derham, Canadian writer and academic Laura Penny (author of 'Your Call Is Important To Us: The Truth About Bullshit") had mentioned that a small sum of money had been recovered by investigators going through the Enron finances and earmarked for those left penniless by the collapse, but Skilling and Lay have put in a claim for it to go towards their legal funds. Gibney snorts. "Yeah, five million, which is chicken feed. I can't remember what pocket of money there was - I think it was something like an insurance claim on wages lost or something like that, but I can't remember exactly - but you're right, Lay and Skilling both claimed that they were still owed money..." he trails off in disgust.
Of course, the counter-argument is that the sort of shady accounting practices that Enron engaged in are now a thing of the past and that the degree of collusion between businesses and supposedly neutral parties (like the now-disgraced Arthur Anderson & Associates, who'd been the most trusted accountancy firm in the US for over a century before the Enron collapse) is now impossible. Unsurprisingly, Gibney has his doubts about whether the Enron experience has cleaned up big business. "Actually, in some technical ways it has: there's now a law called Sarbanes-Oxley, which demands that Boards of Directors and CEOs take far greater responsibility for their balance sheets - now they can't invoke the Sergeant Schultz defence. So there are some technical things that have had a positive impact, but I'm afraid to say that abuse is still rampant. You see it at Merck [Pharmaceuticals], with the Vioxx scandal, you see it at AIG... In my view, it's all about the money - and the amounts of money now are so staggeringly high. There was a guy from one of the brokerage houses who was paid thirty million dollars for one and a half months on the job, and with that kind of money at stake in the upper echelons of American business, the temptation to cut corners is just too great," he sighs. "And our political processes have become so dependent on money that it's very difficult to insist on large-scale changes to the financial systems, and the regulatory systems in the US at the moment are so weak that it's hard to see how they could compete with the resources big business can bring to bear."
He pauses before qualifying his statements. "And it's not like I'm anti-business, I'm not: I think entrepreneurship in this country is a great thing, but what you find it that it's no longer about entrepreneurship, it's about rigging the game. I think that's the problem: money's choking the system, and it's very hard to know whether the popular outrage will become sufficiently enormous to overwhelm that enormous monetary advantage."
Andrew P Street
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'Enron: The Smartest Guys In The Room' is screening now at Palace.
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