Book extract: Losing the plot at Enron

Enron’s transformation from utility to new economy giant was greeted in Houston as a business miracle – but not all commentators were so enthusiastic.

According to business journalist Swartz and Enron whistleblower Sherron Watkins, one veteran Houston investor steadfastly refused to put client money into the local success story. ‘I can’t understand their balance sheets,’ he would explain.

Swartz and Watkins’ book – Power Failure: The Rise and Fall of Enron – provides a chilling insight into the atmosphere and level of peer pressure that existed prior to the company’s spectacular collapse.

In this edited extract, Watkins and Swartz record the mood at Enron as its acolytes gathered at a 2000 corporate conference. Executives heard presentations from founder and CEO Kenneth Lay, COO Jeff Skilling and management guru Tom Peters. To a man, the audience ignored the warnings Peters made.

With the boom in dotcom and high-tech companies, Enron was morphing into an internet/telecommunications conglomerate. Enron Online was already the largest e-commerce site in the world, and ‘broadband’ was the new buzzword inside the company.

Enron was gearing up to trade space available on high-speed telephone lines in order to deliver movies and more into private homes over its Enron Intelligent Network, a new and improved internet. It was poised to dominate AT&T and all the other behemoths.

To Wall Street, this corporate shape-shifting made Enron seem less like an IBM or an Exxon and more like the poster child for the new economy.

Broadband proved yet again that Enron’s employees were the smartest, the shrewdest, the most dedicated and ambitious. They were purveyors of what Jeff Skilling called ‘intellectual capital’.

So far Enron’s numbers were on track to land Enron in the top 10 of the Fortune 500. Third-quarter revenues had grown over 150% from the prior year’s corresponding quarter to $30bn (£17.2bn), bringing total revenues for the first nine months of 2000 to $60bn.

Skilling was widely regarded as the most brilliant corporate leader in the country. CEO Ken Lay had laid the groundwork for Enron’s global reach: he could get virtually any world leader from China to Costa Rica to return his phone calls. Everywhere Sherron Watkins looked, there were bright young people who had made revolutionary changes and made incomprehensible fortunes in return.

Skilling’s appearance on-stage signalled the arrival of an annual event: his stock price prediction. In years past he had been on the money – Enron had gone from $40 to $60 a share in 1998, and soared to $80 in 1999. Now he stood before his faithful and bowed his head. When he looked at the crowd again, he was beaming. Enron stock, he told them would hit $126 a share in 2001. There was a stunned silence before the crowd burst into applause.

No one quite knew how the stock was going to increase another 30%, even with the success of (the) broadband (division) – not exactly a sure thing.

Neither was Enron Energy Services, the company’s foray into the management of power needs for large corporations. And a few of the crowd had heard of problems in (Enron CFO Andy) Fastow’s finance group. But no one was worried. They reminded themselves that they worked for Enron and, no matter what, Jeff would find a way. He always did.

There was only one cautionary note sounded that morning. Skilling introduced the crowd to Tom Peters, the author of the best-selling business bible In Search of Excellence. Before abandoning the stage, Skilling wanted to boost morale a little higher. Enron, he told the crowd, had found the one successful business model that could be applied to any market.

Peters strode to the stage, abandoned his prepared speech and started pacing back and forth. ‘That’s the scariest thing I’ve ever heard,’ Peters said to Skilling, his former colleague at McKinsey. What exactly had Enron done that was so novel,’ he asked. What accounted for such self-congratulation?

The company had taken a model and replicated it in other fields. Enron had created markets where none had existed before, in gas, in power, probably in telecom. But everyone knew that now. Other businesses were already copying Enron and the novelty would soon wear off. And then where would Enron be? Where were the company’s new ideas? ‘An excess of self-confidence kills companies,’ Peters warned.

In the audience, Sherron Watkins scribbled notes furiously on a pad, listing Peters’ signs of a company in trouble: denial of problems, nostalgia and arrogance.

Skilling and Lay sat frozen in their seats, smiles locked on their faces.

When Peters finished, Skilling thanked him and repeated himself. Remember, he said, Enron had found the one successful business model that could be applied to any market.

What few knew was that, even as Enron executives were trumpeting their success, their company was already doomed. Within months, Enron’s finances would be in shambles. Instead of being praised as the world’s leading company, Enron would be vilified as one of the world’s most callous and corrupt.

Its name would become shorthand for the excesses of American business and American culture. And in the months to come, the people who had won and the people who had lost through their associations with Enron would ask themselves the same question: had it ever been a real company? Or had Enron been, from the very beginning, just a brilliant illusion?

  • Power Failure: The Rise and Fall of Enron by Mimi Swartz and Sherron Watkins is published by Aurum Press and priced £14.99. For more information, go to

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