THE SMARTEST GUYS IN THE ROOM: THE AMAZING RISE AND SCANDALOUS FALL OF ENRON
By Bethany McLean and Peter Elkind

This book was released in late 2003 by the authors who are also reporters for Fortune magazine. McLean was among the first reporters for a national business publication to question Enron’s business model and success in a Fortune article in 2000, a year before their stunning bankruptcy in December 2001.

I’ve long been fascinated with the Enron story and how they could dupe investors, management gurus, and the national business press with their perceived stunning success. The book takes the reader back to Enron’s formation in 1985 through the acquisition of Houston Natural Gas, with its CEO Ken Lay, by InterNorth, the old-line natural gas pipeline company. Guess who came out on top of that acquisition? This was followed shortly by the Enron Oil scandal in 1987, an early foreshadowing of practices that Enron would later depend upon for their meteoric rise -- the misrepresentation of profits and deliberate hiding of losses to prop up earnings.

What follows is a fascinating study of a corporate culture run amok. The hiring and rise of McKinsey star Jeff Skilling and of Andy Fastow - the CFO without any practical corporate finance experience and highly complex Special Purpose Entities (SPEs) such as JEDI, LJM, and Raptor, all of which were designed to raise cash and shield losses.

Possibly interesting, but what does all of this have to do with human resources? For the HR professional there are several thought-provoking issues, such as:

The Performance Review Committee (PRC), initially designed to identify and reward the best and most innovative, but which quickly deteriorated into a “rank and yank” process of gamesmanship, self-promotion, and greed which served to foster a destructive culture.

A failed succession plan with the departure in 1996 of Rich Kinder, COO and heir apparent to replace CEO Ken Lay, which led to the appointment of Jeff Skilling - exactly the wrong person for the job at exactly the wrong time.

Or the ineffectiveness of Cindy Olson, head of HR, who in 1999 extolled the virtues of Enron so highly as to advise employees to invest all of their 401(k) money in Enron stock, contributing to the loss of millions in employees’ retirement savings.

And ultimately the complete lack of corporate governance and oversight by the Board of those in charge of the company, from the executive team to the company lawyers and the accountants, most notably Arthur Andersen, each of whom blamed the other for their ultimate demise.

For me, the key question is how a company that promoted the self-appointed values of Respect, Integrity, Communication, and Excellence could fashion a culture and blatantly behave in a fashion opposed to these virtues. And with Enron’s demise, what lessons may be learned about the importance of a company’s core values?

The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron is available at bookstores everywhere and may be ordered online from Barnes & Noble (www.bn.com) at 30% off for $18.86.

(Reviewed by Dulles SHRM President-Elect Kurt Cowles)

Note: We invite book reports from members on specialty or general interest publications related to the Human Resources field. Submissions are published in the monthly newsletter and posted on the Chapter website. Email your book review to Dulles SHRM Communications Director Nancy Streeter (nabss@aol.com).

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