Book Review: “The Smartest Guys in the Room”, Bethany McLean and Peter Elkind

The Smartest Guys in the Room
by Bethany McLean and Peter Elkind

Want to read an incredible story? Pick up a copy of this book. It's the darnedest story you may ever read.

This book captures what went on, and what went wrong, at Enron. The executives, more than anything, suffered from a complete lack of humility. They believed they were the smartest people on the planet and that they could easily build huge businesses and create incredible wealth and profits - despite having no experience actually running companies and meeting budgets and payroll, year after year. They were armed with nothing but parchment from big-time MBA schools, which seem to brainwash their students into believing that they are intellectually superior and uniquely graced with the power and creativity to re-create the world in their own image - and make millions in the process.

But the world was their accomplice. Investors and subordinates also thought that these top execs were "the smartest guys in the room."
Even top bankers who approved billions of dollars in loans to Enron were intimidated. They never understood what Enron was doing and how it was making money, and they lacked the courage to insist on an explanation. They simply went along, snowed by the executives' brilliance.

Have you ever been around someone you felt was brilliant, and you did not understand what was going on, but you didn't want to look stupid by admitting that you did not understand? Of course you have. This is what went on all over Enron, and instead of honest questions and honest answers, you got deceitful and illegal financial and legal maneuvers.

How do you get someone to look the other way? Give them millions of dollars in incentives. Enron's bankers, auditors and employees were paid big bucks. If they asked questions or did not go along with the plan, they were fired. And so, the honest and competent ones were weeded out, and the weak and corruptible made millions and became accomplices in the largest fraud in modern history.

Jeffrey Skilling. Kenneth Lay. Andy Fastow. Michael Kopper. Rebecca Mark. Ken Rice. Cliff Baxter. Loi Pai. Ben Glisan. Enron executives and megalomaniacs. They manipulated the books and stole hundreds of millions of dollars. It's a story about modern capitalism. With a free market, people are free to invest in deals, even bad deals, and nothing can stop a person from selling a dream, even a bad dream. Nobody can stop people from lending money. But we do have rules designed to protect investors and creditors. And we need to enforce them.

Without these rules, laws, and rigorous enforcement, people who manage public companies will simply have a license to steal. Sarbanes-Oxley legislation now protects the individual investor. We desperately need Eliot Spitzer and more like him. Only through fair rules, proper oversight, enforcement and punishment when necessary can we maximize the benefits we all enjoy from our free-market system - and minimize the tragedy and loss.