Enron: The Smartest Guys in the Room Reviewed at Sundance 2005.

[Disclosure: I’m friends with the folks who made this wonderful film. Complete disclosure here.]

Enron: The Smartest Guys in the Room is a riveting documentary that’s every bit as absorbing as Fahrenheit 911. The film pulls back from the Enron headlines and senate hearings, and explains with exceptional clarity the technical details of the firm’s never-ending, money-making schemes.

enron sundance 2005 Details of Enron’s schemes are weaved with the mercurial personalities who architected them, against the economic, political, and technological landscape of the late 90s, giving the viewer a deep understanding of how and why Enron happened.

When documentary film, blogs, and journalism are done well, they assist the audience in the search for truth. Enron does this masterfully, helping the audience crystallize what they already know about Enron, with what they suspected, and what they didn’t know.

Enron was the country’s 7th largest firm not long ago, with a market cap of $70B that evaporated in an instant. The implosion took with it the accounting firm Arthur Andersen and their employees, 20,000 jobs at Enron, billions of dollars in employee retirement funds, and billions of dollars in tax-payer money looted from California during the Enron-manufactured “energy crisis.”

The film, with a re-enactment of John C. Baxter, parked in an empty suburban parking lot, shooting himself. That shot serves as the starting pistol for two hours of hyper-speed psychoanalysis of what makes Enron’s principals tick. Ken Lay, the founder, and his muscle and mastermind, CEO Jeff Skilling, build a company with an extremely competitive and risk-taking culture.

Lay’s gambling nature leads him to Skilling, a chubby, balding nerd with geek-rimmed glasses. Skilling transforms himself while at Enron into a Type-A, adventure seeking warrior he also looses the baby fat and glasses, while investing in some decent clothes.

Skilling’s major “innovation” at Enron was to move them to “mark to market” accounting, an account method (scheme?), in which the future value of an idea is accounted for in the current day’s balance sheet. It’s up to the company to decide the future revenue and value of their business units.

Enron’s stock price soars under this accounting scheme, but as units start closingensuring that the projected revenue will never come inthe foundation starts to crumble.

That’s when Skilling taps Andy Fastow as CFO. Fastow has a wild greed streak, and he comes up with a scheme of creating his own companies that will take on Enron’s debt, thus taking the bad news off the Enron balance sheet. It works for a time, but as we all know, that scheme collapses.

The layering of scheme on top of scheme is so deep that if it wasn’t for all of Enron’s collateral damage, it would be comical.

The filmmakers bring in the infamous obedience studies of psychologist Stanley Milgram. Those studies showed that normal people would shockup to the point of lethally shockingpeople, if someone in a white lab coat would say something as simple as “you must continue the experiment.”

The filmmaker places the blame of the Enron collapse squarely on Lay and Skilling, who built a win at all costs culture, void of ethics, filled with deceit, and marinated in testosterone.

Enron’s culture, which was so celebrated during the boomtime 90s, combined with the more regrettable aspects of human behavior like greed and arrogance, combined to bring a tale for the ages.

Congrats to my old friend Jason Kliot on producing such a fine film.

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