A little over halfway through the new play Enron, the character based on Jeff Skilling declares, “I hate government because I know these guys . . . and let me tell you, the weakest, most ignorant, most drunken f—ing incompetents went to work for the U.S. government. Because they weren’t smart enough for the private sector.” The government hacks who make the rules for the energy market are not deserving of his respect. “Why should we look at the lazy regulations they’ve put in place by committee and go, ‘Yeah, you’re bad at your jobs, fine, we’ll ignore that and just be bad at ours too.’ Who do you think is gonna win in the end?! The greedy or the inept?!”
Since the whole world is hungry to lay the blame for the financial meltdown at the feet of any convenient target, it’s not surprising that the play was a smash hit in London last season and is now opening to great fanfare on Broadway. Back in 2002, when I was working on an Enron book with Sherron “Whistle-blower” Watkins, I used to ask everyone the same question: Was Enron an anomaly in or a paradigm for the corporate world? Now, of course, we have the answer, and it is one that the play’s producers are eagerly selling. “There was a warning,” their publicity materials intone. “And its name was Enron.”
The play, which the Times of London cheered with uncharacteristic gusto as “nimble, funny, clear-eyed, inventive, informative, exhilarating and then sobering,” adheres to the now accepted narrative: A company run by geniuses gets big, then bigger, then too big for its britches, then collapses, devastating everyone involved. Bravo! Playwright Lucy Prebble focuses on four major players—Ken Lay, the company’s founder and CEO; Skilling, Lay’s successor, who envisioned and executed Enron’s transition from a pipeline company to a virtual company; CFO Andy Fastow; and executive Rebecca Mark, who managed the company’s massive foreign construction projects and was lucky enough to get pushed aside by Skilling before the fall. (Maybe because lawmakers never accused her of any chicanery, Mark is not named in the play, but a character named Claudia Roe bears some obvious similarities to her.) Except for some heavily thickened Texas accents, the show does not deviate from conventional wisdom: Lay was willfully blind, Skilling was a megalomaniac, Mark was outfoxed, and Fastow was a simple, garden-variety crook.
Houstonians will undoubtedly find more surprises in the staging than the script, but the play nicely evokes the Enron executives’ contempt for ordinary folk, a quality that was viewed as unique at the time. “In business, you buy something at one price, you sell it at a higher one, and what’s in between, that’s your advantage. Which you take. That’s how the world works,” the Skilling character says toward the end of the play. “So when you ask, did we take advantage of that . . . You know what I hear? I hear, ‘do you make a living,’ ‘do you breathe in and out,’ ‘are you a man?’ So yes, we took advantage of that. And I know that the only difference between me and the people judging me is that they weren’t smart enough to do what we did.”
Alas, some people were. The fall of Lehman Brothers, seven years later, was nothing if not an Enron rerun. And just as at Enron, the rating agencies (e.g., Moody’s) and the government regulators (the Securities and Exchange Commission)—the economy’s supposed watchdogs—had rubber-stamped anything the titans of finance wanted to do. And far too many people on Wall Street were smart enough—or rather stupid enough or greedy enough—to do exactly the kinds of things Skilling and his cohorts did.
Enron collapsed in December 2001 and was followed by a wave of public outrage, congressional hearings, criminal prosecutions, and class-action suits. Congress passed the Sarbanes-Oxley Act in 2002, a law that was supposed to bring more accountability to boards and corporate executives. Among other things, it was designed to do away with the so-called Ken Lay excuse (how can a CEO possibly be expected to know what’s happening in his own company?); senior executives were now to be held responsible for the contents of their financial statements.
But over time the outrage dissipated. The economy was good, people were buying houses they didn’t realize they couldn’t afford, and lawyers who once helped companies package edgy deals held seminars on living with what was coming to be known, far less menacingly, as SOX. No one questioned whether the shady practices had stopped with Enron and its accounting firm, Arthur Andersen, and not spread to the investment banks, which helped Enron structure many of its shaky deals. They would never be investigated, one of my sources told me, because of the threat such actions could pose to the markets here and abroad. They were, he said back in 2002, too big to fail.
Booms and bubbles have a way of inducing not just hysteria but amnesia. The people at Enron mistook arrogance for intelligence—or tried to convince everyone else that those qualities were identical. If you didn’t understand Enron’s numbers—or the way it did business or the way it made money or hid its mounting debt—you just weren’t smart enough or inventive enough. As pretty much every account of the financial crisis has revealed, the same sort of self-deception was widespread within the housing bubble: No one understood exactly how bundles of terrible loans would continue to pay off in perpetuity, but they kept putting them into larger and larger investment vehicles.
How could people keep doing deals that were incomprehensible at best? In Enron’s case it was partly because the company was constantly worried about its perception and value on Wall Street—job one was keeping the stock price high—but also because everyone got paid when a deal was signed, as opposed to when something actually got produced. The unsurprising result was that people came to care far more about lining their own pockets than about the company itself. Perhaps the biggest surprise of my Enron reporting was that no one in a position to do so really knew how to run a company at all—or wanted to. Most of Enron’s problems started with the departure of Rich Kinder, Lay’s number two, who actually kept track of profits and losses. Lay was otherwise engaged with the trappings of corporate wealth—making sure that the interior of his airplane was repainted a more pleasing color during a layover in San Francisco—and Skilling was too caught up in his own narcissism, reinventing business for the twenty-first century (who needs pipelines when you can trade . . . weather futures?).
Still, I can’t help but picture Skilling in his prison cell, feeling like a modern-day Christian martyr. Sure, Lehman is gone, but no one from Citigroup, JP Morgan, Credit Suisse, Goldman Sachs, Morgan Stanley, UBS, et al., is suffering a penance anything like his for coming up with their own unconscionable financial schemes. Those people got bailouts or bonuses instead and are pretty much back to business as usual. Unlike Enron’s meltdown, this financial crisis has yet to produce any real reforms. Maybe that’s one reason that in Houston there has been some mellowing toward Skilling since he was sent away, in 2006. (As a refresher: He was found guilty on one count of conspiracy, one count of insider trading, five counts of making false statements to auditors, and twelve counts of securities fraud.) His “Free Jeffrey Skilling” Facebook page may have only 249 members (as of this writing), but there has been a growing sentiment that 24 years is an awfully long sentence for someone who didn’t kill anybody. (Bernie Ebbers, of WorldCom, is the only CEO to get a longer sentence, of 25 years. Fastow, it is often pointed out, got only 6.) Even Watkins, Skilling’s archnemesis, has softened. “You used to get three to four years in prison if you broke the law and bankrupted a company,” she told me. “He’s already been there 3.5 years. He’s had to spend tens of millions; he’s been locked up, eating prison food. He won’t ever be top of the heap again. Is it serving any good purpose to keep him in prison? Certainly it was no deterrent for the leaders at Lehman, Merrill, or Bear.”
The U.S. Supreme Court heard arguments in March on whether or not Skilling should get a new trial, and a ruling is said to be forthcoming. In their appeal, Skilling’s lawyers are no longer stressing a complex legal challenge involving the “honest services” statute that prosecutors used to put him away and are instead focusing on a much simpler question: How on earth could Skilling have gotten a fair trial in Houston in 2006, when everyone was pretty much in the mood for a lynching? Members of the jury pool described him as “the devil,” “a thief,” and “without a moral compass,” as well as a “high-class crook” who “would lie to his mother if it would further his cause.” Skilling’s lawyers also complain that Judge Sim Lake allowed only five hours for attorneys to interview potential jurors, when Martha Stewart had nearly a week and a domestic terrorist, Timothy McVeigh, had three weeks.
Since he’s gone away, some of Skilling’s protégés have become (even more) rich and successful, innovating in everything from energy trading to water purification; they have become the kind of model citizens Houstonians traditionally worship. And now that we’ve seen a few more bank runs, Skilling’s assertion that Enron was killed by a loss of public confidence seems less unbelievable. Just like Skilling, his successors in failure inappropriately blamed short-sellers for their demise. “The financial practices pioneered at Enron are now widespread throughout the business world,” an actor playing a senator says at the end of Enron.
For the real Jeff Skilling, who’s hoping for a better verdict in a new venue next time around, that’s the biggest rub. Once it was just the people of Houston who vilified him and his ilk; now, thanks to the world he built, it’s everyone.