Idiots in the boardroom

Kurt Eichenwald's absorbing new book offers us a look inside Ken Lay and Jeff Skilling's thoughts and private conversations as Enron sank. But it doesn't tell us if they were sinners or just fools -- or what the Enron saga says about American business.

By Andrew Leonard

Mar 15, 2005 | Three and a half years after the dazzling self-immolation of Enron, former CEOs Ken Lay and Jeff Skilling are still waiting for their criminal trial to begin. Therefore, technically speaking, we don't yet know if they are guilty of the charges of conspiracy and fraud that have been brought against them.

Which is not to say we don't know anything. Enough books have been published about what went down at Enron to warrant their own publishing imprint. Lay, Skilling and all the rest of Enron's hapless gang of latter-day robber barons are practically household names by now, and we've all got our pet theories about their complicity in one of the biggest business disasters of all time.

We know that, for example, for a couple of guys who were supposed to be really, really smart, Lay and Skilling were astoundingly bad at their jobs. It takes a not inconsiderable level of incompetence to destroy a company the size of Enron -- at its height in 2000, the seventh-largest corporation in the United States, with 19,000 employees and reported revenues of $100.8 billion.

We also know that Andrew Fastow, the man hand-picked by Skilling to be Enron's chief financial officer, was a major-league scammer, a man who managed to pocket some $60 million while setting up deals between Enron and special partnerships that he ran. For his sins, Fastow has been sentenced to 10 years on counts of conspiracy to commit wire and securities fraud.

And we have a pretty good idea, although this is still disputed in some quarters, that combining deregulation with lack of oversight in the realm of complex financial "instruments" is kind of goofy. As recently as 15 years ago it would have been much more difficult for a company to pull off the kind of smoke-and-mirrors shenanigans that Enron specialized in. But a combination of relaxed controls, set in motion by both Republican and Democratic administrations, along with the development of dramatically more complicated "risk management" financial tools, created new possibilities for mayhem.

But for all that we know, we still haven't a clue as to whether Lay or Skilling will go to jail, and that's a pretty big piece of the puzzle to be missing. Because without the resolution of their fates, it's impossible to get closure on what the story of Enron means. Was this just a case of Texas-size venality in which one really bad apple -- Fastow -- ran amok while no one else minded the store? Or is it something more complex? Ken Lay was feted in the White House and considered a leading apostle of deregulatory dogma. Jeff Skilling was supposed to be one of the most brilliant businessmen of his generation, a man who left smashed paradigms in his wake wherever he traveled. It is tempting to argue that for them to fail so utterly is an indictment, not just of their management skills, but of their ideology.

Of course, there's always the possibility that Lay and Skilling get off scot-free, having nailed Fastow as their fall guy. But it's for such cases that we have books like "Conspiracy of Fools: A True Story," a 742-page tome from New York Times reporter Kurt Eichenwald that is the latest entry in the Enron publishing sweepstakes. The judgment of a court of law is one thing. The judgment of history is another, and Eichenwald's account will be part of that deliberation. "Conspiracy of Fools" is a big Enron book. Out of all the Enron books so far, including the one that currently holds pride of place, Bethany McLean and Peter Elkind's "The Smartest Guys in the Room," "Conspiracy of Fools" appears to be based upon the most painstaking research, the most interviews, the most poring over legal filings and transcripts and scheduling calendars.

There's a lot to like about "Conspiracy of Fools." It has an encyclopedic sense of completeness -- as a reader, you feel every bit of evidence has been weighed, every stone turned over, every effort made to find out what really happened. Yet, even given all the attention to detail, the book is an easy, page-turning read. Eichenwald structures his narrative as a scene-by-scene cinematic thriller. Readers are placed directly inside the company's boardrooms, listening in on cellphone conversations, watching as executives hit the reply button on their e-mail programs. The last several hundred pages, a minute-by-minute account of an imploding company, is a riveting slice of business journalism that bursts with chaos, adrenaline and despair.

But Eichenwald makes choices in "Conspiracy of Fools" that can be questioned. The words "A True Story" are emblazoned on the cover, but the book is written like a novel. Virtually every page includes reconstructed dialogue, provided to the author by participants of the conversations involved, but often the source is unattributed, despite 40 pages of footnotes, since, as Eichenwald notes, nearly everyone who agreed to be interviewed did so on the condition that their names not be used. These are not verbatim quotes. There is no reason to disbelieve their essential truth -- and Eichenwald notes that he did not reconstruct any dialogue that has any of the principals saying anything "incriminating" -- but in conjunction with the bold title claim, the technique seems a bit iffy.

More important, for all the time the reader spends lurking in the hallways and conference rooms of Enron, one finishes the book feeling a little confused as to how the company's story fits into the larger narratives of high finance, the energy industry and political battles over deregulation. What does it all mean? Was Enron a stand-alone rogue, or merely the most out-of-control player in a world gone mad? That question is never answered; it is never even asked.

And as for the question that may or may not be decided in a court of law next January: Were Lay and Skilling guilty of more than just being fools? If we are to believe Eichenwald, Ken Lay is basically a good guy who trusted the wrong people, and who didn't really know what was going on at his own company while he was busy hobnobbing with George W. and other political leaders. Jeff Skilling comes off as a bit more diabolical, and more than a tad unstable. He is clearly morally responsible for Fastow's sins, and, more than anyone else, responsible for creating an anything-goes atmosphere at Enron. But is he legally complicit in Fastow's crimes? It is impossible to say from the record presented in "Conspiracy of Fools." Eichenwald even presents Skilling's abrupt departure from his CEO position, just a few months before all hell broke loose, exactly according to Skilling's own explanation: He wanted to spend more time with his family, and he was perturbed by a declining stock price.

By the end, only one conclusion is really clear: Andrew Fastow, "the really shitty CFO," is the man who destroyed Enron.

But was it really that simple?

Next Page: The oddest thing about "Conspiracy of Fools" is how Skilling and Lay come off

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