Idiots in the boardroom

On the very first page of "Conspiracy of Fools" we are placed directly inside the head of Ken Lay. He's driving to work on the day that he is finally forced to fire Andrew Fastow. He's frustrated by the negative coverage Enron has been getting from the Wall Street Journal. Eichenwald tells us what Lay is thinking: "They just don't understand."

Later that day we get a direct description of Lay, during a conversation with Fastow, who wants to negotiate his severance deal immediately: "Lay almost recoiled in disgust."

We are not told, however, the source of that description. But given that there are only two people in the room for the conversation, the choices are limited. It has to be Fastow, or Lay, or someone close to Lay who recounts the scene to Eichenwald secondhand.

Chances are, it's not Fastow. Most of the scenes involving Fastow do not appear to be told from his point of view, unless he has a habit of describing himself as "oozing with contempt." In this case, it's got to be Lay, or someone in Lay's camp.

But could anything be more predictable in the wake of the disasters that hit Enron that the knives would be out for Andrew Fastow? Doesn't Lay have an incentive to make him look as bad as possible? Doesn't Skilling? In a story as filled with accusations of misconduct, criminality and incompetence as Enron's, we have a responsibility to investigate the agenda of each person who makes a particular charge. But if we don't know the source, then how are we to make an informed appraisal?

There is little question that Fastow was the prime architect of the "structured finance" deals and famous "special purpose entities" that allowed Enron to move debt and badly performing assets off its balance sheet and pump up its earnings statements. His guilt is undeniable, and if even 10 percent of the things his co-workers say about him, on or off the record, are true, then he was also a pretty lousy person.

"Conspiracy of Fools" is an indispensable addition to the Enron bookshelf if only because it gives the most detailed description yet of how Fastow went about his schemes, how he navigated his way through the day-to-day flow of office politics. Again and again, we see how he duped his colleagues and foiled his critics. There's a paradoxical duality at play: We are told, on the one hand, that he was an incompetent manager, that he didn't appear to know all that much about Enron's businesses or some of the more complicated aspects of high finance, and yet he is the mastermind of an incredibly complex accounting scheme involving state-of-the-art risk-management strategies that boggle the comprehension of even the most experienced financial analysts and reporters.

But Fastow is also an easy, and safe, target to pin all the blame on. After all, it's already been established, in a court of law, that he is a criminal.

The oddest thing about "Conspiracy of Fools" is how Skilling and Lay come off. Let's postulate, for argument's sake, that Eichenwald has it all absolutely correct, that he has nailed the story. If so, we are presented with the picture of a CEO, Ken Lay, who for years and years basically did not know what was going on at his own company. This was a man who at one time was offered the CEO job at AT&T and, near the end of his tenure at Enron, was negotiating for a position at the leveraged buyout giant KK&R. He is publicly perceived to be one of the most successful CEOs in the country -- a confidant of presidents and an advisor on federal energy policy. He stood right at the heart of the Texas energy-and-politics vortex that not only runs the United States, but dominates the entire world! And yet, judging by the record in "Conspiracy of Fools," he didn't do all that much. He's a genial, devout good old boy from Missouri who has a great poker face but isn't what you'd call a details guy. His own employees are described as disheartened when Skilling, Lay's successor as CEO, quits unexpectedly and forces Lay to return. They are worried that he no longer has what it takes to run Enron, that the company has "passed him by."

If he's guilty of anything, then, it seems he's guilty of just not being a very good CEO, something that could well work in his favor during his trial. He just didn't know what was going on, just as WorldCom's Bernie Ebbers claims to have no clue about what his own CFO, Scott Sullivan, was up to. You've got to love American CEOs -- compensated more for their labor than just about any other beings on the planet, yet somehow not responsible when it all falls apart. (On Tuesday, Ebbers was found guilty on all nine counts involving WorldCom's accoutning fraud.)

But what about Skilling? If there's one thing that everyone seems to agree on about Skilling, it is that he is brilliant, the smartest of the smart guys, the man who conjures whole new trading markets out of thin air, who invents new businesses, who transformed Enron from a pipeline company that actually moved gas back and forth from place to place, into a high-flying derivatives trader that operated at the cutting edge of newfangled high finance. Fastow, we are told again and again, via the reconstructed quotes of his sniping co-workers, didn't really understand what he was doing. But not Skilling. The more complex, the better!

So how did someone so smart not realize that the deals his protégé was setting up were inherently flawed?

That is one of the central questions in the mystery of Enron. In August 2001, Jeff Skilling resigned as CEO, just months after taking over the job from Lay. Less than six months later, Enron declared bankruptcy. Did Skilling know the house of cards was about to fall apart? Was he abandoning a sinking ship?

His position is adamant: He had no idea. He first cited personal reasons for his departure, and then, in an interview with a WSJ reporter, attributed the stress of a falling stock price as a primary reason.

Eichenwald, again, presents this at face value: Skilling was burned out, wanted to spend more time with his family, was bummed that he couldn't get the stock price to go up, and skedaddled. He was as surprised as anyone when the whole thing went up in smoke.

Except that he's the one guy who should have been most aware of how dangerous a falling stock price was to Enron.

Next Page: Are there bigger and better Enrons to come, or are we all smarter now?

• View blog reactions