Years before its rise to Fortune 50 behemoth status and its spectacular implosion, Enron derived its primary revenue from its natural gas pipelines—not the sexiest of businesses, but enough to sustain modest gains for over a decade. Like any successful company, it offered a service that customers needed and turned a profit for providing it. Sounds simple, right? By the turn of the millennium, once Enron had transformed into an energy giant and New Economy darling, it expanded into overseas power plants and water supplies, massive broadband networks, and the deregulated West Coast electricity market, yet those boring old pipelines were the only enterprise bringing cash into the company. The rest was just smoke and mirrors, a phony windfall manufactured by stock manipulation, buried losses, and other insidious forms of creative accounting. But while deliberate criminal acts certainly played a significant role in Enron's downfall, Kurt Eichenwald's riveting Conspiracy Of Fools marvels more at the astonishing ineptitude of its executives.
Culled from three years of Eichenwald's reportage on the Enron scandal for The New York Times, the book takes the novelistic form of Eichenwald's The Informant, another true tale of corporate chicanery that reads like the swiftest of airport paperbacks. Eichenwald has a gift for turning spreadsheets, contracts, and dense financial jargon into the stuff of high drama, and he had his work cut out for him with Enron, which was cutting deals that didn't even make sense to analysts within the company. So how could Enron throw away billions in inept business ventures and still watch its stock price soar to new heights? Part of it was "mark-to-market accounting," a scheme that allowed the company to count as current earnings profits that it expected to receive in the future from energy-related contracts. The other part was a series of hedges arranged by CFO Andrew Fastow, financial partnerships that were designed to raise capital while keeping any losses off the balance sheet. As it turns out, Fastow was also chairing these outside partnerships, creating a lucrative side business out of an enormous conflict of interest: For doing business with his own company, he was pocketing tens of millions in fees with virtually no risk.
Since Enron's collapse, the press spotlight has glared brightest on Ken Lay and Jeffrey Skilling, the number-one and number-two men respectively, but Eichenwald sees Fastow as the real criminal of the bunch. To some extent, he may be downplaying Lay's aw-shucks naïveté over his own company's operations, but at that point in his career, Lay was happy to run victory laps while his executives took care of business. As for Skilling, Eichenwald paints him as a stressed-out, reality-challenged manager who valued Fastow's creativity and innovation over the soberer advice of professionals within the company. As for Fastow, Eichenwald marvels as much at his ineptitude as his greed, wondering over and over how a man with so little understanding of the business basics could be given free rein over a company's finances. Perception means all in the corporate world so vividly laid out in Conspiracy Of Fools, but the market can only sustain a lie for so long, and in Enron's case, that lie was a whopper.