Anatomy of Greed: The Unshredded Truth from an Enron
by Brian Cruver
Published by Carroll & Graf; (September 2002)
Anatomy of Greed is a book about the fall of Enron, and
that does not make it exceptional. What makes it exceptional
for the business ethics professional is its insider look
at the culture that spawned the implosion of the seventh
largest company in the world.
Cruver was a young and ambitious Enron recruit in the spring
of 2001. He presents himself not as a heroic Cassandra seeing
the downfall of this corporate giant - rather as another
true believer of the Enron myth, who compartmentalized everything
that did not fit into the dominant narrative. He cheered
with his fellow traders as then CEO Jeffrey Skilling called
an analyst an "asshole" during a company conference
call. He ignored the probing questions and observations
from his Wall Street friend, who could not understand the
insider deals being concocted. In short, Cruver may have
been the typical Enron employee.
This book also helps shed light on how Enron conducted
business and fooled all of the people all of the time during
the 1990s. Enron's business was essentially creating new
commodity markets. Take their weather derivative division
as an example - some businesses are particularly vulnerable
to the weather, such as tourism and snow plowing. A bumper
year for snow might make the snow plow business rich indeed,
and can spell doom for the local tourist businesses if it
keeps customers away. Enron would sell a kind of "weather
insurance" to business, for which they pay their premium
and then, if the weather turned unfavorable, their policy
would compensate the loss.
Enron dominated the new markets it created - essentially
selling a weather policy to both the snowplow and the tourist
business - thus ensuring it would achieve some profit no
matter what the weather conditions.
Like all good scams, on the surface this appears logical.
The problem was that Enron had no idea how to price business
items that did not yet exist, or indeed, how to price items
in a rapidly-changing regulatory environment like California's
energy market in 2000. Thus, their growth was not built
on successes from the past but by booking the largest deals
it could. This meant that they became the darlings of Wall
Street after booking enormous deals, such as a fifteen year
deal to supply the San Francisco Giant's stadium with power,
despite that, after two years, it became obvious their price
was well below Enron's expense. These unprofitable ventures
were subsequently spun off into shell companies to hide
the loss. The profit for the entire fifteen-year deal had
already been booked on their balance sheet.
The other problem with their business model was that even
when they did make a profit, it was significantly overstated.
Returning to the example of the snow plows and tourists,
it should be obvious that on any given winter, Enron would
be liable for paying one of those businesses. But when the
deals were closed with each individual business, the estimated
profit for the entire transaction was booked. That booked
profit had liability.
The illogical nature of this business model shows another
problem with Enron - it needed to both be able to commoditize
new markets and be the biggest player. That meant using
political influence to control the flow of potential competitors
and circumvent antitrust laws when necessary. This is where
Enron truly excelled.
"I'll keep my eye on power deregulation and energy
market infrastructure issues," said the May 25,1999
note to Lay, written in response to Ken's letter congratulating
(newly appointed US Secretary of Treasury, Laurence) Summers
on succeeding Robert Rubin. Before Summers replaced him,
Harvard graduate Robert Rubin was offered a spot on Enron's
board by Lay. Rubin declined the offer, but did become chairman
of the executive committee of Citigroup - one of several
major banks that would invest in Enron partnerships and
lend Enron hundreds of millions of dollars as the company
began to fail. (p. 1-5) Cruver does not delve deeply into
the backroom deals between the government and Enron, but
expose enough tantalizing details to show how common it
was - including personal contributions by Ken Lay to President
Bush (more than $550,000, and encouraged another $550,000
donation from Arthur Anderson) both after he was elected
to the Whitehouse and while governor of Texas, and astute
back scratching with powerful political figures (Including
a $97,000 donation to California governor Gray Davis; Karl
Rove, Tom White and James Baker were all major shareholders,
former executives or former board members; Senator Phil
Gramm's wife, Wendy, served on Enron's board, and even a
personal appearance by Ken Lay at celebrity golf tournament
with tee partners former President's Clinton and Ford!).
The US Justice Department and the Texas Attorney General
had to recuse most of their political leadership from prosecuting
Enron because nearly all of them had accepted contributions
- including Attorney General John Ashcroft ($57,000 for
his failed 2000 Senate campaign) and Texas Attorney General
John Cornyn ($193,000 in campaign money). Oddly, Harvey
Pitt, then Chairman of the SEC and the man with a ham-hand
for ethics, decided he would buck the trend and investigate
Enron. Pitt shrugged off suggestions that his work on behalf
of Arthur Anderson created a conflict of interest, famously
quipping that those who questioned his independence were
politicizing the process. Less than ten months later, Harvey
Pitt was asked to resign his position at the SEC.
And lest the reader think this money was ill spent - Cruver
documents how Enron received more than $1 billion in subsidized
loans from the US government.
Ken Lay had stepped down as CEO not because he was retiring
to work on his golf game, but because he intended to begin
a career in politics.
Compounding this problem was Enron's lack of genuine risk
management. Cruver explains in shocking detail how the risk
management group was dramatically understaffed and actively
subverted by management and Arthur Anderson. The late accounting
firm used their name to help pressure Enron's internal controls
to quickly approve new deals.
The larger lessons of Cruver's book illustrate that complex
business models, even ones flawed to the bone, can survive
for a long time if enough people are duped into it. In addition,
once duped, stakeholders tend to resist all evidence to
the contrary. Very literally, Enron's business strategy
relied on brainwashing its employees, investors and regulators.
The iron laws of economic supply and demand were repealed
for this behemoth.
Enron, which had its Core Values enshrined all over the
company, including the parking garage, also illustrates
the spectacular failure of American business ethics, and
its advocating community. The insistence on epiphenomenal
features of good conduct, such as codes and nice little
training programs, disguise the incredible weakness of it
not having formulated a genuine performance criteria.
"The instructors focused on legal implications and
how an incident could hurt your career. "Right and
wrong" was not on the agenda. (p. 101)
Cruver's book should be read by anyone in the business
ethics field - the only thing better would be a public mea
culpa from Skilling or Lay. But their actions after Enron's
collapse show they still do not believe they have done anything
wrong - it was those "asshole analysts" who messed
up a perfectly good Ponzi scheme.
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