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Power Failure: The Inside Story Of The Collapse Of Enron
Something strange happened to the Enron Corporation in the early 1990s: It went from a company that traded in tangible goods to one that dealt in pure abstractions, with shoddy accounting practices, astonishing compensation packages, and smoke and mirrors to obfuscate this new reality.Company auditors, Sherron Watkins among them, warned top Enron execs from CEO Kenneth Lay on down that the company's increasing reliance on cooked books and phony reports "will implode in a wave of accounting scandals." As anyone who played the stock market or watched Enron suits do the perp walk on the evening news a couple of years ago will remember, that's exactly what happened. Texas Monthly editor Swarz and Watkins team up to offer this account, rich in anecdote and numbers alike, of what went wrong and who made it so. Though even-handed throughout, they serve up plenty of righteous scorn for the corporate leaders who enriched themselves as the company disintegrated, and for the name-brand politicians who abetted them.
Though Osama bin Laden's pawns barely dented the U.S. economy, observes Alex Berenson in The Number, Lay and his lieutenants brought it to its knees. Swartz's and Watkins's eye-opening account will rekindle new indignation over unpunished crimes and well-rewarded hubris, and it ought to be required reading in business schools henceforth. --Gregory McNamee This book is a great account of what happened. When Enron collapsed, I was in my young teens so I really didn't pay much attention to it. However now seeing I'm in college as a business major I think it is an essential book that should be read by all business majors. It teaches what can go wrong when the wrong moves are put in place. Enron I think did everything possible to cripple itself with out seeing it until it was too late. The book takes off as rocket that a company is about to make it big. It takes from the early stages a company to a giant that falls to shambles.The company employees the wrong people to the wrong positions. Andy Fastow I feel is the biggest crook outside of Skilling. Ken lay I feel was a good man who truly wanted to see the company prevail but with his blindness did not see the fore coming danger. Fastow reported to Skilling and Skilling just signed off on deals with out looking at them. If he would have seen what Fastow was doing with money from the company, chances are these deals would have never made it. However, with the wavering of the ethic code was just wrong. No company should ever break their code of ethics. If they do get out ASAP. Chances are it will lead to bigger breaks and will cause bigger problems and respect will go down the tubes. This book is worth the cost and it will teach you what Enron did wrong. They should have just stayed in the Nat gas business and slowly dabble in other businesses instead of jumping into businesses without expertise. Go out and buy the book you should be pleased the way it is put together. This book offered an unseen perspective into details about ENRON's dealings and people which should illuminate both old and new views about corporate governance, accounting policies, regulatory climate and unseen involvement by parties which contributed to the collaspe of ENRON. With the recent sentencing of Jeffery Skilling, Mimi Swartz's work takes a complicated story of deciet and betrayal and explains the details in a concise and succint manner. A must read for all business leaders. A great read. The greatest reason to read this book is to get an appreciation for the scale of the collapse that was Enron. Also, you will get a description of what life was like at Enron on a personal level from an insider's view, as well as their view on what it had to do with the Company's downfall. Yes - this is one person's account, but there's enough factual information to back them up on the important points.There are many books that are more technically oriented and probably less biased. Unfortunately, for this layman, they don't make very good bedtime reading. I recommend reading these 2 books together because TSGITR gets really dense in places, making for draining reading, but since the story is too incredible to put down, Power Failure takes it to a lighter level. I do think Power Failure hones in more on Andy Fastow, as co-writer Sherron Watkins worked directly with him, and the photograph of his little art project is downright chilling (you'll see what I'm referring to). Power Failure still has some great meat to chew on however; the proximity that Sherron Watkins had to the main players, particularly Lay and Fastow, lends itself to the amazing characterizations of these guys on paper. The two books follow a similar chronology and highlights, so it is interesting to compare the slight variations of the same episodes. Even though Sherron Watkins makes the most of her edge, being a primary player in the saga, the tip of my hat goes to TSGITR's writers for their downright nasty investigative reporting. Power Failure is not a book I would normally read. I'm a straight fiction reader, but picked up this book for some research I was doing. This is a good book that sheds a lot of light onto one of the biggest corporate scandals in history. Now, I'm a pro-business, right-wing Republican and I'm always leary of criticism of big business because many times it is politically motivated and really has no merit. Businesses that make money employ people, businesses that lose money lay off people. No one ever gets a job from a poor person. However, this book shows no political bias, and really doesn't comment on the American system that allowed Enron to fail. Power Failure just lays out the incredible decline of Enron.The book is co written by Sherron Watkins, an Enron exec who bounced around in the company and became the ultimate whistleblower that brought the company down. She voiced her concerns in an anonymous memo that finally got the attention of Ken Lay and forced action. But so many people had doubts about Ernon along the way, I'm surprised it made it that long.The book covers Watkins' background, as well as the infamous trio of Ken Lay, Andy Fastow, and Jeffrey Skilling. The story covers Enron from the beginning and follows it as it grows into a international power. The employees grow in cockiness and Enron splits into various factions and soon the controls in place are useless.The authors really don't make judgments about the characters involved, but through the story they tell, Fastow was the obvious bad guy, setting up multiple special purpose entities that enriched him financially and would have worked if Enron's stock hadn't plummetted. Lay, while definitely part of the problem, really was out of the loop. Skilling was too enamored with earnings growth and meeting projections to worry about how it was actually done.I took away several things from this book. First, the stock market's focus on earnings per share forced Enron, and probably many other companies, to generate the income necessary to meet the projected growth. This led to balance sheet manipulation and then to fraud. The markets aren't satisfied with consistent earnings, it needs growth. Second, fraud is easy if those in charge don't care about controls, or just bypass them. What could have been done to prevent Enron? I don't know. Its amazing how many people had to miss the obvious for Enron to do what it did. Auther Anderson signed off on everything, the lawyers and the auditors missed it too. Amazing!Anyone can enjoy this book. The financial details will be over most people's heads (I'm a CPA with an MBA and it confused me), but the authors don't rely solely on the financial details to describe the fraud being committed. This is a good book that will enhance your understanding of how corporations can go from good to bad in an instant. The entire subject is fascinating and I plan on reading more books on the issue. So little is devoted to Sherron Watkins's experience at Enron that I'm sure there must be better books about the energy giant's downfall.I expected to read about a woman making it in a hyper-charged, testosterone-driven environment, but the writers never deliver on it. The minutiae of contracts and deals are offered up but rarely is Watkins's involvement mentioned.This failure to address her part in the company, for good or ill, leaves me wondering if she simply didn't see the handwriting on the wall and write her infamous memo just to do a little CYA. There's also an unpleasant whiff of sour grapes - she never got the money she thought she deserved. If she had, would she have stayed silent? On reading this, it reminds me of the saying, "Power corrupts, and absolute power corrupts absolutely." One can substitute Money for Power in this saying and get the same idea. Overall, though, while I find the book easy to read and very absorbing, I take some of the stuff with a grain of salt. No doubt the author did the right things by highlighting the problems to Ken Lay courageously. But somehow I feel that there are probably stuff that she knows that is not revealed in the book, perhaps to protect herself. Because objectivity is suspect, I tried to read the book at arm's length. Many good insigts into the background in the fall of Enron.This book does not get too technical and is an easy read.I found interesting the exploration of the characters of Enron into their personalities and behaviors. How this affected the decision-making processes at Enron which led to its downfall.The storyline in this book seems to jump back and forth in time not following a consistent pattern of events. There are two books about the Enron scandal. "Power failure" and "the Smartest guys in the room". I found that "The Smartest" is superior, because many events engage readers emotionally, and it has a clear plotline, a fast paced flow, and a coherent logical axis. "Power failures" spend too much pages on trivial non-important event, which makes a reader tired. For example, "Enron believed it could capture about 5%-8% of the $290 billion electricity market, make a 1%-3% gross margin, adding $300 million per year to the bottom line for Enron sometime", this type of information should have been attached in footnotes. Especially in a scandal section, pages are filled with such detailed information, (ex. "Their work started with the RADR deal in 1997. In that situation, Fastow loaned money to Michael Kopper, who in turn loaned the same money to friends, those Friends of Enron that included Fastow's realtor and also Kopper's domestic parner, Bill Dodson, who then bought the wind company..." There are more than 50 pages filled with this type of information. Without meta-viewpoint or good editing, it is very difficult for reader to keep concentration. In "Power Failure", you hear how Enron had numerous "innovative" idea, or how its operation was "aggressive" for more than 200 times, but the book never explains what exactly "mark-to-market" accounting is, or why it eventually brought the company down. Smartest Guys explains these accounting terms in a very clear way. If you are writing a thesis on the subject, "power failure" would be a great resource. But otherwise, read "the Smartest Guys" instead. Excellent audio and engaging story. My first time with an audio book. Wonderful way to pass the commute to work. I wish I'd seen the film now. Barings... Worldcom... Global Crossing... Adelphia... of the recent major corporate failures, Enron's was the most egregious of all. An insider's account, this book serves as a case study in aggressive corporate accounting as well as pursuit of profit and an ever-rising stock price in 1990's corporate America. This was capitalism gone horribly wrong.In places it gets a bit too technical for non-accountants, but overall this was a highly engaging treatment of the factors leading to Enron's late-2001 demise. The character sketches (Kenneth Lay, Jeffrey Skilling, Rebecca Mark, and the infamous Andy Fastow, among others), in particular, help to put more of a human face on the greatest corporate failure of our time. If you want to know the hows and whys of Enron's trip from Hero to Zero, this is the book to get you there. This was a good look at the fall from one of the insiders who had a good view. But the book dragged and could have benefitted from some tighter editing. Some portions were needlessly long, only to reveal small insights into the problems at the company.In a related note, if you are interested in a book that offers a very fresh perspective on the Enron mess (although no inside information) I highly recommend "The Tao of Enron." Everyone is familiar with the story of Enron Corporation, but do they really know what factors initiated the destruction of this world-respected company? While the outcome is obvious, few people are knowledgeable about the cause of this atrocity. The media spun this news event into a tale of good guys versus bad guys - the powerful executives hurting the weaker, low ranking employees. But the profoundness of this case is that such a scandal can occur at any corporation. As effectively illustrated in Power Failure, the handiwork of CFO Andy Fastow blurred the lines of legality so indistinctly, that it was difficult for several renowned legal firms and accounting firms to recognize as unethical. It was not an obvious shuffling of numbers that inflated earnings over $4 billion dollars, but gray areas that bordered fair accounting and federal crime. The discreetness of the financial operations is what hid billions of dollars in debt from investors, other executives, and auditors. After reading the book, it is evident how such a scheme could slip past the CEO without notice.The best aspect of Power Failure is that it describes the malignant financial manipulations in detail. It perfectly describes how Enron used accounting practices like FAS 25 to book earnings before they could be earned. It shows how Enron used fair value accounting as an unfair means of shuffling assets and making profits. It shows Andy Fastow's the gradual chipping to create a complex network of special purpose entities, which turned into a recipe for disaster. Power Failure does a good job debunking many of the misunderstandings that surround the Enron case. Despite the media glamour as a hero, the "whistleblower" Sherron Watkins actually played a minor role in exposing the scandal. The mysterious suicide of accountant Cliff Baxter really had no hidden agendas. Questions can also be raised as to Ken Lay's participation in the event, despite his insider trading of stock.Perhaps the greatest strength of Power Failure is that it can show executives of other companies what to watch out for. Students and accounting buffs will also find this a worthwhile read. Being knowledge about the Enron story may even prevent such an incident at your company. Ken Lay was the product of a very religious background in a small Midwestern town. During work on his PhD in economics, he became enamored of the world of stocks. He parlayed InterNorth, a small energy company into Enron. He was a rich man, having made $4 million in stock value increases from the merger of Houston Gas into InterNorth, later renamed Enron. He was also the highest paid CEO in the United States. The company's strengths were also its weakness: the constant risk-taking; the high debt load to ward off potential takeovers; "impassioned embrace of deregulation;" constant reorganization; and instant adoption of the hottest new business ideas. They were soon struggling for cash. In the meantime, Lay had created a new culture at Enron. It was his belief that all one had to do was hire the best and the brightest, provide a free environment, and things would take care of themselves. He also had trouble saying no to anyone. He hired an old friend to be the "bad guy," but it soon became apparent to all that if you made money for the company you could get whatever you wanted. Watkins was hailed in 2001, following the collapse of Enron, as a heroine for her "whistle-blowing." Whether her actions actually constitute that appellation is open to question. Certainly she was an insider, and her account reveals a great deal more of the financial shenanigans in greater detail than the previous book I reviewed, Anatomy of Greed. She interacted constantly with Lay, Skilling and Fastow, and if she got really nervous about what she was seeing, perhaps whistle-blowing was just a way of protecting her posterior. What started out as a new paradigm, a different way of delivering energy, soon became a case of the blind leading the blind, or a corporate version of Dumb and Dumber, as the board and Enron employees began creating numerous new ways of hiding losses, even making losses look like revenue. It was a huge, ever-increasing house of cards. Watkins is an accountant and naturally had a strong sense of the financial improprieties the company had embarked upon, but the impending doom she warned of in her now-famous memo to Lay should have been obvious to everyone. Enron's own head of research said presciently, "Every era gets the clowns it deserves." If they ever make a movie of this book, it will have to be a comedy. It is astonishing how stupid many of the "best and brightest" graduates of American business schools were, as they bellied up to the trough of corporate greed. Sherron made an attempt to meet with Ken Lay, but first she had to convince his personal secretary to arrange a meeting. The secretary informed Watkins that "Ken gravitates toward good news. . . ." It did not bode well for the meeting. Another insider told her to make the presentation as simple as possible and eliminate any accounting jargon. She obliged and reworked her presentation so that her two-year-old daughter could understand it. The meeting was a flop, and it was clear to her that Lay could not understand - or perhaps did not want to understand - a thing she was talking about. Ironically, Osama Bin Laden's exploits barely dented the US economy. Lay's machinations and the subsequent stock free fall provided a vicious slambang. An interesting and involving read on the rise, demise and fall of Enron. The book draws the reader into this story of of corporate greed, corruption and deception. Disappointing. Although Watkins got a lot of play as a "whistleblower," you may develop a different opinion if you read her actual memo. Nothing new, which is disappointing given her immunity from prosecution, and too long in coming. Technically proficient ghost writer. Power Failure was interesting and well enough written, considering the complexity of the issues leading up to and surrounding Enron's final debacle. It is not surprising that I myself found Mimi Swartz's account to be esoteric despite protagonist-and-credited-coauthor CPA Sherron Watkins's nod to Swartz's ability to clarify events. This is because when matters turn to topics of numbers my eyes tend to glaze over with what my son (also a CPA) ascribes to 'math anxiety.' However, it is apparent that not even the experts were astute enough to call Enron on what even I can clearly deduce from this book were years of fudging issues. Enrons structure was a tangled web of entities cobbled together in ad hoc fashion. It seems very few people were given the whole story anyway. As did other readers, I too wondered why Watkins waited so long to blow the whistle, but in that environment where power was a sad substitute for common sense, perhaps I too might have waited, especially when it did not seem that any attractive alternate was looming were I to quit. And it is difficult to play the role of a Cassandra in an environment where people are making gobs of money. According to this book, those in charge had a hubristic attitude that uncooperative people didn not 'get it,' and every problem could and should be handled by Enron?s public-relations department. These efforts read, especially with hindsight, like condescending semiotics, such as an upbeat survey of employee opinions taken while the business was collapsing. It is depressing to wonder if this cycle, despite herculean barn-cleaning in the business community, will repeat itself, but the chances are it will. After the slash-and-burn tactics following the early 1980s slump, one would think that business would have been humbled or at least more careful.Apparently not. In an era of instant gratification, old lessons are quickly forgotten. Having followed Enron's collapse closely both in the news and as a bankruptcy lawyer working on the case, I thought I knew it all. Sherron Watkins saved buckets for the book. More than once I would have to stop reading and just stare at the page in sheer disbelief. And to those who think of Watkins as a traitor or who was somehow responsible for the company's collapse, not even Fastow, Skilling or their lawyers can possibly believe that one. This is the story of a company managed by smart, very smart people. There is no guarantee that smart people are honest. The best part of the book is that it comes from someone who was a part of this smart team, not so smart to reach the top, but was smart enough to be at the right places to know the whole story. Sherron Watkins not only knows the story well but also narrates it at the same pace and excitement of a fast track company. Had Enron published this book, it would have made money trading on the manuscript before it had reached the press. It would have booked a few million dollars in profit from sale of future editions using the "mark to market" route. Some smart executive who had thought of this brilliant idea would have walked away with a fat bonus even before the first copy of the book had left the printing press. This was Enron.What started as a successful company that transported gas, ends up trading in everything it can lay its hands on. Its accounting innovations are nothing short of manipulations of elephantine proportions, carried out with blessings of the now defunct audit firm. No one bothered as long as money flowed in, into the right pockets. " You can't fool all the people all the time", but this story ends when almost all the people who invested in Enron end up as fools. This is the story of a company that once boasted of becoming "The World's greatest company". Well, this is not a story. A very compelling read. One of those books that you wish had waited a couple of years so the authors could comment on whatever will happen to Andy Fastow, Jeff Skilling, Ken Lay, et al. I lived in Houston during the Enron heyday and know many people who lost everything they had in the collapse. I found myself unable to detach from the arrogance of the upper management, sometimes including Ms. Watkins, who was part of the problem long before deciding to help with the solution. It will be interesting to see how it all turns out. Mimi Swartz writes a wonderful story. The insight into the personalities of Jeffrey Skilling and Andy Fastow. Where she loses it is when she tries to make us believe that Sherron Watkins is heroic. Baloney! Ms. Watkins was just as greedy, just as nasty, just as self-serving as the rest of them. She only wrote the memo to Ken Lay to protect her job, not from viewpoint of a corporate savior. She was just worried as to where she is going to get her obscene bonus. Her salary was excessive to the point of disgust. She still has the arrogance of an Arthur Andersen accountant. I would love to have been her boss as well as Andy Fastow's boss. They both would have been on the street before sundown. Thank you, Mimi, for a well written book. Shame on you Sherron for your greed and lack of ethics. This is the third Enron book I've read and, in my opinion, this one is clearly superior to the books by Bryce and Cruver. Power Failure had things going for it that the other two did not - an insider who had been at Enron for quite a while and who was at least high enough up the ladder to have some contact with a few of the key players and a professional author to do the writing. Also, the insider here is a knowledgeable enough business person to keep this book from making some of the silly points found in the other books. The result is a pretty good book that is fairly well written.Does that sound like faint praise to you? I suppose it should because that's pretty much the way I feel about Power Failure. I didn't find major flaws, but I also didn't find myself savoring the book even though I'm obviously interested in the subject. I can say that I've read other work by Mimi Swartz in Texas Monthly magazine and generally had a similar reaction - she can take a great topic and produce an OK, but not outstanding story. In this book, perhaps I just didn't share her stated great admiration for Ms. Watkins. I think she did something that took courage, but she was always acting in her own best interests (and inside the organization) and does not, in my view, deserve to be grouped with the whistleblowers from the FBI and Worldcom as she has been. I also think Ms. Swartz missed the mark in her description of the Boxer/Skilling exchange in the Senate hearings and its aftermath. I watched those and didn't find Boxer's comments nearly as powerful as Ms. Swartz recounted them (maybe Ms. Swartz likes liberal Democrats, particularly if they're female?) and I thought the comment about Skilling's red or teary eyes could well have been due to the exchange about Baxter's suicide and not about the whupping he took from Watkins and Boxer. Anyway, enough said - if you're interested in the Enron story, this book is worth reading. At the same time, there's still room for a really good book on the subject. This book was interesting in parts but not really until the last section. There were early sections that could have been explained in a more engaging way so that you didn't have to have a master's in business to figure out what was going on. (I teach English for a living, so I am used to hard books.) I just found myself losing attention---and being annoyed by attempts to paint Sherron Watkins as a great hero. Although it was a library book, at one point I found myself writing., "What hyperbole! A hero? In the year of 9/11?" Lets not overexaggerate this woman's "accomplishments." After reading the memo, I don't know what the fuss is about. She didn't really do anything once she wrote the memos, as far as I can see, and didn't plan on it. It's only because of Enron's historical fall that she was able to swoop in like Joan of Arc. I also find it ridiculous that in the year of 9/11 and the war in Afghanistan, her contributions were deemed worthy of Time's Person of the Year honor. It was just dumb and obviously book bashing. But back to the book. This book gave good portraits of Lay, etc., but there was an undercurrent of male-bashing that I found unacceptable. Like women could do so much better---with their (sometimes) cattiness and overemotionalism. Dumb. I think the best indictment of Time's choice is this: I cannot even remember the other two women that shared the cover with Watkins, and in five years I won't know her name, either. Choose a firefighter, a policeman, a token GI, maybe Rumsfeld, or Bush. But a trifecta of women who didn't even do a tenth of what the above list did? No way! Sorry to be so mean, but this book annoyed me a bit. Unless you are a corporate bean counter and have a firm foundation of the Enron debacle, I suggest you read Robert Bryce's *Pipe Dreams: Greed, Ego, and the Death of Enron* before reading "Whistle-blower" Sherron Watkins' story, here with the help of Texas Monthly's Mimi Swartz. *Power Failure* is focused more on Enron's people and personalities than The Big Picture. If you are clueless about "Mark to Market" accounting, return to *Pipe Dreams* and do not collect your now worthless Enron-backed Pension.The photos are more plentiful here and the personalities come alive in their wicked glory. There are no footnotes, and few quote attributions - which can lead to credibility issues. What was her motivation? What did she know and when did she know it? Why wait so late? There is one cool -and it's even attributed- quote, which, unfortunately, Azon's "editors" will not let me quote here in its entirety. It goes something like this: Senator Peter G. Fitzerald to Kenny-Boy (Pres. G.W.'s pet name for him) Lay: You're perhaps the most accomplished confidence man since Charles Ponzi. I'd say you were a carnival barker, but that wouldn't be fair to carnival barkers.Reviewed by TundraVision
Sherron knew Enron well enough to know that the company was in extreme spin mode…
Power Failure is the electrifying behind-the-scenes story of the collapse of Enron, the high-flying gas and energy company touted as the poster child of the New Economy that, in its hubris, had aspired to be “The World’s Leading Company,” and had briefly been the seventh largest corporation in America.
Written by prizewinning journalist Mimi Swartz, and substantially based on the never-before-published revelations of former Enron vice-president Sherron Watkins, as well as hundreds of other interviews, Power Failure shows the human face beyond the greed, arrogance, and raw ambition that fueled the company’s meteoric rise in the late 1990s. At the dawn of the new century, Ken Lay’s and Jeff Skilling's faces graced the covers of business magazines, and Enron’s money oiled the political machinery behind George W. Bush’s election campaign. But as Wall Street analysts sang Enron’s praises, and its stock spiraled dizzyingly into the stratosphere, the company’s leaders were madly scrambling to manufacture illusory profits, hide its ballooning debt, and bully Wall Street into buying its fictional accounting and off-balance-sheet investment vehicles. The story of Enron’s fall is a morality tale writ large, performed on a stage with an unforgettable array of props and side plots, from parking lots overflowing with Boxsters and BMWs to hot-house office affairs and executive tantrums.
Among the cast of characters Mimi Swartz and Sherron Watkins observe with shrewd Texas eyes and an insider’s perspective are: CEO Ken Lay, Enron’s “outside face,” who was more interested in playing diplomat and paving the road to a political career than in managing Enron’s high-testosterone, anything-goes culture; Jeff Skilling, the mastermind behind Enron’s mercenary trading culture, who transformed himself from a nerdy executive into the personification of millennial cool; Rebecca Mark, the savvy and seductive head of Enron’s international division, who was Skilling’s sole rival to take over the company; and Andy Fastow, whose childish pranks early in his career gave way to something far more destructive. Desperate to be a player in Enron’s deal-making, trader-oriented culture, Fastow transformed Enron’s finance department into a “profit center,” creating a honeycomb of financial entities to bolster Enron’s “profits,” while diverting tens of millions of dollars into his own pockets
An unprecedented chronicle of Enron’s shocking collapse, Power Failure should take its place alongside the classics of previous decades – Barbarians at the Gate and Liar’s Poker – as one of the cautionary tales of our times.
From the Hardcover edition.Reviews:
