The Smartest Guys in the Room Summary
5 min read ⌚
The Amazing Rise and Scandalous Fall of Enron
The Amazing Rise and Scandalous Fall of EnronEnron’s rise and surprising collapse in 2001, left everyone wondering what was going on, behind the curtains.
In this book summary, we try to encapsulate all the events that contributed to the ultimate fall.
Stay tuned!
Who Should Read “The Smartest Guys in the Room”? And Why?
Are you the smartest guy out there? – Who is, in fact, the decision-maker of the house? Many people are eager to encounter success, and you might want to jump on the bandwagon as well, don’t you?!
“The Smartest Guys in the Room” is a story about a company which asserted its dominance and wanted to showcase a dose of strength and invulnerability. As such, we believe it’s suitable for managers, leaders, and students who are in the process of learning.
About Bethany McLean & Peter Elkind
Bethany McLean was born in 1970. She is the author of several books and works as a columnist for Fortune.
Peter Elkind is also a prominent author and highly-skilled reporter who is also a contributor for New York Times, Fortune, and other renowned journals.
“The Smartest Guys in the Room PDF Summary”
The Smartest Guys in the Room provides a recap of the story that will later be known as the rise and fall of Enron. This energy trading company suddenly collapsed in 2001, leaving pretty much everyone in shock and disbelief.
Enron was something like the middleman in the whole process, or should you prefer – an intermediary between gas suppliers and buyers.
What made the company grow so fast, was the plan which emphasized the importance of paying the gas sellers in advance, and making a deal to supply the buyers with a new source of energy, even before the purchase.
Selling the gas to buyers for a fixed price allowed the company to reduce the risks linked to the supply and demand and the uncontrollable gas-price curve. This was a win-win situation because buyers loved nothing more than a full-cohesion and support in the process, while the sellers needed money beforehand to finance their operations.
This pure ingenuity revolutionized the energy markets in the U.S. Enron without facing any real competition, and encouraged by its position in the market, forgot about the process of providing quality of service.
Both the employees and the executives working in there began preparing contracts that would be traded in the foreseeable future.
To make matters worse, these “fictive” deals were actually reported as incomes, without even fulfilling the company’s side of the agreement. In the meantime, the executives received a considerable amount of money, because the stock price went up.
The Smartest Guys in the Room recounts the effectiveness of the operations which were launched off the radar; and why no one was left in command to supervise the company’s proceedings. The organizational culture was revolving around rewards and bonuses, without taking into account the imminent threats:
1) First and foremost, what your associates and employees are motivated to do is synchronized with the company’s risk-reward system.
The employees encouraged by a potential grand slam did almost everything that could grant them their reward. Although Enron’s mission statement indicated that the company advocates for integrity, transparency, and respect; in reality, people were paid for doing the opposite.
2) What you strive for, will ultimately become your reality. From today’s standpoint, experts argue whether Ken really knew what was going on. Apparently, he craved for respect, and the idea to develop an unsurpassable company in the market.
Sometimes wrong, but never in doubt.
The idea was not to provide high-quality service, but use internal competition, backstabbing and ultimately deception to build a successful organization, at least on paper. Ken Lay liked the idea of heading such a huge market leader, without even putting too much effort into it.
If the delayed their growth, probably things would have unfolded differently, and Enron would still be functional.
3) Jeff Skilling, Enron COO, was the man of the hour. He was the one who came up with this brilliant idea of structuring the open contracts, but his over-commitment to devising genius plans, left him exposed to a variety of problems.
Skilling was the one Enron executive who did not take the Fifth Amendment before Congress, though his lawyer advised him to do so.
He had some insights about the problems Enron was facing but didn’t have enough clue to stop the ongoing operations or supervise a full-scale modification. Evidently, Jeff didn’t believe that a slight exaggeration of the stock-prices would harm the company. He always felt that his methods would eventually crush any problem.
By all means, Jeff’s idea to wipe out the books, which verified the accounting deceptions, is known as the biggest boondoggle, in energy-trading history.
This tips may come in handy to you when you create your own company. As it turns out, Enron lost its grip on the market in a heartbeat. Although they were shooting for the stars, the lack of planning, vision, and pure intentions lead them to the bottom of the corporate success-chain.
To sum it up, Enron learned the hard way – that lying is wrong.
Key Lessons from “The Smartest Guys in the Room”
1. Build up for what is to come
2. The one-way ticket to reaching the bottom
3. Promote and encourage integrity, not scamming
Build up for what is to come
Enron’s fate was sealed, and before the collapse, the company was literally labeled as unsinkable, same as Titanic, and we all know how that story ended.
They preferred illusionary growth, before a steady and gradual enhancement.
The one-way ticket to reaching the bottom
Ken Lay as the mastermind of the whole operation, was instigating an unethical behavior.
In reality, almost all of Enron’s executives and employees lied about many things, to get their hands on promotion.
Promote and encourage integrity, not scamming
When doing business, many managers put to the side the idea of working in accordance with some moral principles.
Enron used pitfall traps to reach the sky and eventually ended up in one.
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“The Smartest Guys in the Room Quotes”
He once gave a speech advising anyone who wanted to complete a power project to get all the lawyers in one room, then shoot them—in the mouth, because it’s impossible to miss. Click To Tweet McKinsey partners tend to be designers of ditches, not diggers of ditches. When it comes to executing their lofty theories, well, consultants lean toward leaving those messy realities to the companies themselves. Click To Tweet Figuring out whether a deal was worth doing was nothing if not an exercise in calculating risk: did the size of the potential return justify the risk of all the things that could go wrong? That’s a question that every executive at every… Click To Tweet Never, ever do the easy wrong instead of the harder right. Click To Tweet I don’t like shorts promoting their position. Click To Tweet
Our Critical Review
As book enthusiasts, this is one of our favorite stories that is told from a critical point of view.
It shares an unbiased perspective of Enron’s rise and fall, and what fueled it, in the first place.
Emir is the Head of Marketing at 12min. In his spare time, he loves to meditate and play soccer.
