Read the definitive Enron book about the financial scandal and Enron's downfall. Book summary of the Smartest Guys in the Room, by Bethany. [PDF] The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron All e-book all rights stay with the writers, and packages come ASIS. Get Free Read & Download Files Enron The Smartest Guys In The Room Book PDF. ENRON THE SMARTEST GUYS IN THE ROOM BOOK. Download: Enron.
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terday. The scene: the dolder grand hotel, high in the hills above Zürich, Switzerland. It was I was the co-organizer of an impor- tant international monetary. The Smartest Guys in the Room PDF Summary by Bethany McLean & Peter Elkind give an account of the lightning growth and an even quicker. service and publisher of book Abstracts. getAbstract maintains complete editorial responsibility for all parts of this Abstract. The respective copyrights of authors.
The warning — if we were put into the same situation, we might not have behaved any differently.
In this Smartest Guys in the Room summary, learn: Full Title: The Smartest Guys in the Room: As Charlie Munger would put it , when multiple conditions mutually reinforce each other and create positive feedback loops, a massively outsized result — a lollapalooza — can happen.
These are also the warning signs you can use to detect unstable situations and desist from bad behavior. The Smartest Guys in the Room chronicles the history of Enron, from beginning to end.
For about a decade starting in , Ken Lay espoused the economic benefits of energy deregulation while Jeff Skilling created a new industry centered on natural gas and power trading. This is how it worked: as the energy markets were deregulated around the country, utility rates were no longer set by law with built-in profit margins.
Suppliers and consumers of energy needed to find one another at the best prices. Enron centered itself as the trading hub by acting as a market-maker. They would download supplies from producers and guarantee those supplies to consumers or utilities on the back end. They had a series of pipelines to transport the gas, extensive computer networks that ran Enron Online where a large percentage of all trades in the country took place, and massive overseas energy projects that included pipelines and power plants.
The culture at Enron valued winning above all else, and Enron defined winning as bringing in new revenue and meeting Wall Street's earnings expectations.
Ironically, the company didn't care at all about cutting costs or saving money despite the fact that it can be an easier and potentially more effective means of accomplishing a similar goal.
Jeff Skilling, the de facto leader of the company from the mid 's through early , believed in almost exclusively hiring academically gifted people with degrees from elite institutions and encouraging them to compete with one another. The competition would sharpen their abilities and produce the best results for the company, much like deregulation had increased competition and efficiency for the industry.
That was the theory anyway. This prevailing attitude led to a business strategy and compensation structure with perverse incentives. Because promotions and bonuses were given on a strict bell-curve, much effort was spent on politicking, bargaining, and backstabbing, which necessarily detracted from cooperation and putting the company's best interests first. Mark-to-market accounting meant employees were often rewarded based on their own rosy estimates for long-term projects even if these projects never actually made money.
Enron actually booked projected future earnings on their current earnings reports before they ever received a dime! Therefore, employees had strong incentives to close new deals and didn't care about actually following through with the deals or ensuring they were successful later on. In this culture, the most ruthless or those with the most flexible morals such as Jeff Skilling, Andy Fastow, and Ben Glisan naturally rose to the top.
It's hard to say exactly when Enron first stepped over the line; it's more of a gradual slope than a steep cliff. However, the company officially had to restate earnings from through before it declared bankruptcy in late The two major accounting problems that the book repeatedly mentions are mark-to-market accounting and Special Purpose Entities SPE's. The value of an asset can be accounted for on a historical cost basis what you paid for it when you bought it or the market value what it would be worth if you tried to sell it today.
In this book summary, we try to encapsulate all the events that contributed to the ultimate fall. Stay tuned! And Why? Are you the smartest guy out there? 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. This energy trading company suddenly collapsed in , 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 downloaders.
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 downloaders with a new source of energy, even before the download.
Selling the gas to downloaders 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 downloaders 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. 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.