Smoke and Mirrors: Lucy Prebble’s Enron (2009)
We all remember the child’s tale of “The Emperor’s New Clothes” that the immortal Hans Christian Andersen published in 1837. A couple of swindling tailors con an Emperor with a bogus piece of technology, a magic fabric supposedly invisible to those unfit for their positions, stupid, or incompetent. Nobody, the vain Emperor especially, wants to admit that they can’t see the fabric and have others believe them unfit for office so, collectively, they praise the new suit of clothes the two rogues have supposedly woven for the Emperor. When the ruler marches in procession wearing his new magical garments, the entire on-looking nation cheers and shouts compliments, because none of them wants to appear stupid or incompetent. It is an innocent little child, finally, who blurts out, “But he has nothing on!” Soon the crowd is shouting the phrase while the chastened, embarrassed Emperor marches on, clothed only in derision.
Andersen’s story has stuck with us over so many years because it nails our very human tendency to collectively convince ourselves that there is something of value and substance working for our benefit when there’s really nothing there at all—except malice, of course. The group collectively maintains the illusion that the belief system makes sense to the degree that the participants actually believe in it. In the case of the Enron company, the instance of this play, we have the leaders and employees of a global company, and then the investors and all of Wall Street, and then an entire political system and the country, hoodwinked by criminal bookkeeping into believing that solid value and wealth are being generated when there’s nothing there but a Ponzi pyramid of shell companies.
Kenneth Lay (George W. Bush’s “Kenny Boy”) founded Enron in 1985 by merging Houston Natural Gas and Internorth. The New York Stock Exchange listed Enron as an energy, commodities, and services company. By 1992, Enron was the country’s largest dealer in natural gas, a de-regulated product that could be priced to inflate profits for its seller. We tend to think of this 7th largest corporation in America at that time as a good company that went bad. However, it was rotten at the core from early days. Within two years of its founding, Enron weathered a scandal after two traders were revealed to be betting on oil profits and the CEO was discovered diverting company money to offshore accounts. Lay, who had encouraged these scoundrels (“Keep making us millions!”), denied any knowledge of wrongdoing and hired Jeffrey Skilling as his new CEO.
Jeffrey Skilling was criminally innovative and imposed “mark to market” accounting. This allowed the company to record potential profits on their projects immediately after contracts were signed—whether the projects actually did generate any profits or not. Thus, Enron always gave the appearance of being a profitable company even when projects tanked. The company’s stock prices rose and rose, all based on this smoke and mirrors shell game. Skilling, who had a Darwinian vision of success, annually reviewed all employees and annually fired the bottom 15%. This created a working environment that was brutal, highly competitive, and deliberately fostered toadyism. He hired his own goon squad, the” guys with spikes,” to enforce his directives.
Innovative indeed! To hide the economic realities of the company’s business dealings, CFO Andrew Fastow cooked up a network of “special purpose entities.” These were shell companies designed solely to do business with Enron, for the twin purposes of sending Enron money and hiding its increasing debt. If it lost money, a project got parked in an off-shore company that was off-books. Fastow, personally, defrauded the company of tens of millions of dollars while pressuring Wall Street investment banks to invest in his shell entities. The hubris of these corporate gangsters was deliberate and enormous as they blithely named these ghost companies after the raptors in Jurassic Park or the comic TV detective Maxwell Smart. At this time, Enron deliberately manipulated the phony energy crisis in California and bought and gutted several energy companies, leaving employees without jobs and without pensions.
Enron’s stock skyrocketed by 56% in 1999 and by 87% in 2000. In summer 2001 the price stood at $90.56 a share. Enron insiders began to unload their stock and their options for huge cash fortunes. But some financial reporters had already smelled the rat and begun to ask questions. As information leaked out, stock plummeted, selling for mere pennies by October 2001. In December, the company went spectacularly bankrupt—the largest corporate bankruptcy in history (until we get to WorldCom and Lehman Brothers). At the end, Enron executives looted the pension funds of their own employees and many thousands of workers were defrauded of their life savings. As it went down, Enron also took out the once venerable accounting firm of Arthur Andersen (no relation to Hans Christian). Enron’s chief officers faced criminal charges and prison and Congress passed the Sarbanes-Oxley Act of 2002, which requires accounting disclosures and tries to prevent corporate accounting fraud.
How could this come about? Why did everyone buy into Enron’s shoddy game? Hey, remember the ‘90s? From 1994, there were shiny tech bubbles expanding everywhere, kids in tee shirts and jeans became multi-millionaires, jobs were plentiful, the stock market exploded, we retired the national debt, and everyone dreamed that this would go on forever. But so much of it was thin air, smoke and mirrors. We are seduced by greed into believing that there is substance when there is none and we will shout how beautiful are the Emperor’s clothes when he is, in reality, just a naked guy duped by villains.
The opinions expressed by the writer are not necessarily those of 2nd Story Theatre.