15 Years After Enron (Gwen Moritz Editor’s Note)

(Enron)

Dec. 2, as I was reminded by NPR as soon as I woke up that morning, was the 15th anniversary of Enron’s bankruptcy filing. So much was happening about the same time — it was less than three months after 9/11, after all — and so much has happened since that it’s easy to forget that there was a time when every few months brought the revelation that another highly successful corporation had actually been cooking the books.

I celebrated by rereading Bethany McLean’s modest article in Fortune magazine that gently questioned the valuation of Enron stock and by rewatching (on Netflix) the excellent documentary “Enron: The Smartest Guys in the Room.”

Revisiting Enron was like a sentimental journey back to my early days as editor of Arkansas Business, when I was just starting to understand the product I had inherited and to have ideas for ways this publication could better serve its audience as the internet was making more and more data readily available.

(Back then, for instance, the annual list we did of the top stockholders in the state — the same list we publish in this issue — relied entirely on stock holdings disclosed in months-old proxy statements rather than up-to-date Forms 3, 4 and 5. The paper proxy statements that came in the mail were hoarded in the newsroom all year because that was still easier than using our old, slow internet connection to pull large documents off the Securities & Exchange Commission’s EDGAR system.)

McLean’s article proved inspirational to me, even though I wasn’t paying attention to it when it came out in March 2001. In my defense, neither was anyone else, except the Enron executives who realized that her central question — “How exactly does Enron make its money?” — was getting entirely too close to the truth.

McLean, who was 30 at the time, couldn’t possibly have known just how naked Emperor Enron was. Fifteen years later, her article holds up beautifully because its tone was more like hands thrown in the air in frustration than any triumphant gotcha. She and her editors were willing to ask the stupid questions and to reveal their ignorance, which is a lesson I have tried to take from the Enron story.

I find myself juxtaposing McLean’s brave, brilliant naivete with the disastrous certainty displayed by J.P. Morgan CEO Jamie Dimon a few years later, as he explained to the Financial Crisis Inquiry Commission: “Somehow we just missed that home prices don’t go up forever.”

Another lesson from Enron is that intelligence isn’t everything. “I’m [expletive] smart,” CEO Jeffrey Skilling famously told the admissions officer who interviewed him when he applied to Harvard Business School. He was smart and he surrounded himself with smart people, and they dreamed up clever ideas for enriching themselves by lying to investors (including gullible, enthusiastic employees) about the fact that their company wasn’t actually selling anything of value. What a miserable existence.

Skilling has now been in federal prison for 10 years with freedom still a couple of years away. Smart definitely isn’t everything. (Perhaps it’s not entirely coincidental that the era of accounting scandals also produced a monster best-seller called “The Purpose Driven Life.”)

The timeliest takeaway from Enron, however, is probably this: Government regulations don’t spring out of the minds of bored bureaucrats. They are invariably a response to bad behavior.

Enron and others (WorldCom, Tyco, etc.) inspired the Sarbanes-Oxley Act of 2002 just as the Great Depression inspired Glass-Steagall and the housing meltdown of 2008 (facilitated in part by the repeal of Glass-Steagall) inspired the Dodd-Frank Act. If there weren’t a catalog of cases in which innocent savers were ripped off by self-serving retirement advisers, the Department of Labor would never have promulgated a rule requiring them to act as fiduciaries.

Our president-elect and the Republicans who will continue to control Congress talk much about deregulating, and there are undoubtedly regulations that do more unintended harm than intended good. But deregulation can have unintended consequences as well. Some of us are old enough to remember that deregulation was a big factor in the S&L crisis of the 1980s. And deregulating electricity — well, Enron and the rolling blackouts it used to hold California hostage are why Arkansas dropped that idea like a hot wire.

In the rush to deregulate, it’s important not to forget how we got here in the first place.

Gwen Moritz is editor of Arkansas Business. Email her at GMoritz@ABPG.com.