Twenty-five years ago, a company called Enron was the undisputed king of the mountain. They weren't just a business; they were a cult of genius. If you worked there, you were told you were better than everyone else. If you invested in them, you felt like you’d found a money-printing machine. Then, almost overnight, it all evaporated. The documentary and book Enron: The Smartest Guys in the Room isn't just a history lesson—it’s a horror story about what happens when arrogance meets creative accounting.
It’s honestly wild to look back at the footage of Jeff Skilling and Ken Lay. They weren't hiding in the shadows. They were on the covers of magazines. They were "innovators." But the innovation was mostly just a massive shell game.
How the smartest guys in the room lost $60 billion
The title of the film, based on the book by Bethany McLean and Peter Elkind, is deeply sarcastic. These guys—Skilling, Lay, and Fastow—really did think they were the smartest people to ever walk the earth. They looked down on boring, "old economy" companies that actually owned physical things like power plants or pipelines. Enron wanted to be "asset-light." They wanted to trade everything: weather, broadband, electricity.
Basically, they turned a boring utility company into a giant, unregulated casino.
But casinos usually have cash. Enron didn’t. To keep the stock price climbing, they used something called Mark-to-Market accounting. This is where the madness starts. If Enron signed a 20-year contract today, they would estimate how much money they might make over those 20 years and book the entire profit immediately. If the deal actually lost money later? They’d just hide the debt in a "special purpose entity" (SPE) with a nerdy name like LJM or Chewco.
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It was legal. Sort of. Until it wasn't.
The culture of "rank and yank"
You can't understand the Enron collapse without looking at the culture Jeff Skilling created. He implemented a Performance Review Committee (PRC). People called it "Rank and Yank." Every year, the bottom 15% of employees were fired. Imagine working in an environment where your cubicle neighbor is literally incentivized to sabotage you so they don't get "yanked."
It created a workplace of sociopaths.
One of the most chilling parts of the Enron: The Smartest Guys in the Room narrative is the California energy crisis. Enron traders were literally caught on tape laughing about "Grandma Millie" losing power. They purposefully shut down power plants in California to create artificial shortages, driving up prices so they could profit on the trades. It wasn't just corporate greed; it was predatory. They were gaming the system while people's lights went out.
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Why Arthur Andersen disappeared too
It wasn't just Enron that went down. One of the "Big Five" accounting firms, Arthur Andersen, vanished because of this mess. They were supposed to be the gatekeepers. They were the adults in the room. Instead, they were shredding documents in the middle of the night.
When the whistleblower Sherron Watkins finally sent her famous memo to Ken Lay, the house of cards was already leaning. She warned that they would "implode in a wave of accounting scandals." She was right.
The sheer scale of the deception is still hard to wrap your head around.
- $63.4 billion in assets.
- Thousands of employees losing their entire 401(k)s.
- Executives cashing out $116 million in stock while telling employees to buy more.
Ken Lay maintained his innocence until he died of a heart attack before his sentencing. Jeff Skilling went to prison for years. Andy Fastow, the mastermind behind the SPEs, became a government witness.
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What we still get wrong about the collapse
A lot of people think Enron was just a "bad luck" situation or a few rogue traders. It wasn't. It was a systemic failure of every check and balance we have in capitalism. The banks (J.P. Morgan and Citigroup) helped them hide debt. The lawyers signed off on the deals. The analysts at big firms kept "buy" ratings on the stock even as it was cratering.
Everyone wanted to believe the lie because the lie made them rich.
Even today, we see echoes of this. When you look at the collapse of FTX or the "fake it til you make it" culture of Theranos, it’s the same DNA. The technology changes, but the human ego doesn't. We still fall for the "visionary" who claims to have a "black box" that produces infinite returns. If you can't explain how a company makes money in two sentences, they probably aren't making money.
Real-world lessons you can actually use
If you're an investor or just someone trying to navigate the modern corporate world, the Enron story offers some pretty blunt takeaways.
- Watch the cash flow, not the earnings. Profits are an opinion; cash is a fact. Enron had "earnings" but they were hemorrhaging actual cash. Check the Cash Flow Statement. If "Net Income" is huge but "Operating Cash Flow" is negative, run.
- Beware of "The smartest guy." If a CEO acts like they are the only person who understands the business, they are usually hiding something. Transparency is a feature, not a bug.
- Culture is a leading indicator. If a company rewards results at the expense of ethics, those results will eventually be faked. A toxic, hyper-competitive internal culture is a massive red flag for long-term failure.
- Complexity is a mask. The SPEs Enron used were so complex even their own board members didn't understand them. If the structure of a deal requires a PhD to explain, it’s designed to confuse, not to create value.
The legacy of Enron: The Smartest Guys in the Room is a reminder that the biggest risk to any system isn't a lack of intelligence. It's a lack of humility.
To protect your own interests, start by looking at the incentives. Ask yourself: how does this person get paid? In Enron's case, everyone was paid to keep the stock price up, regardless of the reality on the ground. When the incentive is the stock price rather than the health of the business, disaster isn't just possible—it's inevitable. Audit your own investments for these "complexity traps" today.