The Inside Story

Of the Collapse of Enron

By Mimi Swartz with Sherron Watkins

Doubleday. 386 pp. $26


Ambition, Greed,

And the Fall of Arthur Andersen

By Barbara Ley Toffler with Jennifer Reingold

Broadway. 273 pp. $24.95

In the late 1980s, a business consultant named Jeffrey Skilling had a novel idea. The pipeline company Enron, he thought, should open a "Gas Bank." Rather than just ship natural gas around the country, Skilling believed, Enron could make big money buying gas from suppliers, anticipating consumer demand and quickly reselling it at a profit to distributors. Why operate stodgy old pipes when you could create a magical energy-trading market?

According to Power Failure, a compelling history of Enron by journalist Mimi Swartz and the company's noted "whistleblower," Sherron Watkins, only one man liked the concept when Skilling presented it to Enron officials -- chief executive Kenneth Lay, who signaled his assent to Skilling in two words: "Let's go." Thus America's energy-trading industry was born, along with Enron's image as the country's most innovative company. Even today, with Enron a byword for corporate malfeasance, the company still retains a veneer of that pioneering image. But as Power Failure makes clear, the Gas Bank was virtually the only good business idea Skilling or anyone else at Enron ever had. Worse, gas trading became less lucrative for Enron after other firms started doing it -- causing executives to search, frantically and unsuccessfully, for new ways to increase profits.

Power Failure richly details that search, while offering a savvy interpretation of its subject. Enron was not just ethically and financially bankrupt, Swartz and Watkins tell us. It was also intellectually bankrupt. This analysis may surprise readers expecting a typical as-told-to story featuring Watkins, Time's co-Person of the Year for 2002. But Power Failure does devote several chapters -- told in the third person, a slightly awkward arrangement -- to her Enron career and her role as the firm's Cassandra, when she warned Lay that Enron could "implode in a wave of accounting scandals."

Power Failure is careful to claim early on that Watkins, even at Enron, was never really of Enron; she was a "practical, pragmatic . . . woman at a novelty-worshiping, image-conscious company." Perhaps by design, she is the third most vivid figure in Power Failure, behind Lay, a preacher's son with a fervent belief in deregulation and a checkbook to open doors in Washington, and Skilling, a workaholic financier whose competitiveness set the tone for the firm's aggressive antics and attitude. But Power Failure is best when dissecting Enron's problems, starting with the risky nature of energy trading: "We're bookies," said Lou Pai, Skilling's favorite trader, explaining the firm's business to a recruit. "We're making bets." At first, those wagers were no-lose propositions: "Because Enron had become so dominant in the [pipeline] business, it was the dominant company when it came to setting prices as well," say the authors. Thus the firm "could effectively grow the market, set the prices, and control it at the same time."

That changed when other firms entered the fray. And when Enron tried electricity trading, it lacked the expertise to cash in. (The electricity-trading profits Enron did make, Power Failure implies, were often due to market manipulation, especially in California.) Its overseas power deals were duds, and Enron's broadband business, where Watkins briefly worked, was a fiasco: "Enron had spent hundreds of millions on equipment, and now no one could find it." The company's movies-on-demand service had 300 customers. In sports terms, Enron was like a heavyweight boxer with a glass jaw: When the company's opponents started landing punches, it couldn't go the distance.

As we now know, Enron was staying afloat thanks to astonishingly aggressive accounting tactics, which also brought about the ruin of Arthur Andersen, the once-esteemed auditing firm that approved Enron's financial reports.

The story of Andersen's demise is told in another new book, Final Accounting, by Barbara Ley Toffler, a former business professor and ethics consultant who worked at the firm from 1995 to 1999. Toffler finds plenty to criticize about Andersen. She rips the culture of conformity she says she encountered, calling her co-workers "Androids" indoctrinated by uniquely extensive employee training. An illogical billing system meant employees fought each other for business: "The brutally competitive atmosphere within the firm made a mockery of its principles and of its culture." She claims that executives, including Joseph Berardino, later the CEO during the firm's death spiral, seemed to fashion revenue targets out of nothing.

Doubtless the firm's shoddy practices deserve scorn, and it's hard not to feel sympathy for someone whose job involved encouraging ethics among Arthur Andersen's staff and clients. But it's also hard to care about most of the events detailed in Final Accounting. Many of Toffler's supposedly telling anecdotes end with a whimper. She recounts writing a memo to Berardino about ethics but admits she "never got any response." She submitted an ethics white paper to a management committee, but notes, "I never heard another word." When she left the firm, a partner suggested she might conduct an external review of Andersen, but "John's call never came." This indifference may be revealing, but it's hardly gripping reading.

Indeed, for an insider's story, Final Accounting doesn't take us very far inside Andersen. "By the time I got to the firm in 1995," Toffler states, "it was, to me, a place where people had begun to talk and think more crooked than straight." Which means Final Accounting tells us little we don't already know about the decline of standards at the firm. Toffler says Andersen's consulting business -- now Accenture -- created conflicts of interest, while Andersen's accountants and management lacked the resolve to stand up to troublesome clients, including Enron. But many observers were also saying this well before Andersen became extinct.

Still, the parallels between Enron and Andersen are intriguing, since both firms collapsed after widening their business interests and pursuing the chimera of ever-greater profits. As many utility companies that aped Enron's transformation have since discovered, energy trading can be far less profitable than simply delivering energy to customers. Some have even closed their trading desks and returned to making boring, steady profits in the line of business they know best. What a novel idea. *

Peter Dizikes, a Boston-based writer, is a former business reporter for ABC News.

An unidentified woman carries a box from Enron headquarters in Houston on Nov. 28, 2001