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THE FINAL DAYS OF THE ENRON MELTDOWN:
A Review Of Anatomy of Greed, A Young MBA's Insider Tell-All


By TOM TAULLI


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Friday, Nov. 8, 2002

Brian Cruver, i>Anatomy of Greed: The Unshredded Truth from an Enron Insider (Carroll & Graf 2002)

It was America's seventh largest company and Fortune declared it America's most innovative company for seven years straight. In March 2001, Enron stock price was still strong despite the ravages of the bear market.

In light of all this, the future looked bright for the 29-year-old Brian Cruver - a recent MBA graduate who decided to join the ranks of the world's most innovative company. Cruver thought he'd "hit the jackpot." In Texas, Enron was the place to work if you wanted respect, security and wealth.

As everyone knows, Enron's future would quickly transform itself into a nightmare, one that had profound consequences on the US economy. Cruver, like so many, lost his job, bonus, and stock options. Yet was nonetheless able to hit another jackpot: He has written a book on the final days of the company, Anatomy of Greed: The Unshredded Truth from an Enron Insider.

A Valuable Employee's Perspective on an Imploding Company

It's a bit misleading to say that Cruver was an insider; he had joined the company and was hardly in its upper echelons. But this very fact adds some appeal to his account: He wasn't involved in the misdeeds that took the company down, and while most Enron literature is from journalists, he provides a refreshing look at what a typical employee would see as his company suddenly implodes.

Enron's Darwinian System

The company was the result of a merger of pipeline companies in 1985. The new CEO was Ken Lay, a smart, hard-working executive (he got his PhD in economics at night school). Lay's ambitions were off the charts; he wanted to build the premier pipeline company. The first step was to change the company's image, calling it Enron.

Lay's critical insight was that financial power can be greatly enhanced by playing savvy politics. His company even developed a sophisticated software program that helped optimally allocate campaign contributions.

While Lay had the vision thing, he realized he needed someone with strong operating skills. Jeffrey Skilling, he decided, was the person for the job. Skilling was a top graduate at Harvard Business School and excelled at McKinsey & Co.

Skilling created a Darwinian environment at Enron. One of his innovations was the "rank and yank" system: Those employees that were ranked at the lowest 15 percentile would get the boot. But if you survived, you would get lucrative stock options and bonuses that theoretically had no caps.

A Pipeline Company that Became a Type of NASDAQ

But, you may be asking, how can a pipeline company become a supergrowth company that dazzles Wall Street? The answer is, it can't.

Skilling quickly reinvented Enron into an asset-lite company. With sophisticated computers and software, why not create a NASDAQ for trading just about anything? Enron became a marketplace for natural gas, advertising, freight, newsprint, electricity - indeed, just about anything.

To accomplish this, the company fashioned complex "derivatives" - tradeable contracts whose value derives from underlying commodities. Like insurance, derivatives can help buyers to reduce and control risk.

Cruver's Short Stay at Enron Still Reveals A Great Deal

Cruver's own experience at Enron, like the company's history, was an interesting one - and thus the book is a good read.

When Cruver started his job at Enron, his office had no walls; rather, he was sitting at a desk on a trading floor. He had several telephones and flat-screen monitors to track his trading activity. There was a proprietary language on the floor. If you "puked," it meant that you took a loss on a trade. If you sold a "buck," this was a million dollar transaction.

Even though Cruver was at Enron for a short stay, he was able to quickly understand the dynamics of the business. For example, he found out that to continue the voracious growth meant expanding into global markets. Some of the locales were in India, Brazil, Guatemala, the Dominican Republic, and the Philippines. It was not uncommon for executives to take Cessna airplanes into the bowels of dangerous jungles.

Some of the global forays turned into disasters. One case was in San Juan, Puerto Rico - where an air-conditioning system was turned on and ignited a mixture of oxygen and propane. In all, 33 people died and 80 were injured. The propane leak was from a broken Enron pipeline. Months before the explosion, there were many complaints but nothing was done about it.

A Page-Turner In Which More and More Troubles Are Revealed

In a way, the book is a page-turner. In every chapter, Cruver learns more and more about significant problems at Enron.

There are the questionable off-balance sheet entities (with names like JEDI and CHEWCO). There is the lingering question of how the CFO, Andrew Fastow, made millions from some of the partnerships. There is the sudden disclosure of massive losses. And there is the dumping of the stock by executives (one executive sold over $270 million).

As with any organization, there were rampant office rumors - which Cruver heard, and shares. There were also many emails from the corporate brass of Enron claiming nothing was amiss. It was also hard not to notice the shredding of documents that seemed to go on endlessly. Then there were the growing number of news vans outside the Enron offices.

In a way, Anatomy of Greed is reminiscent of a made-for-TV movie. In fact, Cruver has already sold the rights to CBS. But don't let this deter you. This book is not about salacious stories inside the walls of Enron. Rather, it is an easy-to-understand guide to what went wrong.

Cruver does a great job explaining the funny accounting and the partnerships. He talks about the conflicts of interest among auditors, analysts, investment bankers and the board of directors. All in all, he provides a compelling portrait of what it's like to be an employee whose company is falling apart around him - as well as a convincing example of one employee who landed on his feet.


Tom Taulli is the author of a variety of books on finance, such as The StreetSmart Guide to Short Selling (McGraw-Hill 2002) and The Complete M&A Handbook (Random House 2002). He is also a professor of finance at the USC Marshall School. His email address is tom@taulli.com.

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