Fifty Minutes with Alex Gibney

Remember Enron? You know, the big company that went belly-up. The executives got rich while the employees and shareholders got the shaft. That Enron. Seems like so long ago. Alex Gibney brings it all back in his new documentary Enron: The Smartest Guys in the Room, based on the book by Fortune magazine reporters Bethany McLean and Peter Elkind. Gibney borrows the Enron slogan “Ask Why” and asks why Enron was able to fool so many people for so long, and why the company fell apart. His film shows how, through a practice called “mark to market,” Enron declared profit estimates as actual profits, driving their stock prices higher. Enron Chief Financial Officer Andy Fastow created shadow companies to hide Enron’s debt. Through testimonials from former Enron traders and videotapes of Enron’s shareholder meetings, Gibney paints a picture of a corporate culture gone awry. Appearance triumphed over substance. Think only Enron employees and shareholders suffered? Think again. Gibney uncovered Enron’s role in the California energy crisis. He plays chilling audiotapes of Enron traders casually asking their subsidiary California power plants to shut down.

For all the weight of its subject, Enron: The Smartest Guys in the Room is a fun, engaging film. While Gibney takes what happened seriously, he has also spoken frequently of his film as a black comedy. He focuses much of the film on Enron founder Kenneth Lay and Chief Executive Officer Jeff Skilling. Through this character study and the humor, Gibney’s film makes its points without preaching.

Shortly before his film’s premiere in Houston, Gibney sat down with me and other interviewers for a roundtable discussion. Questions from the other interviewers are marked “Q”:

Adam Spector – I’ll start with the obvious. The Enron slogan was “Ask Why.” Why did you want to do this?

Alex Gibney – So that other people would ask why [laughs]. I wasn’t sure it would make a movie until I read Peter and Bethany’s book and that convinced me that it would make a film . . . Obviously I knew about the important themes but I wasn’t sure that a story that seemed to be so much about numbers would translate. But Bethany and Peter’s book convinced me that it was a story about people, and in some cases about good people gone wrong. It’s a story about pride, arrogance, avarice; juicy stuff worth delving into. And the other thing about the book that I liked was the tone. It seemed to be black comedy and I tried very hard to get that tone into the film. Ultimately Enron was a human tragedy but there was a lot that was funny about it and yet there was always an undercurrent of moral outrage in that comedy . . . so I wanted to see if I could duplicate that on film. I thought that it would be a dramatic story and that . . . by telling the human story you can get at the heart of the larger social problems.

AS – Your movie focuses on the “mark to market” accounting practice. It seems to me to be risky at best, dishonest at worst. How was Enron able to do it openly for so long and be so successful?

AG – Two reasons. One was that “mark to market,” as I understand it, is actually a very conservative form of accounting for certain businesses. For example, if you have a portfolio of stocks and they’re mark to market, it means they’re always marked according to the price of the stock that day so, day-to-day, you get a very accurate accounting of what that portfolio is worth. The problem came in the case of Enron . . . they had these energy contracts that were over ten years in duration . . . so they would estimate what money would be brought in during the course of those ten years. But they were allowed to “mark” or book that profit that very day. Along the way they were supposed to adjust and the SEC was supposed to check up but nobody really wanted that. So what ultimately happened was that Enron created this enormous gap between the amount of money that was actually coming in the door and the stated profits. It also created enormous pressure . . . It’s one thing to say . . . in year one of a ten year contract that you’re going to make $100 million. It looks good on your balance sheet. But very little cash has come in. So how do you get that cash in and keep it going for the next quarter? You do another little deal like that. But now the gap between cash and expectations is even wider.

AS – A lot of the people who bought into the Enron mythology, who, as they called it, “drank the Kool-Aid,” weren’t stupid people. You had analysts and other people on Wall Street and the business world who all bought into this. Why was Enron so successful at being able to spin the mythology when, in the end, there wasn’t much there?

AG – First of all they were hiding a lot from people. But people were willing to be deceived. Look, let’s put ourselves back in time and remember that this was the era where stocks were all going up and up and up and it was the new economy. The old rules just didn’t apply. So that was one reason. I think another reason is that Enron was just masterful at creating this illusion of success and power so that everybody wanted to be a cheerleader for that. If nobody can figure it out, well those smart guys at Enron are the ones that really know how. The last thing is . . . what was ultimately at the heart of it: a sense of arrogance and self-confidence of the people at Enron. Tell everybody else that you just don’t get it, playing on everyone else’s insecurity so that everybody was afraid to ask the basic questions (such as) “How does Enron make its money?” So in the context of the time and the fact Enron had that bluster and those magnificent strange sets, those beautiful buildings, the commercials, the executives who become big macho men and believed that no rules are the best rules. They were preaching a religion that everyone wanted to believe.

Q – Do you think Enron was all that unusual in the world of big business?

AG – They’re not unusual. Everyone always asks “Is Enron the exception to the rule?” I think Enron is the exaggeration of business as usual. I think Enron took it further then many people but there are companies out there that also believe, like Enron, that their job is to game the system, to find loopholes. We’re finding it out now in the insurance industry to some extent with the over-marketing of products like Vioxx. You see it in the pharmaceutical industry: this belief that all you have to do is generate returns for your shareholders, that’s somehow OK. Nothing else matters.

Q – Why did this (the Enron success) happen at a time when the US economy was doing so well as opposed to a few years ago when everybody was in a rut and was scraping?

AG – It’s easier to hide something like this when everyone’s making money hand over fist. This one economist said there was “excessive liquidity” in the market so with all this money to be made pumping the stock proved too tempting for too many people. Most of the money that the executives made at Enron was through stock options so keeping the stock price rising higher was critical to what they were doing and it couldn’t have happened in a bear market. The temptation became too great.

Q – Do you think that Enron has changed anything?

AG – I wonder. I think it has changed some rules and regulations . . . to hold boards and executives accountable for their own financial reporting. I hope it’s changed the climate but so far I don’t think it’s changed enough.

AS – So you seem to imply that this could happen again?

AG – Definitely . . . I think it could happen again the next bull market. I think that to some extent we’re seeing Enron-type disregard for ethical guidelines in industries like the insurance industry. It’s all about how you game the system, how to phoney up your books to make things look better than they are. So, yeah, I think it can happen again, certainly in California. I don’t think the rules have changed that much.

AS – It’s a core American belief that no matter how long a crime goes on, or how long it’s hidden, that eventually justice will be done. Do you think that will ever happen with Enron?

AG – I don’t know. I try to stay away from the criminal side of it. We know the trial (of Lay and Skilling) is going to happen in 2006. Already so much injustice has been done because of how much money was made by a few at the top while many people suffered at the bottom. In terms of criminal justice we just have to see. I think the only way justice could be done in the Enron story is if we learned something from it. But if I were king of the world and if Lay and Skilling were found guilty my punishment would not be a jail sentence. I’d like to see him (Lay) be a grill man at McDonalds for the next ten years and be forced to ride public transportation and live in a public housing project. Then I think he would be a kind of example for all of how the mighty have fallen.

Q – Did you make this film for a certain audience or are you just putting it out there?

A – I’m putting it out there hoping that a lot of people like me who, at least at the beginning of this, were not that financially sophisticated will come to this film and say “Wait a minute. I better understand this because it’s not just about some special purpose entity that Andy Fastow did. It’s really about how our financial system runs, which is where my retirement money is, which is where the education funds for my kids are.” So in that sense I hope everyone will go see it because the story of Enron is really about a huge flaw in our democracy?

AS – With the success of Super Size Me and Fahrenheit 9/11, documentaries have been slowly moving past the traditional art house theaters into multiplexes, reaching more mainstream audiences. Given that and given that your film has a natural hook – Enron still rings a bell with people – Do you feel this is the right time for the film to come out? Are you optimistic about its chances to reach a broad audience?

AG – I think it is the right time for it to come out because right now people have gone back, after the shock and the tragedy of 9/11, people have gone back to starting to think about pocketbook issues one more time and now with the debate on Social Security and everything else . . . I think that with Enron so many people knew that something happened but they didn’t know what. There’s so much of the feeling of the Titanic about that story, that a few people got off on light boats and everyone else drowned. That now is a perfect time for this film to come out. It’s time we all look at how our money is being spent.

Q – The book is pretty thick. How were you able to condense it into a two hour movie?

AG – For every five pages I ripped out four and kept one. [laughs] Any good documentary . . . ultimately the film starts to tell you how to make it if you’re listening and watching the material. At some point we knew we were going to have to make a hugely complex story much simpler. To focus on a few characters rather than many. Also to let the narrative be skewed to some extent by what worked best in cinematic terms . . . Once I heard the audio tapes of the Enron traders I knew that California, relatively speaking, had to be a bigger part of the film than it was in the book. Now they (the book’s authors) didn’t even have the tapes when they wrote the book, but even if they had there’s a difference between putting something down in transcript and hearing the inflection of their (the traders) voices.

AS – How did you manage to translate very complex ideas and put them in a layman’s perspective?

AG – Ultimately it’s metaphors and boiling it down to its simplest element. That’s why we use a lot of gambling metaphors in the film. For “mark to market” we found the images of overlapping fingers on an adding machine keys as a way of saying something mysterious and funky is going on . . . Wrap it up with people saying that there’s a difference between what you say your profits are and what they actually are . . . That, plus the imagery conveys this idea that, in effect, Enron was making it up, which is what they were doing. So in its heart you dial down what’s mark to market. It’s basically a license to make the stuff up.

Q – How difficult was it to get people from Enron to talk to you on camera?

AG – Very difficult, mostly because of the legal proceedings. There were many civil suits and there was also the criminal investigations. So many people were interested in talking to me off camera because they had a lot of stuff to unburden. Very few people were interested in talking to me on camera and the ones that did had to seek counsel from their attorneys.

Q – How did you get the (audio) tapes?

AG – It was actually the result of a small utility in Washington state, the Wahovish Public Utility District. They were being sued by Enron. “Chapter 11" was suing them for nonpayment of their electrical bills. And they (Wahovish) said “Wait a minute. You’ve been gorging us. What are you talking about?” So they used a form of legal ju-jitsu. And they used their discovery power to get these tapes from the FBI, which had them as part of a criminal investigation. These are not government tapes, these are commercial tapes. People routinely record these conversations so you can keep track of trades. There were thousands of hours. They had people go through them and make them public. We went through them and also had many, many hours to get to some of the material we ultimately ended up with. Some of them had been released on CBS, but it was probably in the context of “Look, here are some people laughing and swearing.” Our contribution was we were able to put together some of those conversations so that you can hear cause and effect. You hear an analog trader call a power plant asking them to shut down. There wasn’t any hesitation. It wasn’t a problem. There’s actually a web site called where there are many of these tapes and transcripts. There are other great ones I wished we could have used. Maybe they’ll be on the DVD extras. [laughs]

AS – How did you get some of the internal videotapes? My favorite was Enron’s own parody of mark to market, where Skilling talks about a “gazillion dollars.”

AG – Those tapes came from different sources. Some of them I can talk about. Some I can’t. We had a lot of help from the House and Senate investigative committees. They spent a lot of time subpoenaing documents and we got a number of videotapes from them. We also got videotapes from private individuals, from interested companies that were looking at what was going on at Enron. The “asshole” tape (Skilling referring to a critic) is a classic example. Enron erased the word “asshole” almost as soon as the conversation happened so I was wondering if I would ever get a copy of the (uncensored) tape. It took work, shoe leather. For a documentary like this the best material is the unofficial archives. It’s not what you get from NBC or CNN. It took us a long time, for example, to get that footage where Skilling gets a pie thrown in his face. That was a local (television) station . . .

Q – In terms of the music, how did you manage to keep the movie so upbeat when the story wasn’t?

AG – Form follows content. Enron always presented this wonderful facade even when some really ugly things were going on inside and I felt that the music, in a way, should provide that same balance, that same kind of black comedy. You know it’s like the Billie Holliday song at the beginning, “God Bless the Child.” It’s got such a beautiful melody but its lyrics are about the darkest lyrics you could possibly imagine, all about how the powerful will always prevail over the weak and how people love you when you’re up and don’t give a sh-t about you when you’re down. So that has that kind of balance. Or almost sometimes using it (music) as a toe-tapping Greek chorus like that “Love Fool” song by The Cardigans: “Love me, love me. Say that you love me. Fool me, fool me. Go on and fool me.” It’s a happy, upbeat song, but it’s happening at a time when we know the stock market is telling us lies. So throughout I wanted to keep the music upbeat and cheery but with an undercurrent of lyrics that were darker. Like the Marilyn Manson song “Sweet Dreams are Made of These.” The way he sings that, man, it’s a different kind of sweet dream.

Q – What do you think of other documentary films like Fahrenheit 9/11 and how do your films fit into that?

AG – I think it’s part of a larger trend of people going to the theater and . . . watching documentaries and fiction films side-by-side as if there were no qualitative difference. One day you go to Fahrenheit 9/11 and the next day you go see The Aviator. I think that’s a great thing. In that sense Michael Moore’s films have all done us a great service. I’m not sure it’s just Michael Moore, but he’s one guy who’s really been successful. Super Size Me, Control Room, Capturing the Friedmans . . . they’ve all been economically successful. Everyone has a different style. That’s one of the tings that makes them good . . . each one bears the stamp of their author. But they’re also asking tough questions that a lot of the mainstream media, particularly TV news, isn’t asking. So that’s another reason people are going to the theater to watch them.

Q – What are some other reasons documentaries have been so successful recently?

AG – Documentaries have gotten better. They’ve learned a lot of things from fiction filmmakers so they pay more attention to characters and to narrative . . . I think “reality” TV, which I don’t care for, has allowed people to believe they can watch stories without actors and be interested. So now people go to documentaries and realize that there is a certain amount of vitality and liveliness in the story that they can’t get sometimes in fiction films.

Adam Spector
April 28, 2005

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