Although the collapse of the Enron Corporation seems like just a story about numbers, it is more about the people who manipulated the numbers, said Bethany McLean, a Fortune Magazine writer and the author of "The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron."
"Enron, to me, is really like a human tragedy," she said.
McLean spoke Tuesday in the Jordan Auditorium of Mendoza College. Her March 2001 Fortune story "Is Enron Overpriced?" was the first to question how Enron made its money.
Her article was the "tipping point," she said, that lead to further investigations into the company.
"It put in print what people were beginning to think but nobody wanted to say," she said.
Enron's fall cannot be blamed on one person, she said, but rather it was the fault of a cast of characters that didn't ask tough questions. Enron's accounting firm Arthur Anderson, the Wall Street banks that provided the cash to Enron and the employees in the company all failed to provide a system of checks and balances to protect against a culture of greed, she said.
During interviews for the article and later for her book, McLean said one of the most troubling things she encountered were the responses to her question of who was to blame for the Enron collapse.
"They all - to a person - said it was someone else's fault," she said.
For the business students in the audience, McLean said the lesson of Enron was that junior officers and employees can risk imprisonment if they are involved in unethical deals, even if a senior person told them to do it.
Enron showed that - in some cases - the senior people escaped punishment and the junior people were made the scapegoats.
"If something does end up going wrong, and your life is on the line, the fact that someone told you do to it isn't going to be any help whatsoever," she said.
McLean told the story of her investigative reporting into Enron, a company that fell from selling stock at $85 a share in early 2001 to bankruptcy by the end of the year after further investigation revealed mass corporate fraud.
When she started looking into the company, McLean said, it was an "it stock"- nearly every stock analyst was telling investors to invest in Enron.
On the surface, Enron was a great story, she said. It was transforming the way business was done. Fortune magazine - the magazine she worked for - had even proclaimed it "America's Most Innovative Company" for six consecutive years.
But something wasn't right about the company, she said. It was hard to tell how it made money.
"Under the adoration of Enron, there was something very different," McLean said. "There was a sense that there was something dangerous about the company."
An investment banking analyst at Goldman Sachs before she became a reporter, McLean said she wasn't afraid of numbers - or doing heavy accounting stories. And Enron's accounting raised a lot of "obvious red flags."
So McLean called Jeff Skilling - then Enron's CEO - to ask him why the numbers didn't add up. Skilling became "extremely angry" during the call, she said, and called her unethical.
He said she had not done her homework, and if she had, she would know the answers to her own questions.
The next day, McLean met with three Enron executives, including Enron's Chief Financial Officer Andy Fastow, to ask them more questions about Enron's finances. They dodged her questions, so her editors advised her to push ahead with the story.
Knowing how to interpret the numbers helped her to uncover the story and find the holes in the accounting, she said. But in retrospect, she said she wishes she had been tougher on Enron in her first article.
"I'm not sure I was perhaps as brave," she said. "Perhaps if I had been braver I would have seen more."
In the course of co-authoring a book about the Enron scandal, McLean said she was surprised that people in the company hadn't seen more.
Many people in the company knew the numbers didn't make sense, but no one said anything about it.
"The great majority of people at Enron had their heads down," McLean said.
The leaders of Enron, like Skilling, Fastow and former chairman Ken Lay, were self-made men, but they had fatal flaws, McLean said. And these flaws led to Enron's downfall.
They turned Enron into a company with a culture of self-delusion where free, excessive spending was allowed, she said.
McLean repeated a story told to her by a former Enron executive. He told her he needed to use a corporate jet to go to a meeting, but when he tried to get one, he found that all three of them were in use by the Lay family.
Skilling also contributed to that culture by using mark-to-market accounting to estimate future prices, and in doing so inflated the image of Enron's actual wealth.
But, McLean said, this was a culture of "reported profits, not a culture of reality."
"They basically stole from the future until there was nothing left," she said.
The lecture was sponsored by the O'Brien-Smith Leadership Program.
