Shining the Light on Corruption

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Review of 'Power Failure', Mimi Swartz and Sherron Watkins, Aurum Press £14.99

Sherron Watkins was an Enron vice-president who, as the company teetered on collapse, wrote a memo to her boss Ken Lay saying, 'We will implode in a wave of accounting scandals.' She met Lay and suggested more honest bookkeeping. Post-collapse, she cooperated with Congressional inquiries while most of Enron's management took the Fifth Amendment.

Watkins isn't really a whistleblower - she didn't tell the public about Enron's lies, she just met the boss and suggested he told the truth more often. Enron's management were so crooked that her mild protest stands out. Her memoir of the affair gives a feel of Enron from the inside.

Watkins failed to speak out more loudly, but this was part of a more general failure. Politicians took the firm's money and passed laws to help Enron cheat. Banks and accountants lined up to help disguise Enron's imaginary finances. Even now, prosecutors have failed to put Ken Lay or Jeff Skilling in the dock for their crimes.

Enron grew because of privatisation and deregulation. Privatisation meant Enron could buy up public utilities. Britain was key to Enron's growth - the firm's massive Teesside electricity plant was an early 'bet the company deal' which could 'doom' the firm or 'make Enron an international player overnight' - it did the latter. Bringing Tory energy minister John Wakeham onto the board helped. Enron also grew when it bought Wessex Water while giving money to the Labour Party and the Fabian Society. Deregulation allowed Enron to build ever more complex trading business around their physical assets, unencumbered by government checks. Enron's business model was to break into markets by buying utilities, and then concentrate on trading in those markets. The trades were often essentially imaginary, with loans disguised as income and debts hidden 'off the balance sheet'. These phoney deals attracted investors and pushed up the share price.

Watkins gives a flavour of the culture of the firm. Internal competition was intense as Enron managers fought each other for the latest absurd 'financial engineering', grabbing bonuses for fraudulent schemes. Ken Lay laid the foundations for faking, when, in 1987, he found that Enron's New York trading operation was entirely fictitious. Traders booked sales from imaginary buyers like Mr M Yass (for My Ass). Lay sacked no one, hushing up the scandal. $150 million was lost, the traders continued cheating until they were sent to prison, but the story stayed off the front pages.

Scrabbling for deals and bonuses, managers tore at each other in the regular 'performance review committee' - which 'worked like a star chamber crossed with fraternity rush'. Staff called Enron the 'bizarre social experiment' for its endless reorganisations. At Enron's international annual meeting managers put on revues. Competition was so intense that they hired professional scriptwriters and costume designers. The African team entered on an elephant; the Middle Eastern team dressed as Egyptian slaves carrying their boss on a litter. Sherron Watkins herself played the 'wicked witch of the west' in a performance based, appropriately, on 'The Wizard of Oz'.

'Special purpose entities' - fraudulent firms founded by Enron - were created to hide growing debts. Many were named after 'Star Wars' characters, like Jedi. Chewbacca heads were handed out when 'Chewco' was founded. Accountants tied themselves in knots trying to understand and justify affairs. Watkins taunted Arthur Andersen staff, telling them to 'grow some balls' and say no to some of the proposed accounting tricks. They didn't.

Revealing, in a business-book kind of way, Watkins' memoir is very much a view from the inside. She describes financial problems on Enron's Dabhol power station in India. She does not say Enron hired thugs to attack local protestors against the plant. She does not mention the 33 people killed in Puerto Rico in 1996 when an Enron gas plant exploded because of poor maintenance and poor staff training. While the establishment were caught out by Enron's crimes, the left were on the case early.