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As these characters tell their self-serving stories, the fall of Enron is the most revealing sort of failure. It is a failure of the old-fashioned idea that auditors, directors and stock analysts are supposed to put the interests of shareholders above their own thirst for fees. It is a failure of government: having greased nearly every campaigner's palm in Washington, Enron worked overtime to keep the regulators from looking too closely at a balance sheet gone bad. And it is a failure of character, especially inside Enron, where managers who knew something was badly wrong did not say anything publicly until the subpoenas began to arrive.
About the only thing that didn't fail was Sherron Watkins' flair for numbers. In the sad tale of Enron's collapse, Watkins is the closest thing to a hero in sight. When she goes out for coffee, strangers stop to give her "attagirls" and ask for her autograph. She still goes to work each day at the company's headquarters in downtown Houston, where the tilted logo out front has yielded Enron a new nickname: the Crooked E.
Normally when public companies flame out in scandal, top executives can be seen running from headquarters mumbling that they are shocked to learn that there was gambling going on in the casino. But there's not much of that here. Enron and Andersen officials hardly deny the dubious deals, the 881 offshore tax havens or the stupid accounting tricks. That's partly because nobody can be sure that those dodges were inherently illegal. Many companies maintain similar arrangements, usually intended to avoid taxes--a benefit of interest to Enron too. Enron avoided paying federal income tax for four out of the last five years and instead received millions of dollars in federal-tax refunds.
For now, the House Energy and Commerce Committee and federal agents probing Enron's fall are skipping over the accounting schemes and other questionable business practices--including a bizarre sex angle: a scheme to offer pornography via the Internet. The investigators instead have zeroed in on what officials from Enron and Andersen did and did not do once they realized that the debts were mounting, that the stock price was falling and that the last people to learn of the looming reckoning were going to be millions of Enron shareholders. Watkins' two letters provide the road map for their inquiry.
It took Watkins weeks to work up the nerve to write her first letter to Lay. She had been working for chief financial officer Andrew Fastow last summer, looking for assets to sell as Enron ran into financial trouble while transforming itself into a company that traded energy, water, weather derivatives and anything else it could turn into a commodity. Watkins wanted to help, but everywhere she looked she ran into off-the-books arrangements that no one could explain or seemed to want to investigate. She knew that others who had pressed then CEO Jeffrey Skilling about the investments had run into trouble. One of her friends, then company treasurer Jeff McMahon, had been transferred when he "complained mightily" to Skilling about the "veil of secrecy" surrounding the outside deals.