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The rise and fall of a corporate giant

New book by Mimi Swartz with Sherron Watkins, offers an insider’s view of the collapse of Enron. Read an excerpt here.

At the dawn of the new century, Enron, was a high-flying gas and energy company, touted as the poster child of the New Economy. It aspired to be “The World’s Leading Company” and had briefly been the seventh largest corporation in America. But as Wall Street analysts sang Enron’s praises, the company’s leaders were scrambling to manufacture illusory profits, hide its ballooning debt, and bully Wall Street into buying its fictional accounting and off-balance-sheet investment vehicles. Now, a new book titled, “Power Failure,” chronicles the fall of this corporate giant with never-before-published revelations of former Enron vice-president Sherron Watkins. Prizewinning journalist Mimi Swartz is the author and she and Watkins share their story on “Today.” Here's an excerpt of the book:


Sherron Watkins went to the Enron Corporation’s November management conference for the year 2000 determined she wouldn’t be taken for a loser. The year before, at her first such meeting after being promoted to vice president, she had blown it. Booked into the Hill Country Hyatt and Resort for three days of corporate team building, she had opted, in the recreational hours, for the company-sponsored salsa-making class. At affairs such as these, where Enron took over the entire hotel and offered an array of afternoon networking and socializing activities, it was important to pick one that advanced your career. A smart, ambitious employee would never sign up for the afternoon of fly-fishing, for instance, because you couldn’t lose the smell of fish in time for the evening cocktail party, and because you could wind up wasting your afternoon with guys who worked in the once crucial but now irrelevant pipeline division. That left, as career-building activities, skeet shooting, the Road Rally, tennis, golf, facials, pedicures, outlet shopping, and antiquing in a nearby Hill Country town.

To understand the loaded nature of the choices, you had to understand the loaded nature of life at Enron. Salsa making, for instance, had turned out to be a disaster. One of the small hotel conference rooms had been converted into a kitchen for the occasion; Sherron had entered straight from her facial, without makeup, without combing her hair, and she was chopping jalapenos with three pipeline guys — middle-aged men shaped like bumpy Bosc pears — when the then COO, soon to be CEO, Jeff Skilling, had walked in. Or, rather, he’d poked his head into the room, narrowed his eyes, and raised his peaked nose, as if to test the air. It had not pleased him. At just that moment, he’d caught sight of her. “Uh, hi, Sherron,” Skilling had said, and then, whoosh, he was gone. In his wake, Sherron found herself enveloped in that uniquely Enronian sense of dread: She knew she’d been caught with a bunch of losers, far, far away from Skilling’s winning team.

Once, the pipeline guys had mattered, but that was long ago. In the 1980s, Enron was one of the largest pipeline companies in North America, moving natural gas from the Gulf Coast to the East Coast, the West Coast, the Midwest, and beyond. But as Jeff Skilling’s influence over CEO Ken Lay grew, Enron changed identities several times. It always positioned itself as the company of Vision, but it supplemented its base. In the late eighties and early nineties, Enron revolutionized the way natural gas was bought and sold by operating more like a finance company than a gas company. In the mid-nineties, Enron started selling and trading power, battling across the country to deregulate entrenched electric utilities.

Lately, with the boom in dot-com and high-tech companies, Enron was vigorously morphing into an Internet/telecommunications conglomerate. Enron Online, the company’s online trading platform, was already the largest e-commerce site in the world, and now “Broadband” was the new buzzword inside the company. Enron was gearing up to trade space available on high-speed telephone lines in order to deliver movies and more into private homes over its Enron Intelligent Network, a new and improved Internet. It was poised to dominate AT&T and all the other behemoths. This corporate shape shifting made Enron seem, to Wall Street, less like an IBM or an Exxon and more like the poster child for the New Economy, a business so fast-paced, so protean, and so forward-looking that it could change its stripes, virtually overnight, to suit the zeitgeist. So if you wanted to get ahead at Enron, you had to be able to change, too.

Sherron, for instance, had successfully engineered herself into the hottest sector of the company, Broadband. Broadband was the reason Wall Street analysts were deliriously touting Enron — after the company rolled out its telecom plans at an analysts’ meeting in January, Enron’s stock moved thirteen points in one day. Broadband proved yet again that Enron’s employees were the smartest, the shrewdest, the most dedicated and ambitious on the planet.

They were purveyors not of products but of ideas, of what Jeff Skilling called “intellectual capital.” A company didn’t need bricks and mortar to triumph in the new age. It needed smarts — smarts that, as Skilling liked to claim, would propel Enron from its old role as the World’s Leading Energy company to its destiny as the World’s Leading Company. So far, Enron’s numbers were on track to do just that: to land Enron in the top ten of the Fortune 500. Third-quarter revenues had grown over 150 percent from the prior year’s corresponding quarter to $30 billion, bringing total revenues for the first nine months of 2000 to $60 billion — up $20 billion from 1999. The company’s stock had quadrupled in value since January 1998 to almost $90 a share. In just five years, Enron grew to rival 1990s tech giants like Cisco and Microsoft, and behemoths like GE. It was a media darling: Fortune magazine hailed Enron as the country’s most innovative company for five years in a row, and included Enron in the top quarter of its list of the “Best 100 Companies to Work for in America.” Skilling was widely regarded as the most brilliant corporate leader in the country, a Jack Welch for the new millennium. CEO Ken Lay had laid the groundwork for Enron’s global reach: He could get virtually any world leader from China to Costa Rica to return his phone calls in an instant; he counted among his closest friends powerful state legislators, entrenched members of the U.S. Congress, current and former presidents. Everywhere Sherron Watkins looked, there were bright young people who had made revolutionary changes and made incomprehensible fortunes in return — and all before getting close to their fortieth birthdays.

Enron was, in short, a company of winners. At the dawn of the twenty-first century, those who were bright, young, and fiscally ambitious were reassessing their career choices. They could slave away in some fusty commercial bank or corporation for years at a salary in the high five figures. Or they could join a Wall Street investment bank, where they could make a lot of money but never really create anything of value. Silicon Valley was great, but it was overrun. And then there was Enron. Those who packed their bags and raced to Houston were the ones who wanted to run their own show right away — by the time they were 25, salary commensurate with their genius.

Certainly Enron had worked for Sherron Watkins. She grew up northwest of Houston, in the small town of Tomball, which had its moment in the sun during the oil boom of the 1920s. There were drilling rigs inside the city limits when Sherron was a girl, sharing a small two-bedroom house with her divorced mother and younger sister. Her mother, Shirley, taught business at a nearby high school, and encouraged Sherron to go into accounting. It was secure, something she could build a career on. Sherron took her advice, graduating from the University of Texas with honors, and getting a master’s in accounting in 1982. Arthur Andersen had recruited her, promoted her to audit manager within five years, and, at her request, shipped her off to the New York office in 1987. From Andersen, Sherron worked briefly in a Manhattan commodity finance boutique, then in 1993 followed the well-trod path from the offices of Andersen to those of its biggest client, Enron.

She could hardly believe her luck when she was hired — the trips on the corporate jet to schmooze California investors, ski jaunts with bankers in Colorado, sales trips to the UK, South Africa, Chile, Peru, Panama, the Philippines, and Korea, helping to expand Enron’s energy markets — or, as she imagined, bringing cheaper, cleaner power to people who desperately needed it. For her efforts, Sherron, whose mother pinched pennies, had been richly rewarded by any standards other than Enron’s own: From a starting salary of $95,000, she was now clearing $150,000, along with stock options and bonuses that more than doubled her income. She owned a home in one of Houston’s best neighborhoods, and never had to ask for the right tools to get the job done: Enron gave her the laptop, the Palm Pilot, the cell phone, the business-class tickets, the ergonomic desk and office chair, and the assistant who did not have to be told where to book dinner or hotel reservations in London.

Even though she had been at Enron since 1993, she was still amazed by the high-end toys parked in the company garage, the dizzying array of BMW sedans, Porsche convertibles, Ferraris, Mercedeses, Range Rovers, and customized SUVs. She loved Enron’s oval-shaped tower of mirrored glass, with its twin tower rising across the street; the purposeful people from all over the world scurrying across the lobby’s glossy granite floor to get to their desks faster; the brightly colored ceiling banners heralding employees’ commitment to Enron’s “Vision and Values”: Respect! Integrity! Communication! Excellence! The lobby’s twelve-foot, multiscreen television reported perpetual NYSE, NYMEX, and Enron Online updates, as did the miniscreens in the elevators. The company café featured spring rolls and gourmet wraps. The coffee bar featured custom lattes and mochas; mini-massages were available in the company gym. It was almost, but not quite, too much: If you deserved all this, you knew you were very, very important.

Of course, there was a downside. It wasn’t easy being the company of the future; Enron was constantly reorganizing to stay ahead of the pack, and a lot of people just couldn’t cut it. Maybe employee X couldn’t close a multimillion-dollar deal within the requisite six months. Or maybe Employee Y got crosswise with a higher-up — he wouldn’t give up credit to his boss. Or maybe Employee Z, for some reason — parenthood, a change in circumstances at home, et cetera — resisted the sixteen-hour workdays, the eighty-hour workweeks, or the trips to places like Clifton, Kansas, or Calcutta. He would lose faith that he was creating the future through his association with Enron. And then he would stumble, and soon enough, he’d be branded a loser.

Too lazy, or too obstructive, or worse, just not smart enough. And then, almost as ephemerally as it had begun, the employee’s career at Enron would draw to a close. No more lunches of gently poached sea bass at Houston’s best seafood trattoria, no sirloins at Houston’s hippest steakhouse, no more top-of-the-line Cuban cigars; goodbye to the silver Porsche Boxster, the 5,000-square-foot mini-mansion, and the summer house in Santa Fe. Employee X, Y, or Z would pack up his dreams like he packed up his desk, while former colleagues froze him out and a guard waited to escort him from the building.

All this Sherron had sidestepped for seven careful years, maneuvering herself into four different jobs, the descriptions of which would have stumped most Ph.D.’s. In Broadband she “developed the critical processes, systems, and procedures for the global network services group to enable complex network element asset management and pricing.” At Enron International, the company’s foreign development arm, she expanded “Enron’s international metals and mining strategy aimed at bringing Enron’s core competencies of power asset development, energy price risk management, physical trading, and merchant finance to the energy-intensive mining sector.” Before that, working in the finance group at Enron Capital & Trade Resources, she was “responsible for the off-balance-sheet investment vehicles of Enron.” In English, this all meant that Sherron had parlayed her background in accounting into one job as a portfolio manager for various multimillion-dollar funds, another job where she wined and dined bankers to keep loans flowing, and another job where she traveled the world to drum up new clients for Enron’s international energy division. But every time she got comfortable, mastering the position and the attendant politics, she’d get word that a reorganization was in the works and she’d have to start all over again. She knew from office gossip, in fact, that her boss at Broadband was on the way out. If Sherron wasn’t careful, she would be too.

By the time the sun set on the Hill Country Hyatt, Enron’s executives had secured the hotel and set up central command in the bar. The occupying army was mostly young — average age at Enron was around thirty — mostly male, and dressed in weathered-but-not-too-weathered khakis and tired-but-not-too-tired golf shirts, the studiedly casual uniform favored by young, upwardly mobile rich guys. Crammed against each other in the bar, they were well on their way to getting extravagantly drunk, stoking themselves up on free drinks and their own spectacular accomplishments. Charley’s Long Bar was outfitted as a Wild West saloon, and the guests, who usually had little use for history, seemed very comfortable in gunslinger mode. Some were Texans, but many were not; lots had come from small towns in the Midwest and appeared, from a distance, eager, apple-cheeked, almost boyish. Others came from India or Pakistan, England or South America. But wherever they were from, they were all obviously hungry, restless, and tightly wound. You could see it in the way they slugged back their drinks or geared up for the poker game later that evening, the one with $1,000 stakes.

The mood had been more somber the year before, because Enron had not been doing quite so well. The stock price had split near $80 a share, in hopes that a $40 price would attract more investors. It hadn’t. Instead the stock dipped to $39 — and then parked itself there. Wall Street’s analysts had grown restive, and so, in turn, had Jeff Skilling. He turned the 1999 management conference into a grim tutorial on “growing earnings” or, in layman’s terms, boosting profits. Despite the free food and the glistening chandeliers, the Hyatt’s ballroom felt like a reeducation camp, as every speaker stressed the new corporate dogma, which was that Enron’s hard assets could no longer be depended upon to keep the stock price rising at Skilling’s desired rate of 20 percent a year, an expectation that, before the days of the raging bull market, would have seemed, well, nuts. Enron’s mandate was to become more nimble, more flexible, more innovative — or else. The speakers, one from the oracle-of-the-moment consulting firm of McKinsey & Co. (Skilling had been its youngest partner ever), as well as a few investment bankers, had droned on about that mission for hours, stressing the need for “return on invested capital,” meaning, simply, that money spent by the company should return ever-larger profits. Most of that day, Skilling prowled the perimeter of the ballroom, making sure his acolytes were, in his words, “getting it”: accepting the fact that pipelines and power plants, once Enron’s bread and butter, would no longer keep the company where it deserved to be, rated with the Microsofts, Ciscos, and Intels of the world. Enron needed new ideas. Now.

The only break in the tedium that year came from Samuel J. Palmisano, then IBM’s COO. Palmisano was a touchy-feely guy: a big, burly Italian who paced the stage as he spoke. But his message had been somber too: Palmisano confessed that IBM, mired in its old identity, missed the boat on computer software. The company had to come up with a new idea almost overnight, and though it did so — reemerging as an Internet solutions consulting firm — Palmisano admitted that IBM’s stock price had not yet recovered. IBM was going to miss earnings targets that quarter, he confessed. Suddenly, it was all too much for Palmisano. His eyes began to fill, and then his voice quavered. And then he had to stop talking. Everyone could see that he was trying not to cry.

The guys in khakis and golf shirts began to stare at the floor and shift uneasily in their upholstered dining chairs. When they looked at one another, they could see, reflected, a sharp, embarrassed panic. So, naturally, when Palmisano finished and apologized for his emotional display — he’d been through so much with IBM, he explained, he loved it like his family — they leapt to their feet and gave him a long, lusty ovation. They waited until the evening cocktail party to stick it to him: “Did you see that?” they asked, elbowing each other in the ribs. “The guy cried! He cried!” Behind Palmisano’s back, they were cracking up; he was just another . . . loser! If Sherron Watkins or anyone else wondered that day why Enron never seemed to miss its earnings targets, they didn’t have the time or inclination to pursue the question. Introspection, on a personal or professional level, was not an activity highly valued at Enron.

Now, a year later, Sherron Watkins had other things on her mind, like keeping her job, which at that moment meant navigating the perils of the November 2000 Management Conference. She wasn’t good enough at tennis or golf to sign up for those events — she could cost the team a victory, which could, in turn, cost her. Skeet shooting: Growing up in Tomball, Sherron had learned how to fire a shotgun; she knew it beat the hell out of your shoulder. No thanks. There was the Road Rally through the nearby Hill Country: Ken Rice, at forty an old hand with the company, had brought a few of his Ferraris to compete. Since Rice was the head of Broadband, the race was probably Sherron’s smartest political move. But the idea of getting in a fast car with a testosterone-crazed trader — some guy with questionable judgment and a perpetual hard-on — did not appeal to her either. Outlet shopping was too cheesy. That left antique shopping, dull but safe. Sherron could burnish her prospects by going with a group from Broadband.

She never used to care about such things. When Sherron worked in Manhattan in her twenties, she was one of those strapping, blond, good-humored Texas girls whose laugh could fill a room and who could drink her dates under the table. Guys fought to give her rides back to the city on their private planes after weekends in the Hamptons. But now she was forty-one, married to a fellow Texan who was not a Wall Street financier, and they had a one-year-old daughter. Sherron was still a blonde, but not the kind of sultry, Enron blonde who got ahead. She was carrying some twenty post-pregnancy pounds and had a reputation as a bull in a china shop — The Buzzsaw, they called her, because she was stubborn, didn’t suffer fools, and after six years in Manhattan, used terms like “circle jerk” and “dickweed” reflexively. Worse, in a company that made no secret of its preference for Ivy Leaguers, Sherron had a degree from the University of Texas. She was, in short, a practical, pragmatic, middle-aged woman at a novelty-worshiping, image-conscious company that revered youth. Sherron was feeling pretty vulnerable, especially after she stepped out onto a balcony to get some air and almost collided with Kevin Hannon, the dour chief operating officer of Broadband, who was deep in conversation with two other executives, neither of whom was smiling. Hannon looked peeved. “Not now, Sherron,” he said, as if scolding a puppy.

She wandered inside, toward the Mexican buffet. Filling her plate, Sherron felt someone at her elbow. “Want to sit together?” It was Andy Fastow, Enron’s CFO, who had been her boss at Enron’s Capital and Trade Division, where she had managed funds for various companies in partnership with Enron. On the subject of Fastow, Sherron was ambivalent. He had made her laugh, but he’d also asked her do some things that had made her uncomfortable. After a few years she’d had enough, and transferred to Enron International. But in her current situation Fastow looked pretty good. He wasn’t exactly popular at Enron — he had evolved into a brat and a bully, famous for his tantrums — but he was a Skilling favorite, and therefore untouchable. Tonight, he was beaming like a Buddha. It took Fastow eight years to land the CFO’s job, one he had coveted with single-minded intensity. He was now almost forty and his once dark hair was prematurely streaked with silver, but like so many people at Enron, he seemed perpetually young. His step was bouncy, his eyes twinkled, and his grin was wide, though whether it promised something benign or malignant was anybody’s guess.

Unlike many other Enron executives, Sherron had never been afraid of Fastow, and in her vulnerable state, sitting with him boosted her value, as the heads swiveling in their direction indicated. The two of them took seats at a round table of Enron blondes, tall, striking women with sharp suits, glittering jewelry, and big hair swept off their faces, the contingent from Human Resources and Public Relations. Fastow ignored them and nudged Sherron. “When are you going to come back and work for me?” he asked. Before she could conjure an answer, they were distracted.

The evening’s entertainment was an auction for the navigator’s seat in Ken Rice’s Ferrari during the Road Rally the next day. The proceeds would go to charity. Rice stood and took a bow, introducing himself to a crowd that knew him well. He had joined Enron before it was Enron; Rice had worked at the Omaha pipeline company that merged with the Houston pipeline company to create it. He was farm-boy handsome, with blue eyes and a sly smile. He could afford to be carefree: Rice was running the hippest unit at the company and vacationed with Skilling. Rice was also a ladies’ man, so riding with him afforded unique opportunities for professional advancement, which, in Enron terms, made him a perfect fund-raising tool.

A few people threw out some joke bids — $100 here, $150 there. The head of Human Resources, Cindy Olson, bid once. Louise Kitchen, the creator of Enron Online, upped the ante in her British accent. Then, from the back of the room, came a familiar, distinctly southern drawl: “One thousand dollars.”

Necks craned and heads bobbed until the high bidder was located: It was the guy in charge of Broadband’s NOCC — Network Operations Control Center; he was known around Enron as the NOCC — pronounced “Knock” — Doc. When something went wrong with video feeds or downloads, for example, the NOCC Doc was supposed to fix the problem. But that never seemed to happen. It was assumed that the problems weren’t getting fixed because the NOCC Doc was in over his head. The standing joke at Enron Broadband was “Knock, NOCC. Who’s there? No one!” The NOCC Doc was bearded, laconic, and overweight — he didn’t really fit in. So everyone figured his $1,000 bid was a ploy to save his job. Ditto the $500 he added. And the next $500 used to knock some Enron babe, anxious for a few hours of personal time with the Broadband chief, out of the bidding.

“Sold — at $2,000!” Ken Rice, arms folded, looked irked.

At 7:40 the next morning, Ken Lay, founder and longtime CEO of Enron, gave the formal welcome. Even though he, too, was dressed casually, his casual — pressed jeans and a crisp white button-down shirt — was still a little starchy, an ensemble from another time. He was 58, which was nearly elderly at Enron, and his audience treated him that way — respectfully, but just a little restively. Lay had been playing the gentle sage to Skilling’s samurai for years; a balding, somewhat jowly man of average build, he spoke with a sharp midwestern twang and lately had sometimes seemed too folksy for the sleek, sharklike company he had created. Maybe he knew that, because for the last few months Lay had been orchestrating his exit. Clinton was leaving the White House, and Lay’s enormous, long-term investment in the Bush family was about to pay off again. (Lay didn’t wonder, in November 2000, who really won the presidential election. He was an indefatigable optimist, and a major donor to the Republican party.)

Lay had succeeded beyond his wildest dreams. He was worshiped in Houston both as a political kingmaker and for his philanthropy. His was the classic American success story: He had triumphed over childhood poverty, a bad stutter, an antiquated, regulated business, and enough financial setbacks to kill most companies. And now, in late middle age, he was ready to let go. He had already anointed Skilling as his successor. If he didn’t join the Bush administration, maybe he would run for mayor of Houston. Whatever he did, it would be big. But on this particular morning Lay was focused solely on Enron. “Our future has never looked rosier,” he told his many heirs. Enron was in businesses today it had not been in just five years earlier; he hoped that in ten years Enron would find more new business worlds to invent and dominate. At Enron it was always the future that mattered: inventing it, shaping it, ruling it.

The ashen, hung-over executives applauded politely. They’d heard this before.

And so it went for the next several hours. The editor of the hip Red Herring magazine extolled the glories of the Internet, followed by a pep talk from Gary Hamel, a stylishly shabby Harvard professor and the author of the best-selling Leading the Revolution, in which he championed the corporate innovators of the late nineties, especially Enron. “It pays to hire the best,” Hamel said of the company. “You can’t build a forever restless, opportunity-seeking company unless you’re willing to hire forever restless, opportunity-seeking individuals.” That Hamel was also a paid adviser to Enron didn’t seem to bother anyone in the crowd. He was a Harvard professor, after all, and behavior that would once have been characterized as a conflict of interest was, by the late nineties, simply viewed as synergistic.

Finally, Skilling took the podium, and the enthusiasm in the room contracted noticeably. Skilling, like Lay, was small in stature. (In fact, almost everyone who got ahead at Enron was short.) But where Lay was soft and self-assuredly self-deprecating — almost Sunday schoolish — Skilling was sharp and cool. He was dressed casually, almost carelessly, like his troops, and he wore his hair combed off his face in the style of Hollywood producers and Wall Street financiers. He was assiduously fit; his eyes were ice blue and his gaze was steady, and he spoke in clipped, flat, supremely confident tones. Everyone at Enron knew that Jeff was twice as smart as they were — twice as smart as they could ever hope to be — and they hung on every word. It was Skilling who had made the revenues grow from $4 billion to more than $60 billion, an increase of nearly 2,000 percent. It was Skilling who had made the stock price ascend to the heavens. So it was Skilling who made Enron’s troops frantic to live in fast-forward mode, who made them anxious to prove that they could deliver any concept he could dream up, who made them desperate to tag along on his extreme adventures—rock climbing, bungee jumping — around the globe. Because if Jeff Skilling thought you “got it,” you really did.

Skilling’s appearance onstage signaled the arrival of an annual event: his stock-price prediction. In years past he had been on the money — Enron had gone from $40 to $60 a share in 1998, and soared to $80 in 1999. Now he stood before his faithful and bowed his head, as if he had to think about what he had to say. When he looked at the crowd again, he was beaming. Enron stock, he told them, would hit $126 a share in 2001. There was just a second of stunned silence before the crowd burst into applause. No one quite knew how the stock was going to increase another 30 percent, even with the success of Broadband, which was not exactly a sure thing. Neither was Enron Energy Services, the company’s foray into the management of power needs for large corporations. And a few people in the crowd had heard of problems in Fastow’s finance group. But no one was that worried. They reminded themselves that they worked for Enron and, no matter what, Jeff would find a way. Because he always did.

There was, in fact, only one cautionary note sounded that morning. Skilling introduced the crowd to Tom Peters, the author of the best-selling business bible In Search of Excellence. Before abandoning the stage to Peters, Skilling wanted to boost morale a little higher. Enron, he reminded the crowd, had found the one successful business model that could be applied to any market.

Peters strode to the stage, abandoned his prepared speech, and started pacing back and forth. He was even sweating slightly, which made some in the audience think he might be another loser. “That’s the scariest thing I’ve ever heard,” Peters said to Skilling, his former colleague at McKinsey. What, exactly, had Enron done that was so novel? he asked. What accounted for such self-congratulation? The company had taken a model and replicated it in other fields — Enron had created markets where none had existed before, in gas, in power, probably in telecom. But everyone knew that now. Other businesses were already copying Enron, and the novelty would soon wear off. And then where would Enron be? Where were the company’s new new ideas? “An excess of self-confidence kills companies,” Peters warned.

In the audience, Sherron Watkins scribbled notes furiously on a pad, listing Peter’s signs of a company in trouble:

1.denial of problems


3. arrogance

Listening, Skilling and Lay sat frozen in their seats, smiles locked on their faces. When Peters stopped speaking, Skilling jumped up to the dais, thanked him, and repeated himself: Remember, he said, Enron had found the one successful business model that could be applied to any market.

Enron liked to close its meetings with humor, and this year was no exception. A videotaped skit began to roll, purporting to show how Enron innovated.

It opened with a tired cleaning woman emptying a trash can in the office of an overworked young associate. “Gee,” she tells him, “you guys should find something to do with all this paper you throw away.” The junior associate, slumped over his desk from the rigors of his eighty-hour workweek, suddenly sits bolt upright. Cut to the next morning. He dashes to the head of Enron’s trading group and breathlessly shares his idea: Enron should create a market for trading recycled paper and pulp. “It’s huge!” he promises, spreading his arms wide.

As soon as the associate leaves, the head trader, who was cool to the idea, leaps from his chair and speeds to the office of the head of the Wholesale trading group, played by Greg Whalley, the real head of Wholesale trading. The head trader starts to sell Whalley on his idea of creating a paper trading business. “It’s a very inefficient market,” he stresses. “We can make a killing!” Whalley, a man well known for his aggressive style, grabs the trader by the lapels, puts a finger to his lips, and pulls him into a restroom, the only place, everyone in the audience knows, that Enron’s hidden cameras and listening devices can’t go. Whalley peeks under every stall. Then he listens, intently, to the pitch again. “We should develop the business plan and go to Skilling,” he says. “Get cracking!”

But Whalley and the trader have not been careful enough. A low-level employee has overheard their conversation through an air-conditioning vent. While the executives dither, he races back to his desk and makes a phone call. Jeff Skilling’s secretary answers and gives him an appointment to discuss his idea — for creating a market in paper and pulp. The low-level employee is played by David Cox, who in real life went from a minor job running Enron’s graphics department to creating the company’s paper and pulp trading division. He was now, true to form, another Enron multimillionaire.

The audience applauded wildly when the skit ended — sure, the culture at Enron was treacherous, but that was the point. Enron hired the best and the brightest, so fighting your way to the top was tougher. But once you got there, you knew — it was incontestable, incontrovertible — that you were a winner.

That was how Sherron Watkins felt by the end of the conference. She had secured face time with Skilling. Yes, she’d prattled anxiously about her favorite Web sites and he’d passed her on like a pol at a crowded fund-raiser; he was a busy man. But Kevin Hannon, the executive who had snubbed her the first day, had later thanked her for her hard work. “Come February,” he said, “we’ll talk about your long-term goals.” So Sherron figured Broadband looked secure, and, if things got rough, she could go to work for Fastow again. Like Enron, she was in a win-win position.

What didn’t occur to Sherron, or virtually anyone else at the conference, was that very little of substance had been discussed. No future goals had been outlined, no business plans debated.

What few knew was that, even as Enron executives were trumpeting their success, their company was already doomed. Within months, Enron’s finances would be in shambles. Instead of being praised as the world’s leading company, Enron would be vilified as one of the world’s most callous and corrupt. Its name would become shorthand for the excesses of American business and American culture at the end of the twentieth century. And in the months to come, the people who had won and the people who had lost through their associations with Enron would ask themselves the same question: Had it ever been a real company? Or had Enron been, from the very beginning, just a brilliant illusion?

Excerpted from “Power Failure” by Mimi Swartz with Sherron Watkins. Copyright © 2003 by Mimi Swartz with Sherron Watkins. Excerpted by permission of Doubleday, a division of Random House, Inc. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.