Risk and Ruin: Enron and the Culture of American Capitalism by Gavin Benke (review)

In Risk and Ruin: Enron and the Culture of American Capitalism, Gavin Benke peers into the causes of Enron’s rise and fall. In so doing, he moves far beyond the original historical narrative that emerged in the aftermath of the company’s scandalous collapse in 2001, which cast executives Kenneth Lay and Jeffrey Skilling as the greedy, grasping villains of a shocking corporate and national tragedy. Benke also moves beyond the more recent analyses that attribute the firm’s collapse to its lack of internal management controls and flawed incentive system. His goal is to situate his analysis of Enron’s history in the broader context of corporate America’s transition from the manufacturing-oriented, oligopolistic, and hierarchical business culture of the post–World War II period to the service-oriented, deregulated, competitive, and global culture of American capitalism at the turn of the twenty-first century.

Benke has very ably achieved this goal. He does not simply describe the heedless greed that motivated Lay, Skilling, and other Enron executives to scale the heights of business innovation and growth. More important, he lays bare the arguably admirable skill and idealism with which they ran the business. Benke’s Ken Lay was not only a man attuned to how the changes taking place in the American economy and regulatory environment were creating new opportunities for corporate profit maximization, but also a well-connected impresario in public relations, lobbying, and marketing. Lay astutely recognized and deftly exploited rising public interest in corporate social responsibility and environmental sustainability to win political, popular, and investor support for Enron. Benke makes clear that this effort to wrap Enron in the mantle of corporate sustainability and social responsibility helped Lay advance the cause of deregulation, which allowed Enron to extend its natural gas distribution system far beyond Texas, to enter California’s newly deregulated electricity markets, and to foray into broadband service and foreign markets. Benke then shows how, as Enron’s corporate culture evolved and its managers began to focus on financial structuring, Lay’s rhetorical embrace of environmentalism and social responsibility was replaced by the idealistic growth- and innovation-oriented rhetoric of the 1990s dot-com boom.

One of the book’s greatest strengths is the way Benke situates Jeffrey Skilling’s and Andrew Fastow’s financial engineering schemes, especially their “tortured accounting logic and conflicts of interest,” in the broader context of the growth of consulting firms like McKinsey (p. 133). The special purpose entities (SPEs) and other derivative products that McKinsey and other cutting-edge management consulting firms devised to shield Enron from financial risk reflected a range of important developments in America’s broader corporate management culture.

Another strength is Benke’s explication of the paradoxical nature of the cultural impact of Enron’s collapse. The revelations regarding the company’s accounting lies not only encouraged horrified Americans to peer into the dark, greedy hearts of the “great” men who ran the company, but ironically also blinded them to the inherent riskiness of the innovative financial derivative strategies that had been used to hide Enron’s financial losses from the firm’s leaders and its investors. Enron’s demise may have finished SPEs, but modern financial engineering lived on. Wall Street analysts were as oblivious to—and just as shocked by—similar risks when markets crashed in 2008 and 2009 as they had been when Enron collapsed in 2001.