Chapter 5. What it Meant to “Do the Right Thing” at Enron

“We're going to do the right thing and make money without having to do anything but the right thing.”

—Andrew S. Fastow, Chief Financial Officer, Enron^[19]

Most of the stories in this book are about entrepreneurs and start-up companies that are somewhat outside the mainstream of established companies in the economy. The entrepreneurial sector of the economy is very important to technological progress, and it involves somewhat specialized economic institutions that are designed to support innovation—including, most importantly, angel investors, venture capital firms, and the IPO process. But while this sector was at the core of the Internet bubble, the bubble was not limited to it; instead, in crucial instances, the bubble reached directly into the mainstream of the economy—into old and established firms and into traditional industries. These companies have long-established customer and supplier relationships, are well-known to regulators, and have distinguished outside directors, highly compensated executives, and familiar relations with accountants and bankers. There is none of the newness of the start-up and none of the excuses for missteps that accompany new firms, new technologies, and new business models. Yet some situations that occurred in the mainstream of the economy were enough to make most start-ups—and their role in the bubble—look to be models of propriety.

The scandals involving mainstream firms involved not the misuse of the IPO process, but the perversion of the most fundamental elements of U.S. capitalism: the systematic manipulation of accounting rules which apply to all firms, whatever their size, industry, and longevity; the corruption of the national political and regulatory processes; and the cynical abuse of advise to investors by bankers in order to gain fees from the companies whose stock they recommended.

At Enron, the bubble and its abuses reached into the heart of U.S. capitalism.