The film examines the 2001 collapse of the Enron Corporation, which resulted in criminal trials for several of the company's top executives during the ensuing Enron scandal; it also shows the involvement of the Enron traders in the California electricity crisis. The film features interviews with McLean and Elkind, as well as former Enron executives and employees, stock analysts, reporters and the former Governor of California Gray Davis.
The film won the Independent Spirit Award for Best Documentary Feature and was nominated for Best Documentary Feature at the 78th Academy Awards in 2006.
The film begins with a profile of Kenneth Lay, who founded Enron in 1985. Two years after its founding, the company becomes embroiled in scandal after two traders begin betting on the oil markets, resulting in suspiciously consistent profits. One of the traders, Louis Borget, is also discovered to be diverting company money to offshore accounts. After auditors uncover their schemes, Lay encourages them to "keep making us millions". However, the traders are fired after it is revealed that they gambled away Enron's reserves; the company is narrowly saved from bankruptcy by the timely intervention of executive Mike Muckleroy, who managed to bluff the market long enough to recover Borget's trading losses and prevent a margin call. After these facts are brought to light, Lay denies having any knowledge of wrongdoing.
Lay hires Jeffrey Skilling, a visionary who joins Enron on the condition that they use mark-to-market accounting, allowing the company to record potential profits on certain projects immediately after contracts were signed, regardless of the actual profits that the deal would generate. This gives Enron the ability to subjectively give the appearance of being a profitable company even if it wasn't. With the vision of transforming Enron from an energy supplier to an energy trader, Skilling imposes his interpretation of Darwinian worldview on Enron by establishing a review committee that grades employees and annually fires the bottom fifteen percent, a process nicknamed within the company as "rank and yank". This creates a highly competitive and brutal working environment. Skilling hires lieutenants who enforce his directives inside Enron, known as the "guys with spikes." They include J. Clifford Baxter, an intelligent but manic-depressive executive; and Lou Pai, the CEO of Enron Energy Services, who is notorious for using shareholder money to feed his obsessive habit of visiting strip clubs. Pai abruptly resigns from EES with $250 million, soon after selling his stock. Despite the amount of money Pai has made, the divisions he formerly ran lost $1 billion, a fact covered up by Enron. Pai uses his money to buy a large ranch in Colorado, becoming the second-largest landowner in the state.
With its success in the bull market brought on by the dot-com bubble, Enron seeks to beguile stock market analysts by meeting their projections. Executives push up their stock prices and then cash in their multimillion-dollar options, a process known as "pump and dump". Enron also mounts a PR campaign to portray itself a profitable, prosperous and innovative company, even though its worldwide operations are performing poorly. Elsewhere, Enron begins ambitious initiatives such as attempts to use broadband technology to deliver movies on demand, and "trade weather" like a commodity; both initiatives fail. However, using mark-to-market accounting, Enron records non-existent profits for these ventures. CFO Andrew Fastow creates a network of shell companies designed solely to do business with Enron, for the ostensible dual purposes of sending Enron money and hiding its increasing debt. Fastow also takes advantage of the greed of Wall Street investment banks, pressuring them into investing in these shell entities. However, Fastow has a vested financial stake in these ventures, using them to defraud Enron of tens of millions of dollars in business deals that Fastow effectively conducts with himself. All of this done with the permission of Enron's accounting firm Arthur Andersen and the corporate board. Most of these deals were leveraged with Enron stock, meaning that a significant decline in Enron's stock price could cause Fastow's network of shell companies to fall apart. During this time, Enron's executives encourage the company's employees to invest their savings and retirement funds into Enron stock while they are selling off their shares for millions.
Enron's successes continue as it became one of the few Internet-related companies to survive the burst of the dot-com bubble in 2000 relatively unscathed, and is named as the "most admired" corporation by Fortune magazine for the sixth year running. However, Jim Chanos, an Enron investor, and Bethany McLean, a Fortune reporter, question irregularities about the company's financial statements and stock value. Skilling responds by calling McLean "unethical", and accusing Fortune of publishing her reporting to counteract a positive BusinessWeek piece on Enron. Three Enron executives meet with McLean and her Fortune editor to explain the company's finances. However, public perception of Enron is changed dramatically due to its role in the California energy crisis: Enron traders exploited the shaky foundation of the state's newly deregulated energy market by shutting down power plants and exporting power out of the state to create artificial shortages that would drive up the cost of electricity to Enron's benefit; Enron would make $2 billion off of the crisis. The film plays tape recorded conversations between Enron traders who seemed to derive enjoyment from their exploitation of the crisis and then cites the Milgram experiment as a means of explaining their behavior. It also explores the strong political connections Ken Lay and Enron had, particularly to the administrations of 41st President George H. W. Bush and his son, Texas governor and later 43rd President George W. Bush, and suggests that Enron's actions during the California energy crisis could have been intended as a means of sabotaging California governor Gray Davis, who was being speculated as a strong potential challenger to Bush in the 2004 Presidential election. Indeed, the crisis would indirectly lead to Davis being recalled in 2003, which ended his political career. Skilling, who by then had succeeded Lay as Enron's CEO, blames California's energy laws for the crisis and denies that Enron is acting inappropriately, infamously stating on a 2001 episode of Frontline, "We are the good guys; we are on the side of angels." While the Bush administration refuses to intervene, which the film suggests could have been a result of Enron's influence, the opposition-controlled Senate ends the crisis by imposing price controls. Bush's connections to Ken Lay come under scrutiny by the press, which intensifies after Enron's collapse.
Meanwhile, throughout 2001 much more scrutiny is brought upon Enron's balance sheet and this agitates CEO Skilling, who was on the verge of a nervous breakdown as the company and its fraud start to unravel. He engages in odd and irrational behavior - such as calling an investor an "asshole" during a conference call when asked why Enron isn't as transparent about its finances as its competitors - which culminates in his abrupt resignation as CEO in August 2001 in which Ken Lay retakes the position. Skilling's odd behavior serves as a red flag to investors who begin to question how financially healthy the company really is and start selling their shares; Enron's stock price begins to rapidly decline. Immediately after Skilling's departure, whistleblower Sherron Watkins, who had just recently discovered the fraud in Enron's books, alerts Lay and tells him that the company is headed to certain collapse unless he acts immediately. Like in 1987, Lay largely ignores Watkins' warnings and assures employees and the public that Skilling left for personal reasons and that the company was financially solid. At the same time, the board fires CFO Fastow after discovering that he had embezzled more than $30 million from the company through his shell companies. With Fastow gone, Enron's accountants issue a series of restatements that erase a majority of the company's profits from 1997 through 2000, adds nearly $1 billion of debt to the company's balance sheet, and removes over $1 billion of shareholder equity as a means of writing down the losses from Fastow's shell companies. Despite Lay's continued assurances that Enron is in good shape and will pull through, the company's stock price tanks as its investors and customers lose all confidence and Enron is forced to file for Chapter 11 bankruptcy protection in November 2001.
As a result of Enron's bankruptcy, many of its employees lose their pensions and life savings, while investors lose over $11 billion in shareholder value. Congressional hearings are held into the scandal, where Ken Lay and Andrew Fastow plead the fifth. Fastow eventually pleads guilty in a deal that he will testify against his former coworkers in exchange for a reduced sentence, while Lay and Skilling plea innocent and spend tens of millions of dollars on defense attorneys.
Upon release, Enron: The Smartest Guys in the Room was met with strongly positive reviews. The film has a "Certified Fresh" rating of 97% on Rotten Tomatoes, based on 117 reviews, with an average rating of 8.1/10. The site's consensus states: "A concise, entertaining documentary about the spectacular failure of Enron." On Metacritic, it has a "Universal Acclaim" rating of 82%, based on 37 reviews. Film critic Roger Ebert, writing in the Chicago Sun-Times, gave the documentary three-and-a-half out of four stars, commenting that, "This is not a political documentary. It is a crime story. No matter what your politics, Enron: The Smartest Guys in the Room will make you mad". Ebert's co-host on the television program Ebert & Roeper, Chicago Tribune critic Richard Roeper, said that the documentary was "a brilliantly executed, brutally entertaining dissection of what one observer called the greatest corporate fraud in American history." A. O. Scott of The New York Times called the film a "sober, informative chronicle of the biggest business scandal of the decade is almost indecently entertaining." Owen Gleiberman wrote: "A nimble investigative workout that leaves you with the exhilarated sensation of understanding the defining financial scandal of the virtual era."
It was nominated for an Academy Award for Best Documentary Feature at the 78th Academy Awards in 2006, but lost to March of the Penguins.
Soon after theatrical release, on October 13, 2005, an edited version of the film aired on the PBS documentary series Independent Lens.