John Olson (pictured) is
not a well-known name, but when he died a few weeks ago, this retired energy
analyst was remembered in obituaries for his warning 25 years ago this month about
one hot stock—which the object of his skepticism tried to tamp down.
Too bad
that others didn’t perform proper due diligence on Enron, which six
months later collapsed, in the largest bankruptcy filing to that point in U.S.
corporate history.
The
initial outsized expectations about Enron’s stock reminded me of a phrase
coined by the otherwise colorless former Fed chair Alan Greenspan (who also
died this month): “irrational exuberance.” Though Greenspan was discussing
speculative market bubbles as a group, I think it applies just as much, maybe
even more so, to individual stocks today.
Take a
bow, Elon Musk.
You heard
about that guy, right? World’s richest person. World’s first trillionaire,
courtesy of a very generous compensation plan approved by shareholders
of his company, Tesla.
More about
him in a minute. But first, a refresher on Enron:
Through
much of the Nineties, Enron was a Wall Street darling for advancing from a
natural-gas provider to an energy-trading colossus. It reported incredible
returns, reaching $90.75 per share on August 23, 2000 with a market
capitalization of more than $70 billion, making it the seventh-largest publicly
traded corporation in the U.S.
Who
wouldn’t want to invest after a management guru like Gary Hamel had praised it
for creating “a capacity for perpetual innovation” with an organization
consisting of “potential revolutionaries”? Even pundits across the political
spectrum like Bill Kristol and Paul Krugman took fees to serve on the company’s
advisory committee.
Wall
Street was particularly enamored of Enron head Kenneth Lay, a corporate
leader used to being listened to. That respect derived not only from the
eye-popping numbers he produced but from his cozy relationship with George W.
Bush, a rising politico so grateful for the $122,500 contributed to his Texas
gubernatorial campaigns that he nicknamed the gray-haired businessman “Kenny
Boy.”
In March
2001, Lay and his successor as Enron president, Jeffrey Skilling, were annoyed
when a young financial journalist, Bethany McLean, wondering how the company
made its money, asked, in a Fortune Magazine article, if Enron was
overpriced.
But they really
grew incensed when Olson—a local analyst with long experience monitoring the
energy industry—told U.S. News and World Report three months later that
Enron was "not very forthcoming about how they make their money" and
said no "analyst worth his salt . . . can seriously analyze Enron."
Olson chuckled
over a misspelled handwritten note that Lay dashed off to his boss in the wake
of that interview. The analyst’s equanimity was justified: other observers were
soon pursuing the hard questions that he and MacLean had posed about Enron’s
operations.
By year’s
end, it had all unraveled in a massive bankruptcy and corporate scandal. In May
2006, Lay and Skilling were convicted of fraud and conspiracy charges.
So now you
may be wondering, how could Lay possibly relate to Elon Musk?
Some of
you reading this might see my eyebrow lifted derisively in his direction because
of my distaste for his involvement with the Department of Government Efficiency
(DOGE) at the behest of Donald Trump.
Or you
might argue that, unlike Enron, Musk built something that can be seen—rockets,
an AI startup fueling data centers, and, through Tesla, the EV, the most
significant contribution to the American auto industry since Henry Ford’s
assembly line.
You can
even accept (as analyst Jeff Sommer does here, before swatting it
down) that Tesla can build a successful colony on Mars and reap a bonanza from
its military contracts.
But there’s
a simpler yardstick for measuring how close Musk comes to the now-infamous Kenneth
Lay: What did his prior financial reports promise investors, and did he achieve
those goals?
That’s
where matters become slippery. A New York Times analysis from earlier
this month found that Musk was late or did not deliver on his company deadlines
roughly 35 percent of the time. In 33 percent of his more than 600 claims, his
companies did not provide a public update—or the plans were too vague to know
if he succeeded.
And five
years ago, Consumer Reports compiled a telling timeline of his
continuous claims that Tesla models would shortly become fully autonomous,
along with deaths of people who accepted these assurances that turned out to
be—well, let’s just say premature.
In other
words, if Musk were a musical, it would be Promises, Promises.
Unlike
with Enron, nobody has yet proven that Tesla’s accounting practices are
fraudulent. But it would be enormously difficult to decipher even if anyone
tried to do so. Now with Vanity Fair, Bethany MacLean has questioned the
ethics and governance behind his complicated 2019 acquisition of Solar City.
Testifying
before Congress in 2002, Olson cautioned that “It is axiomatic on Wall Street
that if a stock price is rising arithmetically, management egos tend to rise
exponentially.”
That was the case as Lay pressured editors and analysts for better press coverage, and
maybe even more so with Musk. He was only half-joking when he said, while
hosting Saturday Night Live in 2021, “To anyone I’ve offended, I
reinvented electric cars and I’m sending people to Mars in a rocket ship. Did
you think I was also going to be a chill, normal dude?”
Put that together
with his use of ketamine, a dissociative drug, and you’ll understand why in The
Atlantic last year, Shayla Love wrote that Musk’s “cognitive and
psychological health is of concern not only to shareholders of his companies’
stocks but to all Americans.”
One last
resemblance between Lay and Musk: each backed a successful
candidate who then followed through on the ballyhooed businessman’s policy
prescriptions. Lay, for instance, influenced Bush’s gubernatorial policies on
electricity deregulation, taxes and tort reform.
Musk’s
Presidential beneficiary-patron has permitted him even more latitude. Past
robber barons were content to bribe and sway officeholders, but in taking his
position with DOGE, Musk joined the government, if briefly.
That
takeover was so swift and audacious that observers could hardly rouse
themselves to ask if self-interest might be the principal reason for his
lightning strike against the agencies that regulated his enterprises. Were he
alive today, Kenny Boy might be asking, “Why didn’t I think of that?”