Enron has lesson for all of us

When my wife and I are in joshing, megalomaniacal moods we like to play a game we call “if we were king and queen.” We speculate on the proclamations we would make ordering exactly the society we want in our imaginary kingdom.

I recently announced I would order ALL business executives, managers, directors, accountants, lawyers, educators, government regulators and politicians to read a new book called “Conspiracy of Fools” by Kurt Eichenwald. The narrative of the implosion of Enron reads like an exciting piece of tragic fiction. It should be mandatory for anyone interested in cultivating a culture of ethics, values and corporate responsibility.

Eichenwald’s book expertly focuses on the foolish business decisions Enron made from the mid-80s to its demise in 2001, but the culture he describes, which cultivated and nurtured the corporate wrongdoing, carries important lessons for all of us.

A culture of arrogance seemed to permeate Enron. Top executives constantly claimed its critics in the media, on Wall Street and inside the company “just don’t understand.” If nobody else gets it, then you may be the one who doesn’t understand.

As early as 1987 it became obvious the company culture tolerated and coddled wrongdoers. Punishments for ethical violations were dreadfully slow. As long as people were making money for Enron they could get away with a lot of sins. Everybody notices when people get away with the bad stuff, and it becomes embedded in the culture.

According to Eichenwald’s account, intimidation was a normal part of business at Enron. Employees were routinely demoted, transferred or denied pay raises when they didn’t “go along.” When some employees felt ethical rules were violated, they were labeled as “not helping.” In such a culture potential whistleblowers fall prey to bullying.

Creativity became a cult more important than common sense and substance. Much of the company’s troubles stemmed from “creative accounting,” which removed losses from the books and added revenues that were not real. Creativity became a code word for pushing boundaries beyond the ethical. We all need to be sensitive to code words in our organization that may signal that common sense is on vacation.

The Enron culture placed an incredible premium on quick decision-making and condemned dithering to the point that there was no room for due diligence. Caution and care were run over by the go-go culture. There are several indications in the book that top executives were shocked when they learned how reckless people had been. That’s a lame excuse because they should have taken note of the reckless decision-making style.

Enron had an easily manipulated compensation system that reinforced the flashy and degraded the practitioners of sound business. The people who made the trains run on time and did crucial functions were ignored at compensation time and clearly devalued. That’s certainly the explanation for the breakdown of basic business practices, such as cash management, check deposits and debt management, which shocked executives when the collapse came. Take a hard look at your own organization to see if the people who do the nuts-and-bolts stuff well are properly rewarded.

In my view, two areas brought down Enron: An obsession with short-term profits, which caused people to focus on quarterly profit/loss numbers and not on whether the company was actually making money; and double-dealing, deceptive and criminal activity. Yet, most people reading Eichenwald’s book will realize that the Enron culture allowed and encouraged those sins. And, many honest readers should realize that if corporate culture is not in good shape, an Enron may not be far away in your organization.

Tip for your search: Resist the temptation to think “It can’t happen in my organization.” No matter your rank, consider the factors that brought down Enron and take the temperature of your own organization. If it is too arrogant, coddles wrongdoers or trades in intimidation, consider what you can personally do to improve the situation. You can be sure a lot of Enron employees now ask themselves “What could I have done?”

Resource for your search: “Conspiracy of Fools” by Kurt Eichenwald (Broadway Books, 2005)