by Ethan Johnson
July 6, 2006
Mar and I are "shaking the Snoopy fist" in the general direction of our DVD player as of last night. We just watched Enron: The Smartest Guys in the Room, a documentary that chronicles the spectacular rise and fall of the essentially failed energy giant. Ken Lay's recent demise was rather timely, as I had rented the DVD a few days prior to the news. Knowing that he died added a dimension to the story, but either way, in short, the movie is required viewing.
As I am absorbing the material and reflecting on the events, the word that I keep coming back to is bankruptcy. Yes, Enron did declare bankruptcy and ruined the lives of thousands of people, but really, that was a formality. The true bankruptcy occurred long before: The management was morally and ethically bankrupt, the financial press was procedurally bankrupt, the financial markets were ludicrously bankrupt on several levels, save for financially. Not to mention the bankruptcy run rampant in the White House (but really, that could fill museums so I'll drop the subject for now). And it is with simmering disgust that I recall what I wrote at The Vision Thing on October 26, 2004 regarding a document titled The Talent Myth:
Enron was a company that took the "talent mind-set" to heart, apparently to the exclusion of all else, as described by the PDF.
The Enron scandal is now almost a year old. The reputations of Jeffrey Skilling and Kenneth Lay, the company's two top executives, have been destroyed. Arthur Andersen, Enron's auditor, has been driven out of business, and now investigators have turned their attention to Enron's investment bankers. The one Enron partner that has escaped largely unscathed is McKinsey, which is odd, given that it essentially created the blueprint for the Enron culture.
And that, Ladies and Gentlemen, is my problem with "consultants", especially on the scale of something like McKinsey. All recommendations and "y'oughta's", but no accountability to the results.
In fairness, Enron didn't have to go "talent mind-set" crazy. But equally, knowing what we know about Enron, the "model business" from McKinsey's point of view, how can anyone support these people?
Such were my thoughts as I watched the tragedy that was (is?) Enron unfold.
What also struck me about this story was what I call an overwhelming sense of inevitability. We could verify Enron's claims, but come on, they're smart guys! And their stock is through the roof! And they're like rock stars on Wall Street! Do we really want to be the [jerks] who stopped these fine people from innovating?
In a word, especially when your job is to provide some sort of oversight, yes.
This isn't a particularly warm and fuzzy thought, but the heirarchical nature of most companies (large or small) tends to mean that the top of the org chart rakes in the most money. Be it fair or unfair, this is who stands to benefit the most regardless of what happens. In the case of extreme fraud, the C-level executives shovel obscene amounts of money into offshore accounts and other like-minded shelters knowing that they'll always have it close at hand, law and ethics be damned. The rank and file, on the other hand, stands to lose the most. Such was the case at Enron: There is video evidence of the C-level executives lying to the rank and file and urging them to dump all of their 401(k) into Enron stock. The same stock that the C-level executives were "pumping and dumping" to the tune of tens to hundreds of millions of dollars.
For all of the griping about Sarbanes-Oxley (SOX), and its perceived effectiveness, sorry everyone, but after a debacle like Enron some squirming, flop sweat, and "stifling regulation" is definitely in order. Of course, measures like SOX won't stop the next Enron. Taking Enron's own advice will stop the next Enron: Simply ask "why?" A reporter at Fortune did. And the rest is history. <EM>
