etee's Blog

Loren Steffy posted this article in his blog today about Enron. More to the point, it was about how there may be a bit of Enron in each one of us, and was meant to spur discussion on the topic.

I tend to agree with Loren's point that Enron was representative of us. In a comment I posted to Loren's blog, I said

The first time I saw the cafeteria at 1500 Louisiana (formerly "Enron South"), I was struck by an apparent design flaw: this cafeteria, designed to support almost 100 floors (both this building as well as 1400 Smith) worth of people, only had seating for about 100 people! Then I realized that the intention was that the employees get their lunch, and take it back to their 'office' to eat, while they continued to work. That really speaks to the mindset of the Enron culture, which effectively subordinated everything else (including basic human needs, such as food) to the pursuit of the bottom line. My guess is that, in such a high-energy, high-pressure, high-performance environment, such minor things as one's moral compass were easily put aside.

What really surprises me is that there wasn't a great big Kool-Aid dispenser present.

However, I don't think that Enron was simply a "picture of Dorian Gray" for the dark side of human nature. Enron was very much a company of the dot-com era. Enron was one of those companies that helped define the dot-com model, where businesses defined new markets instead of competing in existing markets, and then redefined (or at least attempted to redefine) the rules which defined success in this brave new world. Unfortunately for Enron, though, the company still had one foot solidly in the grave of old-school business metrics, even as the other one was poised over the banana peel of the dot-com revenue model.

Combine the need to 'meet the Street' with a 'high energy', 'high performance' style (where your continued employment depends on 'exceeding expectations' or at least running faster than the person next to you) and a willingness to push the envelope and walk close to (and sometimes over) the edge of legality in the name of 'the end justifies the means', and you have a recipe for a disaster in the making. And, in the wake of the runup of electricity prices in California during 1999-2000, that disaster happened, and Enron began its spectacular implosion.

I think that the question in the back of Loren's posting was "could this (what happened to Enron) happen elsewhere?" I think the answer is a definite maybe. Certainly, many other companies tried to adopt some of Enron's practices -- for example, the adoption of a 'high energy', 'high performance' environment, where the bottom 10% were given the boot each year, regardless of how well they performed.

At the same time, I am not sure the conditions will ever be right for another Enron to occur. Enron's collapse occurred because (metaphorically speaking) the planets were aligned just wrong (at least, for Enron and its shareholders.) New accounting rules may make it more difficult for a public company to pull the type of financial shenanigans that bit Enron in the corporate butt (though efforts are reportedly underway to roll back some of these rules.) The experience of WorldCom, Tyco, Adelphia etc. may preclude C-levels using the corporate till as their own private credit union in the future. And, I suspect that state governments will be a bit more leery of allowing companies to "create" new markets via deregulation of existing utilities in the future.

However, it has been said that "those who fail to learn from their history are doomed to repeat it", and we have certainly seen some of the ingredients that combined to bring down Enron present in other companies. Continued diligence and rigor in oversight will be necessary of we want to avoid Enron II.