New Civilization News: Enron's culture of arrogance and personal initiative    
 Enron's culture of arrogance and personal initiative0 comments
picture28 Jan 2002 @ 17:05, by Flemming Funch

Interesting article in L.A. Times about the culture of the Enron, the failed energy company. Many things that at first glance sound very positive. The culture invited and rewarded personal initiative, and the company supported its community generously, and promoted positive values of creativity and charity. But, looking a bit closer, what it really encouraged was that as long as you bring the company more money, you can break any rule that is in the way. An arrogant the-ends-justify-the-means kind of thing. Get there in any creative way you can think of, no matter who gets hurt along the way, and then make sure you look as good as possible.

Enron's Run Tripped by Arrogance, Greed
Profile: A lack of discipline and a drive to bend rules were key factors in the meltdown.


HOUSTON -- Two years ago, the executive committee of Enron Corp. convened to select a new slogan for the company. Enron was on fire, entering new markets and starting new businesses on almost a daily basis. The old slogan, "The world's leading energy company," was too limiting.

The committee's top choice for a replacement: World's coolest company.

"It's a vision of innovation; it's a vision of creativity," Enron President Jeffrey K. Skilling said at the time. To underline the point, then-Chairman Kenneth L. Lay suggested wrapping the headquarters building in a pair of giant sunglasses. The name Enron now conjures up images of monstrous greed and massive fraud, shredded documents and empty 401(k) plans, but for quite a while it was considered one of the country's leading corporations. Analysts marveled over it, Fortune magazine voted it "most innovative" six years in a row and people were eager to work there.

It wasn't mass delusion. For much of its 16 years, Enron did indeed appear innovative, creative and cool, although the executive committee never made the new slogan official. It was the kind of place where the normal workplace rules were suspended for what seemed the best reason: to free people to achieve excellence.

Much of the transformation was the work of Skilling, who arrived at Enron in 1990 from the consulting group McKinsey & Co. and rose to become chief executive for six months before resigning last August. During Skilling's first week at Enron, his secretary brought him a stack of expense accounts to review.

"You've got to be kidding me," Skilling recalled in a 2000 interview for an academic study. "Here the world's just fallen apart around us--deregulation, new customers, new products. And I'm going to sit here line-item by line-item and go through an expense statement?"

Henceforth, he decreed, expense reports would routinely be approved without review.

As Skilling ascended, he overhauled the company culture. He set employees loose, encouraging them to push the edge of every rule, even without their supervisors' knowledge. He instituted a company-wide performance review system designed to weed out the weak. He rewarded fast results with big money. And he said that not only would Enron pattern itself after General Electric, the most sustained success in corporate America, but it would also surpass it.

In the hothouse atmosphere of the late '90s, all of these ideas seemed reasonable, even commonplace. The stock market was soaring. People confused getting rich with being smart. The dot-coms, then riding high, looked like they would kill off the stodgy old industrial companies. It seemed like the boom times would never end.

By the time they did early last year, Enron had become less a company than a collection of mercenaries, according to current and former employees. Secret partnerships were set up that critics say violated the most basic conflict-of-interest rules.

Company earnings and revenue were inflated or illusory. Hardly anything was real, unless it was the tens of millions of dollars that top executives were making from selling stock as fast as they could.

Enron was not only one of the biggest corporate collapses in American history, it was also one of the fastest; what appeared a viable if overextended company in September was bankrupt in December. Every day brings fresh allegations of chicanery and manipulation by both Enron and its auditor, Andersen. Ten congressional committees are investigating, as is the Securities and Exchange Commission and the Justice Department.

On Friday morning, former Enron Vice Chairman J. Clifford Baxter was found dead in his Mercedes-Benz. The death was ruled a suicide Saturday by the Harris County, Texas, medical examiner's office. Friends said he was despondent over having been unable to put a stop to Enron's highly questionable accounting methods.

"Enron prospered by challenging the limits of accepted behavior. The vast bulk were in ways that were socially, legally and politically acceptable," said Robert F. Bruner, a University of Virginia graduate business professor who cowrote a multimedia study of Enron that was conducted in 2000 and 2001.

"But Enron lost discipline over its aggression," Bruner said. "The biggest reason for Enron's fall is its absence of humility."

Bruner's study is the source of this story's quotes from former Enron executives Lay, Skilling and Chief Financial Officer Andrew S. Fastow, who are now declining media interviews.


We've taken all these young bright people. We've given them a toolbox. . . . That's how we build our businesses. Just people dreaming up solutions every day.

Andrew S. Fastow, Enron chief financial officer, in April 2000


Louise Kitchen was a young British trader spearheading Enron's entry into Europe's energy markets. She wasn't a top executive and hadn't even turned 30. But Kitchen cooked up a plan for the company's online trading operation.

Online trading was seen as Enron's future. Under Skilling's guidance, the company was moving hard assets like power plants off its balance sheet into complex partnerships. The goal was an "asset light" company that would make its money brokering contracts to provide power and other commodities.

She rallied a team of supporters and they designed the entire business out of the company's London offices, much of it on nights and weekends. Skilling was on record as being opposed to automated trading systems, so Kitchen, who bootlegged $30 million in hardware from other Enron divisions and drew 380 people into the project, didn't tell him.

The head of the London office finally broached the subject of online trading, Skilling later recounted to his interviewers. Skilling says he rolled his eyes but agreed that such a system might just work.

"That's good," the London executive said, "because we're rolling it out next week."

It was an immediate triumph, with 65,000 natural gas, electricity, petrochemical and other transactions in the first four months. Kitchen soared too. Just last fall, she was ranked 17 on Fortune's list of the 50 most powerful women in business.

This was the era when the dot-com philosophy of "first-mover advantage" held sway: Whoever entered a new market first would dominate it.

One young Enron executive had a notion about trading high-speed computer bandwidth. Skilling says he set him loose, not even telling his supervisor. "His boss would say, 'No, just keep doing what you're doing,' " Skilling said. Nothing was off-limits. The company got into trading weather derivatives (to hedge against swings in temperature that may affect a business) and launched plans to do the same with advertising space. And its creativity quickly extended to finance.

"I don't think Enron had any fear," said Richard Kottke, a former engineer and weather trader with the company. "There wasn't anything they wouldn't try to make money at. Any reasonable person would look at that mentality and say, 'I see how that would lead a person to do something in accounting to push the envelope.' "

It was, said another ex-employee, all part of being "creative."

"If you asked your managers about the law, they said it could be written better but that wasn't our job," said this man, who worked in the research unit analyzing prospective deals. "Our job was to take advantage of the law to make as much money as we can."

Current and former employees, some of whom wanted to talk anonymously to protect their job or just keep out of the media firestorm, describe a place where ideas were implemented fast, but if they didn't yield immediate results, the project would end up on the scrap heap just as quickly.

The new businesses weren't always worth much in the present. But with so-called mark-to-market accounting, future values of long-term contracts were counted immediately. Still, the dollars were phantom dollars, which drove the need for yet more deals, insiders say.

Take the broadband unit. Enron cut a deal with Blockbuster to deliver movies to viewers' homes through telephone lines. The joint venture was a legitimate, although ultimately unsuccessful, idea: The market, and the technology, just weren't there yet.

Nonetheless, the phantom profits went onto the books, said one former vice president.

This kind of accounting was one of several factors that led to the company's decline.

By last winter, the company was in constant flux.

"The company was notorious for reorganizing every six months," said Ron Lumbra, Houston executive director of the corporate search firm Russell Reynolds Associates.

"We needed to bring in people who could handle their boss being transferred in their third week on the job and their business being restructured in their sixth week."


If you're creating something new, you have to make sure everyone's working together and aligned. . . . If I have 10 people reporting to me, when you change an organization, I can guarantee you maybe four people get it. Three probably say they get it but they really don't, and there will be four who are actively hostile to what you're trying to accomplish.

--Jeffrey K. Skilling, explaining Enron's "rank and yank" personnel evaluation process last May.


Luring the best and brightest to Enron became a Skilling fixation. But that wasn't enough. Employees had to constantly improve, and who better to judge their work than their peers?

Skilling took the performance review process he learned at the consulting group McKinsey to Enron.

Every six months the frenzy would repeat itself. Employees and managers would scramble to find reviewers among supervisors, subordinates and peers. Self-evaluations were projected onto screens and debated.

It took three weeks to chew over an employee's record and rate it against everyone else who held a similar position. Workers were ranked on a scale of one to five, with the number determining their bonuses, and their fates.

"Those who don't really meet the standards get cycled out of the company pretty quickly, which is probably good for them and good for the company," Lay told the University of Virginia researchers in April 2000.

Individual excellence was in. Teamwork was out.

"People became proprietary about their deals," said one Enron veteran. "Why should I help Johnny if I'm rated against Johnny?"

As the New Economy soured, there was much less success to go around. That only increased the competition. "As the company internally realized it was entering troubled times, rank-and-yank turned into a more political and crony-based system," said Bruner, the Virginia professor.

Some managers lied, altering records on employees they wanted gone, said Charles Turcich, an information technology contract worker who spent 18 months at Enron.

"Managers would change time from sick time to just 'absent' to make [workers] look bad. They'd keep spreadsheets of attendance and go back and change them," Turcich said.

"Enron was a really unpleasant place to work," agreed one trader who is nevertheless still there. "It was ridiculously competitive, even vicious. . . . I locked my desk every night so my colleagues wouldn't steal my work."

Officially, everyone played well together. Enron's stated values were dubbed RICE: Respect, Integrity, Communication, Excellence. Lay himself selected them, employees were reminded. The values were engraved on knickknacks, from Lucite squares to plaques and rocks, and given to employees as inspirational gifts.

But in practice, some say, everyone was judged on "origination"--or how much business you were bringing to the company. "I went to a lot of evaluation meetings," said one junior executive, "and I never heard anyone evaluated by any standard but origination."


We're going to do the right thing and make money without having to do anything but the right thing.

--Fastow, in April 2000


The company grew because money mattered and it mattered more and more as the company grew, current and former employees say. Everyone knew what the stock was doing at every minute. New employees not only hoped to make a bundle but demanded it.

"You get the deal done, you get paid," said executive recruiter Lumbra, who was told by one senior executive that Enron was "the best meritocracy in business."

Those who made money exulted in it. One trader remembers one of his colleagues standing on his desk after the stock had had a particularly good day. "I am so rich!" he shouted. One executive, Lou Pai, sold stock worth $353 million.

Excess is rarely frowned on in Texas, but Enron began to press even the state's tolerance. You could identify Enron employees, people said, by the way they swaggered.

"They were totally cocky. They were arrogant. They thought everything they did was right," said one local attorney who had friends at the company. "They thought they were reinventing the . . . wheel."

By late September, after Skilling resigned and it was apparent the company was spiraling downward, Lay made a last-ditch cheerleading effort. His "Lay It on the Line" in-house survey generated 4,000 responses from employees about the company in three days. On Oct. 2, he e-mailed the results to them, one of whom gave The Times a copy.

More than 1 out of 3 said they weren't committed to staying at Enron. Other signs of trouble: 42% said the company was more "self-serving" than it had been a year earlier, while 39% said it had grown more "arrogant." And 37% said the company was less "trustworthy."

Lay tried to right the ship. The performance review system would be modified, he promised. A new employee relations office would be established to field criticism. And efforts to stress "integrity and respect" would be redoubled.

"Enron's values will have more importance in each employee's evaluation and feedback," Lay wrote. "We are all responsible for how we treat our co-workers and customers."

But the words were just words. Enron's slide was unchecked.

After a failed merger attempt with a smaller competitor, Dynegy, led Enron into its December bankruptcy, Prudential Securities' Houston office questioned whether anyone could have married such an abrasive bride.

"Enron's arrogance and mercenary culture was deep-rooted in the company," wrote analyst Carol Coale, "and we doubted that even a fraternal management team like that of Dynegy's would have been able to reshape the mind-set of Enron's management and employees."

Still, traces of the infatuation ingrained for so long in the loyal work force remain. One young man, who said he lost more than $50,000 in his savings plan and a small fortune in stock options and bonus money, was still optimistic that the company would survive.

"I believe in the integrity of the management," he said. "This job could be fun again."

Copyright 2002 Los Angeles Times

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