Enron's Painful Lessons
- Posted on May 10, 2013
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Enron’s ‘brightest’ will get out of jail 10 years earlier, or perhaps by 2017. A federal judge has to Okay the deal but it is based on the fact that Jeffrey Skilling’s original sentence handed down in May 2006 was improperly calculated.
Ethics and the criminal ramifications of going astray have always been in the spotlight, and such lessons are almost forgotten over time. In the late 1990s and early 2000s, those matters became especially prominent and resulted in a number of high profile convictions of large corporate titans. Together, Skilling and his co-executive Ken Lay were found guilty of massive securities fraud, although Lay’s conviction was overturned because he died before the verdict could be appealed. Skilling’s conviction was subsequently upheld but the appeal’s court ruled that the trial judge incorrectly figured his sentence.
Ironically, Enron once symbolized the "New Economy" where knowledge and technology would combine to create opportunities across several sectors. And while the concept is still applicable, the way that Enron implemented it has been discredited. In other words, the company manipulated financials and lied to investors in an effort to show that it was alive and kicking. Now, the former energy trading entity is the sign for all that can go wrong with corporate America if hungry executives are left unchecked.
“To the outside world, Enron appeared to be a picture of corporate success,” said Assistant U.S. Attorney John Hueston, during his opening remarks to the jury seven years ago. “Inside the doors of Enron, things were terribly wrong.”
Insiders have said that the company preached ethical values but did little to practice them. With huge bonuses at stake for managers, the primary incentive was to increase profits at all costs. Corporate ethicists say that it's tantamount to playing sports where teamwork is essential. If any of the individuals in a business setting become more concerned with their own performance at the expense of the enterprises' well-being then defeat is almost certain.
As a consequence of misplaced values, the system of checks and balances broke down allowing execs to work with the auditors, investment bankers and lawyers to pursue deals that violated the Enron's own codes of conduct. The forces ultimately converged to create one of the largest bankruptcies in American history.
Punishment serves as a deterrent. But a clear cut mission and a code of ethics that is inculcated throughout the corporate bloodstream is essential. It's the foundation to which boards, managers and workers rely when they reach a fork in the road. It's the principles they use when deciding whether to emphasize short-term gain or long term stability. Profits and ethics are not mutually exclusive but assimilating the two does require placing the concerns of customers, communities and workforces above the notion of profit at all cost.
“Given the right environment, people can do the right thing regardless of what is in the air,” says Leigh Hafrey, ethics professor at MIT Sloan School of Management and author of ‘Five Steps to Mastering Ethics in Business.’ “It's not easy. But part of what makes it easier is to give managers and employees the tools to stand by their principles even under pressure. That's why role models matter so much.”
In the heat of battle, though, people can lose their heads. The human psyche may work to rationalize iffy behavior by claiming "everyone" is participating. The subsequent peer pressure then works to "corrupt" the organization. That seems to be the case with Skilling and Lay, whose dynamic personalities led otherwise well-intended people to deviate from their norms. Corporate codes of conduct were therefore relegated to meaningless pieces of paper.
But the same forces that can push managers to evade common sense can also be positively channeled. It's about creating a team environment in which the participants see their roles as facilitating the greater good and not in feathering their own nests.
Despite the systemic failings at some energy enterprises, morality did triumph. Enron, for example, had its whistleblowers who complained to their managers that some of the activities didn't pass the smell tests. Invariably, individuals put in such awkward positions must ask others and themselves if certain actions would be wrong and if they are unsure, then they should ask their bosses. It's about treating customers, employees and communities with dignity and respect. The companies that have neglected those values are now on the trash heap of history.
“Strong individuals can take an organization diametrically opposite to where it needs to go," says Cal Clemmons, author of the ‘The Perfect Board.’ “But those who will stand up and be counted will be proven right in the end.”
Enron’s life is over. And those who led or participated in its demise have suffered, along with those who had vested themselves as employees and shareholders of the company. It’s a new era and one that is incorporating those painful lessons. Transgression, though, is part of the human experience and it will no doubt re-occur throughout the journey.
EnergyBiz Insider has been awarded the Gold for Original Web Commentary presented by the American Society of Business Press Editors. The column is also the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has been honored as one of MIN’s Most Intriguing People in Media.
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