HoustonChronicle.com -- http://www.HoustonChronicle.com | Section: Viewpoints, Outlook

Feb. 1, 2002, 9:41PM


Enron's leaders still don't get it
The issue is ethics and they showed none
By J. TIMOTHY McMAHON

We are drowning in the details of the Enron debacle: SEC, FASB, EBITDA, AICPA, SPVs, mark-to-market accounting, off-balance sheet financing, an impotent internal audit committee, a board of directors that is missing in action, national energy policy, accepted auditing principles, fox-in-the-hen-house accounting operations, tax havens, document shredding, political favors, executive privilege, corporate governance, 401(k) regulations, aggressive accounting, misguided analysts, hedging operations, details of deregulation, corporate citizenship and more. The upcoming congressional hearings will surely generate a blizzard of additional details.

Are these details important? Of course. Will they help us understand what happened? Yes. Will the eventual consequences guarantee no Enrons in the future? Of course not.

Enron leaders often chided the uninitiated that they didn't get "it" -- unconstrained deregulation and the Enron method of operation. Well, obviously, Ken Lay, Jeffrey Skilling, Greg Fastow, et al are the ones who didn't get the most important "it."

What happened, and its causes, really is quite simple, in spite of the swirling details. Much of what was done was "wrong." A CBS poll of average citizens denounced Enron's actions 20 to one. But some legal eagles, aggressive accountants, finance wizards and other business experts continue to tell us that, well, you know, many of the "wrong" actions are technically OK because they are not illegal.

There is no legal statute, government regulation or agency rule that tells us we should return a lost wallet when we happen upon it. Does that mean it is right to keep it? Of course not. Despite all the complexities, this is how simple the Enron fiasco is. The behaviors were wrong. It has to do with ethics.

Why do some companies do what's right while others do what's wrong? Why did BP decide and announce, much to the chagrin of many politicians and businesses, that it would, contrary to the conventional wisdom, be able to meet the clean air standards in Texas? Why did 3M pull Scotchguard, with $500 million in annual sales, from the shelves? Why does Ben & Jerry's donate 7.5 percent of pre-tax profit and have social good as part of their mission statement? Why is Johnson & Johnson still the standard for corporate conduct for the way the Tylenol murders crises was handled? There are many more examples. The answer is the real "it" -- leadership, values and organization culture.

Although no one has owned up to it, responsibility for the Enron tragedy rests at the feet of the leadership -- top management and the board of directors. This fact is inescapable. What was done was wrong and technical loopholes carry no weight here. It is really that clear. Leadership, and its reflection in organization culture and processes, is the cause of the disaster. Yet again we are reminded that the "soft stuff" really is the hard core. And it will be this soft stuff that will be the strongest deterrent to future Enrons.

While the leadership issues here are multifaceted, the most predominant is the very real danger of narcissistic leaders. The arrogance of Enron's top leaders is well-known and well-documented-- Lay, Skilling and Fastow easily fit in the narcissistic category. Amazingly, I have yet to read or hear disagreement with this observation.

Narcissistic leaders, driven to attain power and recognition, are, according to noted anthropologist and psychoanalyst Michael Macoby, characterized by both very good and very bad attributes. On the positive side, these leaders often have great vision resulting in important transformations. Their vision is realized because these leaders have the skills to accumulate significant numbers of highly motivated and committed followers. These "productive narcissists" differ from "unproductive narcissists" who, lacking self-awareness and any restraints, have illusions of grandeur and attribute failures to external factors, never to themselves.

These out-of- control narcissistic leaders are poor listeners and often overreact to what they perceive as criticism. Warnings of questionable practices were repeatedly ignored by Enron leadership and several stock analysts experienced the rash reactions of Skilling to their simple requests for information.

Narcissistic leaders also are not very good learners, as they much prefer to convert others to their way of thinking. The Economist documented an occasion when Lay was singing the praises of Drexel Burnham Lambert and its star, Michael Milken who, he claimed, was simply "innovative and aggressive." But the arrogant Drexel collapsed and Milken ended up in jail. It appears that an important lesson was missed here.

Narcissistic leaders are ruthless competitors. Winning, in terms of stated earnings and stock price, was really the only goal for Enron. The "take no prisoners attitude" is well known; and winning big and fast was at the core of Enron's culture. Reward systems encouraged this short-term view. Progressively better quarterly earnings and higher stock prices would be attained -- obviously, in any way possible.

This ruthless, relentless, competitive philosophy and behavior is reflected in the culture of organizations led by narcissistic leaders. These organizations are characterized by arrogance and intense internal competition, much of which is dysfunctional. These are also well-known attributes of Enron.

Finally, these narcissistic leaders lack empathy. They rarely have any regrets and can easily direct down-sizing , layoffs, destructive cost-cutting and other related initiatives -- actions which are gut-wrenching for other leaders. I have yet to hear or read one word of regret from either Skilling Fastow -- no sign of empathy for employees who lost their jobs and retirement funds or for others who experienced staggering financial losses.

"Unproductive" narcissistic leaders, who have low self-awareness and are left unchecked (by the board of directors in this case), can lead to the self-destruction of the organization. When one or two narcissistic leaders cause an entire organization the size of Enron to self-destruct the message is frightening: a similar fate potentially exists for other companies.

The flip side of this depressing information is found in a recent Harvard Business Review article about great corporate leaders. Jim Collin's five-year study identified four characteristics of exemplary, role-model corporate leaders:

1) They have an intense desire to build an outstanding company that benefits all stakeholders.

2) They are humble and modest.

3) They shine the light on others, not themselves, when the company is successful.

4) They shine the light on themselves when things go badly and they accept responsibility for it.

The good news here is that leaders can learn to get their egos under control. It is possible for all leaders to learn to be better listeners, better learners and more empathetic; in short, it is possible to develop more emotional intelligence, the stuff of true success.

The implications here are not only relevant but should have a sense of urgency for all leaders. Honest and fearless self-assessments are in order. Leaders with narcissistic tendencies should have highly trusted colleagues who can supply honest feedback and keep them grounded. Were Enron's escapades in water, broadband, Dabhol, paper and pulp, and metals sound business ventures? Or were they simply grand schemes, illusions?

Some leaders may learn that it is time to embark on career counseling or a serious personal-development program. If you are a leader, no matter what your organization level, consider this information. If you know a leader who needs this information, see that they receive it in a caring and professional manner. If appropriate, the time to act is now -- it may be more important than all of us can imagine.

McMahon is professor of management at the Bauer College of Business at the University of Houston. He can be e-mailed at tmcmahon@uh.edu