Confessions Of An Enron Executive: We Lacked Finesse
E:CO Issue Vol. 15 No. 2 2013 pp. 104-109
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CONFESSIONS OF AN ENRON
EXECUTIVE: WE LACKED FINESSE
Pravin Jain
Santa Clara University, USA
Managers often find themselves inhabiting an awkward crevice between formal
idealism and powerful undercurrents arising from the day-to-day interactions.
The undercurrents often come together to create unintended surprises, much
as what is seen in complex living systems. The emergent surprises can manifest
mob like reckless behavior of the kind I saw at Enron, and just as unpredictably,
breakthrough innovations jolting the status quo. Most managers, instinctively
curb theses undercurrents, like rhinos stamping out fires, through controls and
structure. Managing with finesse requires an altogether different response:
inserting oneself in the undercurrents for firing up innovation without letting
things spin out of control. This comes intuitively to certain managers but can
be also learned by drawing upon recent developments in complexity sciences.
Getting to know the phenomenology of the undercurrents can radically shift
a manager’s effectiveness, but it requires diving into fields not addressed by
traditional management texts. The popular case study approach, for example,
abstracts out significant events, leaving out the subtle, the breeding ground for
complexity processes.
I
have often imagined paying a visit to Jeffery Skilling, former CEO of Enron and my
boss. He is serving a twenty four year sentence at a federal penitentiary in Colorado. Jeff was passionate about free market capitalism and taking on the big bad
monopolies. He surrounded himself with some of the finest management gurus in
the world and set out to build a company that embodied their leadership mantras.
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Hire the brightest, smartest people you can find. Carefully set controls and boundaries
and then back off on micro management to allow initiative and innovation to flourish.
Measure and reward performance visibly and generously. Inspire your employees with
a vision they can relate to and get everyone aligned and on board. Just a few years
later, peddlers of leadership/management mantras are off to preaching the same truisms to other clients, Jeff Skilling along with members of his management team are
serving prison sentences and countless investors have lost their hard earned savings.
Note that the only folks that have come out of the corporate meltdowns unscathed
are the management gurus.
To be fair, the ideologies preached by the gurus did create the Enron Jeff Skilling wanted: innovative, hyper-energetic and entrepreneurial. Fortune magazine voted
Enron as the most innovative company in the world and scores of case studies were
published and discussed in classrooms citing Enron’s rapid climb as validation for the
popular management ideologies. The sudden collapse that shocked the corporate
world a few years later, led to a host of new case studies and best selling books, blaming the moral lapses of certain individuals and pointing to the old familiar culprits,
greed and arrogance. Conspicuously absent from these analyses was any questioning
of the management/leadership mantras, or more specifically, what they tend to leave
out: the powerful role the proverbial water-cooler chats play in an organization.
Most practicing managers find themselves inhabiting a crevice between the idealism intended by the formal structure and the everyday reality of individuals chatting
up their perceptions into powerful undercurrents of collective actions. This is what I
saw happen on Enron’s trading floors. The moral failings of particular individuals were
held as the cause of the Enron fiasco, and sending them to the prison was taken to
be a fix for what had occurred. What I witnessed firsthand, however, was quite different. I saw informal chats among traders escalate views about regulations into cultlike beliefs that served as justification for fraudulent and reckless actions. Monopolies
and regulating bodies were increasingly vilified, to the point where any action to defy
them came to be seen as heroic. What occurred on Enron’s trading floors was a particular version of the mob phenomenon, unfolding over months instead of hours, but
driven by similar undercurrents. As is the case in any mob, ad-hoc leaders emerge
and individuals that would ordinarily never even consider looting or rioting, find
themselves risking their lives to do just that. The concept of groupthink, touches upon
this phenomenon, but doesn’t normally deal with the richness and complexity of forces that bring about the behavior.
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Instinctively most managers, at the risk of being labeled as micromanagers and
poor delegators, have dealt with percolations of the grapevine by working harder at
imposing the formal ideals, often expressed as top down strategies and behavioral
protocols. This has worked to some extent, as evidenced by the fact that a vast majority of organizations have not suffered the fate of Enron. However, such control comes
at the price of diminished innovation and zeal in organizations, driving away talented folks to start-ups or an alienated existence within their workplace. Billions of dollars spent on motivational programs to fire up the entrepreneurial zeal, for example,
haven’t really worked, at least not in a lasting way and companies such as Cisco have
simply resorted to innovation through buying start-ups at hefty price tags.
Top down controls not only become too pricey in terms of lost innovation and
talent retention, but they are also becoming increasingly impractical in today’s world.
A movement towards mass customization has made it critical to allow consequential
judgements about product design and pricing be made at the grassroots level. In
some ways, the trading floors of organizations such as Enron were precursors of the
mass customization experience. The degrees of freedom enjoyed by traders in bundling and pricing products are getting to be similar to that enjoyed by the engineers
and factory workers today. Hard core manufacturing companies such as General Motors and General Electric are experimenting with ‘collaborative customization’, designing and fabricating products in real time with customers. In the absence of centralized, top down control, how are managers to avoid the rise of undesirable events and
behavior? Is there a way to engage the undercurrents in a way that seeds them with
a certain positive, ethical and legal, DNA? The accountability for things gone awry, at
least in the foreseeable future, will continue to rest upon the managers, so backing off
of controls will remain a risky proposition.
Fortunately, we have examples of companies that have successfully sustained innovation and moral restraint for decades without sacrificing either. Early Hewlett Packard under the watch of its founders was one such example. Tektronix, a company I was
employed with for nearly a decade, was another example for the first five decades of
its existence, until a team of MBA’s took away reins from the founders and traded in
innovation for controls. In both of these cases, success was attributed to the style of
management, dubbed as ‘management by walking around’, without much attention
paid to what was taking place during those walks. The leaders of these companies,
I submit, intuitively understood, what recent research in living systems are beginning
to point out. Interactions among individuals in an organization, much like quorum
sensing in the cellular world, are complex processes that manifest innovation, but are
just as capable of erupting in a cancerous spread. A nuanced understanding is neces106 | Pravin
sary for managers to insert themselves into these interactions in a way that imbues
the emergents with the DNA of ethical and responsible behavior. One can call this role
of management as controlling from the grassroots level up as opposed to the traditional top down control. The latter is a blunt instrument that suppresses all emergents,
the tender shoots of innovation as well as the runaway cultish behaviors.
The practicing managers that are willing to invest the patience required for grasping the subtleties of the undercurrent processes will be rewarded with a much richer
view of their roles in the health and vibrancy of their organizations. Instead of feeling
squeezed by the empowerment ideologies and the threat of being held accountable
when things spin out of control, they will discover a reconciliation that allows them to
approach their jobs with a sense of real accomplishment and creativity.
The patience required refers to learning the language that deals with the study of
living systems. As is the case with learning any new language, the initial steps seem
awkward and disconnected. A common error in early learning stages is to take literal
meaning of what was meant to be only metaphoric in another language. Several of
the management books that immediately followed the work on chaos theory were
examples of such an error. They applied much of the jargon of complexity sciences directly to the management of organizations, leading to ‘the same wine in a new bottle’
type disappointments among the readers. Ralph Stacy, in his book, ‘Complex Responsive Processes’ devotes an entire chapter to cautioning readers against such errors.
Most organizations can be easily called complex systems, but more in the sense of
complicated systems than how the term complexity is used in complexity sciences.
Conditions of non- linearity, diverse agents and feedback loops must be met as prerequisites for applying complexity science knowledge to the study of organizations
and management.
The aspect of organizational life that appears to best satisfy the conditions of complexity is human interactions. This however, requires, looking at interactions through
the frameworks developed by philosophers such as Roger Herbert Mead and not
the cybernetic framework typically taught in management texts as a grossly simplified depiction of what occurs when people interact. Any decent play writer will readily
admit that there are all sorts of nuances and dimensions that come into play when
people interact. Instruments available to the neuroscientists today are confirming what
philosophers such as Mead speculated a half a century ago. The observed phenomenon of ‘mirror neurons’, for example, offers an explanation for what Adam Smith, the
Scottish philosopher and father of capitalism, wondered about in his book ‘The Theory
of Moral Sentiments’. He was fascinated by something in human nature that, almost inE:CO Vol. 15 No. 2 2013 pp. 104-109 | 107
voluntarily, empathizes with experiences of others. Watching someone get amputated,
for example, creates a corresponding sensation of discomfort in oneself. It is likely that
this insight led him to develop the notion of ‘The Invisible Hand’ to comfort those that
feared anarchy if markets were left to rely solely upon individual self-interests.
The empathetic component of human interactions also plays into formation of
shared perceptions, followed by feedback processes that can quickly escalate them into
hard mind-sets and prejudices. The feedback processes are fueled by a fundamental,
very human, peculiarity of the way the mind processes information. Daniel Kahneman,
a Nobel prize winning psychologist, recognized as the father of behavioral economics,
has done several decades of experimental work exploring this peculiarity of the human
mind. His recent book, ‘Thinking Slow and Fast’, explains the findings in an easy to understand and entertaining manner. The human mind, for the most part, relies on quick,
automatic associations for forming perceptions and judgements. There exists another
aspect of the human mind that is capable of forming well considered judgements, but
it is inherently lazy and biologically reluctant to engage, even in individuals with advanced education and analytical training. Kahneman’s experiments also point out how
most of us are tricked into mistaking work of the quick mind for that of the more deliberate mind, leading to exaggerated confidence in our perceptions and judgements.
So not only are most of our takeaways from conversations and observations are lacking in any critical thinking, even our confidence in these takeaways is truly undeserved
and arbitrary. Once individuals form certain perceptions, further interactions and takeaways are likely to continue to reinforce them, crystallizing into hardened mindsets,
unchallenged by new facts or critical examination. As a matter of fact, as Thomas Kuhn,
a philosopher of science pointed out in his famous essay, ‘The Structure of Scientific
Revolutions’, at some point the hardening beliefs begin to interconnect and form a
matrix that he referred to as a paradigm. Once a paradigm sets in, it can literally make
people blind to anything that lies outside of it. He made the argument by referring to
the blindness people experienced to certain astrological facts in the pre-Copernican
days simply because their earth-centric paradigm couldn’t explain for it. At Enron, I saw
a similar blindness grow at Enron towards the need for laws and regulations that have
been demonstrated over time to be necessary for free market functioning.
This is where managers such as Founders of Tektronix and Hewlett Packard played
a critical role. During their walks, they inserted themselves into interactions, gently
dismantling the work of the feedback processes. The result was what Tom Peters referred to as a ‘simultaneously loose and tight’ organization. The critical thinking component supplied by these managers kept the hardening effects of the feedback pro-
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cesses at bay, maintaining a certain fluidity in organizations and avoiding Enron like
mob behavior from emerging.
I must conclude this essay with an important caveat. As managers, we are accustomed to being given simple ‘how-to’ prescriptions by the texts and the voluminous
body of catchy best sellers. The nature of complex processes and the inherent unpredictability of the emergents from situation to situation doesn’t allow such prescriptions to be made. Managers genuinely interested in adding this important dimension
to their roles must undertake serious study of the concepts touched upon in this essay. Deeper understanding will naturally transform a manager’s response mechanisms
in a real and uniquely personal manner. Attempts to simply emulate mannerisms of
critical thinking interventions run serious risk of backfiring as contrived manipulations
and psychological game playing.
Pravin Jain cofounded a FTV Communications, a fiber optics venture that raised
$140m and was cash positive within first year of operations. FTV was acquired by Enron
as part of the larger acquisition of Portland General Electric. Jain stayed on as Executive
Vice President launching additional fiber optics companies in South America. Jain has
founded and managed several technology start-ups and a management consulting
firm. His prior publication was a book titled Capitalism Inside of an Organization. He
has a Master’s in engineering and an MBA.
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