DON'T BECOME AN ENRON: Make Truth and Ethics Your Road to Success
DON'T BECOME AN ENRON: Make Truth and Ethics Your Road to Success
and that will probably be so for years to come. But this essay isn’t
about Enron. Rather, this essay is about your organization. Because
the simple truth is, you too could grow up to be like Enron. The seeds might
already be planted to make it so.
Times are tough. Most of us want to be ethical, but we’ve got to deliver the
results. What do we need to do to keep this ship afloat? How far will we go
to make the numbers or at least to make them palatable? How lean can we
go before we’re not “lean and mean” but just mean? What else are we
willing to do to hit the bottom line? Can we tolerate an integrity outage?
When times were “go-go,” before the Enron disaster, we still had the same
challenge of ethics and results, but some of the questions were different.
Then it was, “What do we have to do to become a ‘first mover’ or to create a
competitive advantage? Are we getting too excited to think clearly about
these acquisitions or new business models? Can we be more creative with
our financing and accounting? What else or we willing to do to hit the
bottom line?”
But tough times or go-go times, we can sense the tension, we can smell the
contradiction, the conflict between ethics and results. The lesson we can
learn if we’re not careful is that we can only get ahead — we can only keep
up — if we play a little fast and loose, cut a few corners, “shave the hair” off
to make things look more attractive. It’s the Bobby Knight Syndrome: “He’s
a jerk, but he wins games and championships.” The business equivalent of
Bobby Knight is Enron — two self-destructive, imploding stars.
Despite the hype about Enron, it’s really interesting because of the lessons it
teaches that many organizations will never learn — the less obvious lessons,
lessons about leadership rather than laws and ephemeral “ethics,” lessons
about the kinds of organizations that grow up to be like Enron.
On the main lessons — the ones that everyone is talking about — Enron is
not even slightly unique. Other organizations have squandered untold
shareholder wealth (think WorldCom, Lucent, Xerox, Cisco, and AT&T,
just to name a few). Other organizations have hired thousands during their
“go-go” adolescence and then destroyed the livelihoods of thousands during
their “you mean wild living has consequences?” phase.
Organizational money used to grease political wheels? That’s not even old
news. Anyone waiting for auditors who consult, or analysts who are cozy
with the companies they cover, to tell the truth — we don’t know what the
hell these people are doing, what’s the next category beyond “strong sell?”
— is probably also waiting for the tooth fairy.
The board of directors? Directors may be too little involved, too “guided” by
the CEO, or too mired in useless activity and being “sold” by the
management team to guard anything but their own flanks. And business
writers are way too focused on finding juicy examples to prove their theories
to ever face the reality that the examples are mostly not what they are
advertised to be (think In Search of Excellence, which needed a bit more
searching, or Gary Hamel’s rave reviews about Enron in Leading the
Revolution). The theories often aren’t that hot, either.
No, the really interesting question is not about ethics in some ivory-tower
sense or about laws and structures and systems to “protect us from another
Enron.” The crucial question is much more elemental: Are you building an
organization that’s growing up to be like Enron?
Enronism, Not Enronitis
Many people have referred to this problem as “Enronitis.” The difficulty, of
course, is that the “itis” implies a disease. It suggests that Enron didn’t really
have any internal drivers of its problems — it just “caught” this from
something, perhaps from the boom economy or the bubbling stock market. It
could happen to anyone, like a cold or the flu.
But what happened at Enron is not a disease, even though it has helped to
ravage corporate America. What happened at Enron was a bad philosophy
— a miserable “theory of the business,” to use Peter Drucker’s term. Like
fascism, Nazism, communism, it is a mental model of how community life
should be lived. It’s an “ism,” not an “itis.” The “isms” always have a
Utopian orientation — the good of the nation, the good of the people, the
good of the community. Just let us change the rules, and exercise unbridled
power, and we’ll build a better world.
And so it was at Enron. They said, in effect, “We’re building a different kind
of company, in a different kind of economy, for a different kind of world.
We’re going to change all the rules — we’re going to buy what has never
been packaged and sell what has never been offered. We’re going to create
new opportunities from almost nothing, like the Dutch building land out of
the sea. People won’t know what we’re doing — hell, we won’t know what
we’re doing — but they’ll buy our services, buy our stock, and give us
overwhelming recognition for our creativity and market power.”
Mussolini fell, Hitler fell, the Soviet Union fell, the Berlin wall fell. Brave
new worlds, Utopian schemes, and bad philosophies always fall. And so did
Enronism, with all its adherents. You can hear the crash.
Elements Of Ethical And Financial Failure
The details of the Enron disaster are merely the form that the disaster took.
But they are not the core. The core begins with the thinking that produces
dysfunctional organizations. Leaders create the seeds of disaster when they
build organizations that are truth-unfriendly, risk-unfriendly, mistakeunfriendly,
and maverick-unfriendly.
Truth-Unfriendly
All leaders and organizations are, to one degree or another, reality-impaired.
We think things are one way on important questions — Why are good
people leaving? Why is our market share dropping? Why is there no passion
below the senior leadership team? — when in reality they are quite different.
We too easily fall for the old lie that perception is reality.
The only way to correct our reality-impairment is for some brave soul to tell
us the truth. It is the only way to be free, to prosper, to succeed. But who
will do this? Where’s the benefit to the truth-teller? An old Turkish proverb
says, “He who tells the truth will be chased from nine villages”; another
says: “He who tells the truth should have a foot in the stirrup.” Most people
get tired of running, and just stop telling the truth.
Do you honor “whistle-blowers,” or do you silence them? Do you welcome
disagreement, or do you crush it? Have you created an environment that
places a premium on truth at all times and in all situations? Is your
leadership team thrilled when people question strategies, goals, and projects,
or does it browbeat, ridicule, and filter the hard truth? Who will blow the
whistle that saves your life if everyone is expected to think the same way?
Who is willing to tell the people running General Motors that you can’t
reverse a decades-long slide in market share with incestuous leadership and
an ongoing war with their own people? Who has the courage to question a
massive acquisition at a JDS Uniphase that is destined to cause
unimaginable write-offs if times get tough — which they always do? Who is
ready to be radical and tell the Wall Street analysts that obliterating the
careers of tens of thousands of newly laid-off workers is not a sign of
“toughness in decision-making” that should be rewarded, but rather a sign of
prior wastefulness and incredibly bad management that should be punished?
Who, indeed.
Only one person out of thousands at Enron was willing to question the
financial shell game. Only one was willing to do the same at WorldCom.
Would any more come forward, on any issue, at your shop?
Risk-Unfriendly
Through the years, I have heard many leaders exhort their people to “take
some risks,” mostly to no effect. After all, why should people take risks?
Why should they put themselves on the line? One U.S. president said,
“Everyone has it within their power to do nothing.” Why should anyone go
beyond the minimum? Why should they really care about living the values
of your organization?
The worst case is where people are encouraged to take operational risks in
an environment where they can’t or won’t take personal risks, where it’s
easier to propose a grand new marketing scheme than it is to question
marginal behavior. They soon learn that taking operational risk is rewarded
as long as it works, that ethics are reduced to the lowest legal version of
“make sure we stay out of trouble,” and that if anything goes wrong the only
sure-fire risk is in speaking up.
In the best organizations, people are willing to take both operational and
personal risk. Do you have an organization full of people willing to step up
every day and take risks — to speak up and put themselves on the line as
well as to take on the new and unproven?
Mistake-Unfriendly
If we build a leadership team and organization that are unfriendly to the
usual mistakes — things like operating errors, judgment errors, poor
forecasting, try-and-fail losses, and simple human frailties — we’ve created
an environment that breeds deception. People don’t generally bury the truth
about mistakes because they are dishonest; they bury it because they are
smart. Why tell the truth if it will get you killed?
Few things get talked about more, or handled as badly, as mistakes. The
main mistakes that cripple or kill organizations are the ones that get hidden
and distorted instead of admitted and analyzed. There were probably dozens
or hundreds of people at Enron who smelled the “uglies” and could have
brought them into the open, if they had the slightest sense that the response
would be reasonable and they wouldn’t be demolished for their own
contribution to the problems.
Are your people free to admit their own mistakes? Are they free to tell you
about yours? Do you acknowledge and accept and embrace and celebrate
honest mistakes? If not, Enronism is only a heartbeat away.
Maverick-Unfriendly
In most organizations, mavericks — people who are willing to speak up,
provoke, challenge, experiment, be different — are annihilated. They don’t
“get it.” They aren’t “team players” (“team player” is defined as someone
who won’t rock the boat, rather than as someone who loves the boat so much
he or she is willing to say it is leaking). They aren’t “like us.”
Great organizations know that they need a blend of unity and diversity.
More, they define unity as “focus on the same vision, mission, and shared
values” rather than “looking, thinking, and acting the same way.” They
define diversity as “ability and opportunity to think differently,” not just
“faces of different colors.” Most organizations are not great organizations.
They unify around groupthink and have diversity only on paper.
What do you do with mavericks? Obliterate them? Push them to the side?
Tolerate them? Or do you welcome them, honor them, and celebrate their
arrival?
Any organization that overcomes its own reality-impairment and internal
dysfunction must become friendly to truth, risk, mistakes, and mavericks.
No organization can assure itself of ethical survival if it hates the truth,
penalizes risk, buries mistakes, and crucifies mavericks.
And any oversight system that attempts to protect shareholders, employees,
the public, or anyone else had better find a way to address these hierarchical
leftovers of the Middle Ages.
The Warning Signs Of Enronism
If you don’t want to grow up to be like Enron, there are some definite
warning signs along the path. Some of them are:
1. Arrogance What happens when we think we see what no one else
sees? That we get it but our customers or investors don’t? That the
management team sees a future that those down the line are too
ignorant or uncaring to comprehend? Arrogance is always founded on
ignorance, a prime cause of the descent into the abyss. Organizations
that breed a sense of excellence will usually succeed, often in a
fabulous way. Organizations that breed a sense of superiority will
usually fall, often in a fabulous way.
2. The discovery of a new business model that can’t be explained
Every business generation sees them: the new-new ways to run a
business. There is certainly a place for innovation in business models,
but any idea that can’t be explained to an intelligent outsider —
frankly, that can’t be explained to an intelligent child — is probably
destined for disaster. It’s way too easy for innovation in a model to
lead to innovation in ethics, truth-telling, and accounting. President
Harry Truman said, “The only thing new in the world is the history
you do not know.” Few “new” business models are really new, and
even fewer actually work.
3. Growth as goal What has growth as its main reason for existence?
Cancer. We’re reminded again and again that we have to “grow or
die,” but what about the reality that we can “grow and die”? Having
growth targets as part of a comprehensive mission is not a bad thing.
Intelligent and ethical growth is a good thing, but growth as goal leads
to unrealistic expectations and desperate behaviors. What will we do
— what will we have to do — to make those relentlessly increasing
expectations, like numbers that are way beyond “stretch”?
Probably, for example, add a lot of people whom we won’t need when
the train derails. Any organization that does five-figure layoffs should
start the process with the CEO and senior mismanagement team,
because they are incompetent and inhumane. If the key question we’re
asking is, “What do we do to grow 20%?” rather than “How do we
grow 20% without destroying lives and wealth?” or “What’s the most
we can grow and still look at ourselves in the mirror in the morning?”
— then Enron is filling up our rearview mirror.
4. A narrow view of profits Like happiness, shareholder value can’t
come directly. Increased shareholder value is a by-product of valueadding
(play the current game better) and value-creating (play a
different game) by employees, contractors, partners, suppliers, and
everyone else who has a smidge of commitment to the organization.
Shareholder value is a summary measurement of how well we are
providing “profits” to everyone who can make a difference. What
ROHI (Return on Human Investment) are you giving your
employees? Why should they invest their creativity, passion, and
commitment in your organization?
5. The “chain of command” In some ways, this is a perfect metaphor
for the majority of organizations. People are held by a chain of
command that allows only for open communication downward which
is seldom delivered, anyway. There is no upward communication.
Truth gets filtered, problems get filtered out, mistakes get buried, and
hard-to-sell opportunities are left unborn. When we set up a structure
that leads to “think at the top, do at the bottom” rather than
powersharing, to massive reporting systems rather than mutual trust,
to leadership by policy and procedure rather than shared vision and
values, and to a system of “watchers and watchees” rather than true
freedom, we can hear Enronism whispering in our ear.
6. The wrong question on openness Instead of asking the Enronish
question, “Is there any reason to share this with our people?” great
organizations ask, “Is there any real reason why we shouldn’t share
this with our people?” When we spin news with ourselves, how can
we not create a culture of spin with everyone else? How can our
people make informed decisions if they’re not informed? How can
they help us make money if they don’t know how we make money?
How can they keep us from insanity if we hide the symptoms?
7. Unfettered competition Many organizations preach teamwork and
cooperation but reward dog-eat-dog competition between individuals,
teams, and departments. Where is the incentive to cooperate in your
organization? Is there voluntary cross-pollination of ideas between
business units, functions, and positions, or is it us vs. everyone else?
Some organizations, like Enron, use the relentless forced ranking, the
monolithic bell curve that turns most employees into “average,” the
“up or out” drumbeat of a Roman man-of-war. All great competitors
learn to compete against themselves, against the best they are capable
of doing, and not against people who could help them be great. What
kind of competition are you selling in your organization?
8. Unfettered consensus No idea, as presented, is worthy of consensus.
Most organizations are crippled by groupthink and paving over
differences. Great leaders know they have to manage consensus so it
doesn’t get out of hand. We have to put formal “devil’s advocates” on
every project and team. We have to refuse to move forward until
every question and doubt is on the table. We have to insist that every
report have a section that talks about the uncertainties and fears and
differing perspectives. What are you doing to make sure you don’t
have too much harmony in your place of business?
If you have any of these signs in your organization, get out the broom. If
you’re an investor and you spot any of them, hide your wallet.
A Few Steps You Can Take To Avoid Enronism
There are steps leaders can take to inoculate themselves from Enronism. I’d
suggest starting with:
Make truth the priority.
We can get used to not hearing the truth. Make your number one priority
developing the organization’s ability to face, understand, and define reality.
Develop a theory of reality that really corresponds to your marketplace and
the needs of the people inside and outside of the organization. Wipe out the
idea that hard news and mistakes and problems are better buried than
exposed. Fire consultants and other professionals who won’t tell you the
truth, whatever it is and no matter how much it annoys you. The old proverb
says, “You will know the truth, and the truth will make you free.” Nothing
but truth ever makes people, organizations, or nations free.
Ask the right questions.
If you understand that perception is not reality, help your people modify
their perceptions to align with reality. Encourage people to ask you the tough
questions. Create forums for people to actually do it. Use anonymous
surveys, hot lines, interviews of employees by outsiders — anything you can
think of to create safe places for very unsafe truths. We’ve all heard that
“knowledge is power,” but in most organizations it is power when it is
hoarded rather than when it is shared. Find ways to ask your people what
they know that is hard to share, and relentlessly penalize clamming up.
Replace empowerment with powersharing.
Empowerment is better than command/control, where all power is located at
the top. But empowerment still says, “I’m the king or queen, and you’re not.
But I’m a benevolent monarch, so I’ll trickle some of my power (usually
meaning responsibility and accountability without authority) to you.”
Powersharing defines power (as in physics) as the ability to get work done,
recognizes power as a tool rather than a goal, associates power with adding
value rather than with position (vice president) or function (the purchasing
department), and uses power to liberate rather than to dominate. Leadership
is very much about getting power out of the wrong hands and into the right
ones. The mission is to get everyone who is strong and ethical fully into the
game, to create (in Richard Rhodes’ descriptive phrase) “a community of
independent men and women freely cooperating.”
Focus on the right kind of control.
For the most part, control is an illusion. The classic management functions
— planning, organizing, directing, and controlling — are wonderful and
useful when applied to projects and processes and horrible and useless when
applied to human beings. Great leaders focus on self-control by mutually
agreeing on the results to be achieved and the framework (including the
values) that will put clear and useful boundaries around the work. They
leave the day-to-day decision making alone. The alternative? The boss
replaces the real customer as the customer-in-fact, and everything gets bent
toward satisfying this internal controller.
Penalize destruction.
At every level, make sure that you and your leadership team do “thy patient
no harm.” Really penalize destruction at every level: the organization’s
destruction of shareholder wealth (why do most organizations only get
religion about cost-cutting when times are bad?); formal leaders’ destruction
of people’s passion, creativity, and commitment; and everyone’s destruction
of human dignity. Eliminate leaders who browbeat people, because you
know that leaders who cow people also cow the truth and cow achievement.
Ensure that boards of directors add value rather than illusion.
Most boards give the illusion of wisdom and protection without delivering
the goods. People who join boards to pad their resumes, owners and
entrepreneurs who load boards with their buddies, not-for-profits who focus
on diversity at the expense of even minimal competence, all contribute to
board folly. If boards are really going to do something useful, the first thing
they need to do is to make hearing the truth their number one priority. This
means selecting its own members rather than be filled with the CEO’s
cronies (which has been said by numerous people who have studied board
governance). It means getting past the chain of command (very appropriately
named) and the CEO’s fine-mesh filter, and making “What are our possible
illusions and follies?” an agenda item at every meeting. The board should set
its own agenda, which should always start by creating a forum for truth (e.g.,
“Who down in the bowels would the CEO most like us not to talk with
privately? Get them up here”).
The CEO should be given clear expectations and restrictions rather than
support and allegiance, and automatically fired if the size of the permanent
workforce needs to be cut by a large percentage (“You mean you couldn’t
see this coming by a factor of two?”). All operating officers, from the CEO
down, need to be eliminated from board membership. The CEO should be
the servant of the board rather than its guide, because the board isn’t there to
catch the CEO’s vision — it’s there to catch the CEO’s lunacy.
Too many — most — board meetings are composed of salesmanship
shrouded by advance filtering (“You can’t say that to the board!”). Finally,
the board needs to make time to do these other things by giving up its
useless and farcical duplication of internal operating committees. Have your
board bring in outside truth-tellers, rather than trying to find it all by
themselves. One Fortune 1000 company that I know had a policy of
admitting no “outsiders” to its board meetings. Brilliant.
I smell Enronism.
Make a declaration of independence.
Every organization has a bevy of people — accountants, auditors, lawyers,
consultants — who should be able to see objectively. Much of the time, they
do. The problem is telling the truth after seeing it, which is tied to the more
basic problem that these groups are making their living off the organization
(hardly conducive to “independence”). Auditing should be separated from
consulting, but that won’t get the job done unless the audit is required to get
information from mavericks and anonymous outlets and get off the bland
mix of superficial analysis and nitpicking number-crunching in order to
expose major problems.
Lawyers need to tell us what is decent and ethical and not just legal, and not
give us 100 reasons not to do a good thing because of “legal complications”
and miss pointing out the poison because it doesn’t seem to violate a known
law. Consultants should be required to give us the bad news in every report,
probably in a section designated for the purpose so it can’t be dodged — in
other words, they need to be given ongoing permission to say what perhaps
no executive really wants to hear. Peter Drucker uses the term “management
insultant.” Any board worth its salt would want to know just how many
management insultants are on retainer and would want to hear from them in
an unvarnished, unscripted way on a regular basis. And analysts who tell the
public to “hold” while they tell their major clients to “sell” should get
twenty-to-life at Leavenworth.
Don’t trust stories that hype companies.
Business literature — if that isn’t an oxymoron — seems to thrive on stories
about companies that prove the wonder of some new approach. But
examples only illustrate, and can never prove, anything. This is especially
dangerous when the writer is an outsider who isn’t intimately involved with
the company (or at least intimately aware of what they are doing) and
doesn’t point out all of his or her potential blind spots or problems with the
company. All of this gets compounded by the rage over benchmarking and
best practices, which often replaces building something unique with an
attempt to copy our way to greatness. Some writers said, “But Enron fooled
everyone else too!” Maybe they should stop writing until their nonsense
detectors are more fully developed.
There are certainly other things you can do to avoid being on a local or
national magazine cover for opposite reasons just few years apart, but this
short list should keep you from an Enron-like press pendulum.
Being Strong — And Ethical
To a great extent, avoiding growing up to be like Enron is about avoiding the
temptation to believe the lie. It is about creating and sustaining channels and
forums for telling the truth. It is about everyone who relates to the
organization in any way — outsiders, insiders, and outside-inside links (like
the board of directors) forcing the organization to tell itself the truth, a vital
precursor to telling the truth to anyone else.
And to a great extent, it is remembering that organizational life is not an
either/or situation — either results or ethics — but a both/and — results and
ethics. Being strong and being ethical are only opposites to small and petty
minds.
DONT BECOME AN ENRON Make Truth and Ethics Your Road to Success - To learn more about this author, visit James R. Lucas's Website.
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So much has been written about Enron since the company imploded,
and that will probably be so for years to come. But this essay isn’t
about Enron. Rather, this essay is about your organization. Because
the simple truth is, you too could grow up to be like Enron. The seeds might
already be planted to make it so.
Times are tough. Most of us want to be ethical, but we’ve got to deliver the
results. What do we need to do to keep this ship afloat? How far will we go
to make the numbers or at least to make them palatable? How lean can we
go before we’re not “lean and mean” but just mean? What else are we
willing to do to hit the bottom line? Can we tolerate an integrity outage?
When times were “go-go,” before the Enron disaster, we still had the same
challenge of ethics and results, but some of the questions were different.
Then it was, “What do we have to do to become a ‘first mover’ or to create a
competitive advantage? Are we getting too excited to think clearly about
these acquisitions or new business models? Can we be more creative with
our financing and accounting? What else or we willing to do to hit the
bottom line?”
But tough times or go-go times, we can sense the tension, we can smell the
contradiction, the conflict between ethics and results. The lesson we can
learn if we’re not careful is that we can only get ahead — we can only keep
up — if we play a little fast and loose, cut a few corners, “shave the hair” off
to make things look more attractive. It’s the Bobby Knight Syndrome: “He’s
a jerk, but he wins games and championships.” The business equivalent of
Bobby Knight is Enron — two self-destructive, imploding stars.
Despite the hype about Enron, it’s really interesting because of the lessons it
teaches that many organizations will never learn — the less obvious lessons,
lessons about leadership rather than laws and ephemeral “ethics,” lessons
about the kinds of organizations that grow up to be like Enron.
On the main lessons — the ones that everyone is talking about — Enron is
not even slightly unique. Other organizations have squandered untold
shareholder wealth (think WorldCom, Lucent, Xerox, Cisco, and AT&T,
just to name a few). Other organizations have hired thousands during their
“go-go” adolescence and then destroyed the livelihoods of thousands during
their “you mean wild living has consequences?” phase.
Organizational money used to grease political wheels? That’s not even old
news. Anyone waiting for auditors who consult, or analysts who are cozy
with the companies they cover, to tell the truth — we don’t know what the
hell these people are doing, what’s the next category beyond “strong sell?”
— is probably also waiting for the tooth fairy.
The board of directors? Directors may be too little involved, too “guided” by
the CEO, or too mired in useless activity and being “sold” by the
management team to guard anything but their own flanks. And business
writers are way too focused on finding juicy examples to prove their theories
to ever face the reality that the examples are mostly not what they are
advertised to be (think In Search of Excellence, which needed a bit more
searching, or Gary Hamel’s rave reviews about Enron in Leading the
Revolution). The theories often aren’t that hot, either.
No, the really interesting question is not about ethics in some ivory-tower
sense or about laws and structures and systems to “protect us from another
Enron.” The crucial question is much more elemental: Are you building an
organization that’s growing up to be like Enron?
Enronism, Not Enronitis
Many people have referred to this problem as “Enronitis.” The difficulty, of
course, is that the “itis” implies a disease. It suggests that Enron didn’t really
have any internal drivers of its problems — it just “caught” this from
something, perhaps from the boom economy or the bubbling stock market. It
could happen to anyone, like a cold or the flu.
But what happened at Enron is not a disease, even though it has helped to
ravage corporate America. What happened at Enron was a bad philosophy
— a miserable “theory of the business,” to use Peter Drucker’s term. Like
fascism, Nazism, communism, it is a mental model of how community life
should be lived. It’s an “ism,” not an “itis.” The “isms” always have a
Utopian orientation — the good of the nation, the good of the people, the
good of the community. Just let us change the rules, and exercise unbridled
power, and we’ll build a better world.
And so it was at Enron. They said, in effect, “We’re building a different kind
of company, in a different kind of economy, for a different kind of world.
We’re going to change all the rules — we’re going to buy what has never
been packaged and sell what has never been offered. We’re going to create
new opportunities from almost nothing, like the Dutch building land out of
the sea. People won’t know what we’re doing — hell, we won’t know what
we’re doing — but they’ll buy our services, buy our stock, and give us
overwhelming recognition for our creativity and market power.”
Mussolini fell, Hitler fell, the Soviet Union fell, the Berlin wall fell. Brave
new worlds, Utopian schemes, and bad philosophies always fall. And so did
Enronism, with all its adherents. You can hear the crash.
Elements Of Ethical And Financial Failure
The details of the Enron disaster are merely the form that the disaster took.
But they are not the core. The core begins with the thinking that produces
dysfunctional organizations. Leaders create the seeds of disaster when they
build organizations that are truth-unfriendly, risk-unfriendly, mistakeunfriendly,
and maverick-unfriendly.
Truth-Unfriendly
All leaders and organizations are, to one degree or another, reality-impaired.
We think things are one way on important questions — Why are good
people leaving? Why is our market share dropping? Why is there no passion
below the senior leadership team? — when in reality they are quite different.
We too easily fall for the old lie that perception is reality.
The only way to correct our reality-impairment is for some brave soul to tell
us the truth. It is the only way to be free, to prosper, to succeed. But who
will do this? Where’s the benefit to the truth-teller? An old Turkish proverb
says, “He who tells the truth will be chased from nine villages”; another
says: “He who tells the truth should have a foot in the stirrup.” Most people
get tired of running, and just stop telling the truth.
Do you honor “whistle-blowers,” or do you silence them? Do you welcome
disagreement, or do you crush it? Have you created an environment that
places a premium on truth at all times and in all situations? Is your
leadership team thrilled when people question strategies, goals, and projects,
or does it browbeat, ridicule, and filter the hard truth? Who will blow the
whistle that saves your life if everyone is expected to think the same way?
Who is willing to tell the people running General Motors that you can’t
reverse a decades-long slide in market share with incestuous leadership and
an ongoing war with their own people? Who has the courage to question a
massive acquisition at a JDS Uniphase that is destined to cause
unimaginable write-offs if times get tough — which they always do? Who is
ready to be radical and tell the Wall Street analysts that obliterating the
careers of tens of thousands of newly laid-off workers is not a sign of
“toughness in decision-making” that should be rewarded, but rather a sign of
prior wastefulness and incredibly bad management that should be punished?
Who, indeed.
Only one person out of thousands at Enron was willing to question the
financial shell game. Only one was willing to do the same at WorldCom.
Would any more come forward, on any issue, at your shop?
Risk-Unfriendly
Through the years, I have heard many leaders exhort their people to “take
some risks,” mostly to no effect. After all, why should people take risks?
Why should they put themselves on the line? One U.S. president said,
“Everyone has it within their power to do nothing.” Why should anyone go
beyond the minimum? Why should they really care about living the values
of your organization?
The worst case is where people are encouraged to take operational risks in
an environment where they can’t or won’t take personal risks, where it’s
easier to propose a grand new marketing scheme than it is to question
marginal behavior. They soon learn that taking operational risk is rewarded
as long as it works, that ethics are reduced to the lowest legal version of
“make sure we stay out of trouble,” and that if anything goes wrong the only
sure-fire risk is in speaking up.
In the best organizations, people are willing to take both operational and
personal risk. Do you have an organization full of people willing to step up
every day and take risks — to speak up and put themselves on the line as
well as to take on the new and unproven?
Mistake-Unfriendly
If we build a leadership team and organization that are unfriendly to the
usual mistakes — things like operating errors, judgment errors, poor
forecasting, try-and-fail losses, and simple human frailties — we’ve created
an environment that breeds deception. People don’t generally bury the truth
about mistakes because they are dishonest; they bury it because they are
smart. Why tell the truth if it will get you killed?
Few things get talked about more, or handled as badly, as mistakes. The
main mistakes that cripple or kill organizations are the ones that get hidden
and distorted instead of admitted and analyzed. There were probably dozens
or hundreds of people at Enron who smelled the “uglies” and could have
brought them into the open, if they had the slightest sense that the response
would be reasonable and they wouldn’t be demolished for their own
contribution to the problems.
Are your people free to admit their own mistakes? Are they free to tell you
about yours? Do you acknowledge and accept and embrace and celebrate
honest mistakes? If not, Enronism is only a heartbeat away.
Maverick-Unfriendly
In most organizations, mavericks — people who are willing to speak up,
provoke, challenge, experiment, be different — are annihilated. They don’t
“get it.” They aren’t “team players” (“team player” is defined as someone
who won’t rock the boat, rather than as someone who loves the boat so much
he or she is willing to say it is leaking). They aren’t “like us.”
Great organizations know that they need a blend of unity and diversity.
More, they define unity as “focus on the same vision, mission, and shared
values” rather than “looking, thinking, and acting the same way.” They
define diversity as “ability and opportunity to think differently,” not just
“faces of different colors.” Most organizations are not great organizations.
They unify around groupthink and have diversity only on paper.
What do you do with mavericks? Obliterate them? Push them to the side?
Tolerate them? Or do you welcome them, honor them, and celebrate their
arrival?
Any organization that overcomes its own reality-impairment and internal
dysfunction must become friendly to truth, risk, mistakes, and mavericks.
No organization can assure itself of ethical survival if it hates the truth,
penalizes risk, buries mistakes, and crucifies mavericks.
And any oversight system that attempts to protect shareholders, employees,
the public, or anyone else had better find a way to address these hierarchical
leftovers of the Middle Ages.
The Warning Signs Of Enronism
If you don’t want to grow up to be like Enron, there are some definite
warning signs along the path. Some of them are:
1. Arrogance What happens when we think we see what no one else
sees? That we get it but our customers or investors don’t? That the
management team sees a future that those down the line are too
ignorant or uncaring to comprehend? Arrogance is always founded on
ignorance, a prime cause of the descent into the abyss. Organizations
that breed a sense of excellence will usually succeed, often in a
fabulous way. Organizations that breed a sense of superiority will
usually fall, often in a fabulous way.
2. The discovery of a new business model that can’t be explained
Every business generation sees them: the new-new ways to run a
business. There is certainly a place for innovation in business models,
but any idea that can’t be explained to an intelligent outsider —
frankly, that can’t be explained to an intelligent child — is probably
destined for disaster. It’s way too easy for innovation in a model to
lead to innovation in ethics, truth-telling, and accounting. President
Harry Truman said, “The only thing new in the world is the history
you do not know.” Few “new” business models are really new, and
even fewer actually work.
3. Growth as goal What has growth as its main reason for existence?
Cancer. We’re reminded again and again that we have to “grow or
die,” but what about the reality that we can “grow and die”? Having
growth targets as part of a comprehensive mission is not a bad thing.
Intelligent and ethical growth is a good thing, but growth as goal leads
to unrealistic expectations and desperate behaviors. What will we do
— what will we have to do — to make those relentlessly increasing
expectations, like numbers that are way beyond “stretch”?
Probably, for example, add a lot of people whom we won’t need when
the train derails. Any organization that does five-figure layoffs should
start the process with the CEO and senior mismanagement team,
because they are incompetent and inhumane. If the key question we’re
asking is, “What do we do to grow 20%?” rather than “How do we
grow 20% without destroying lives and wealth?” or “What’s the most
we can grow and still look at ourselves in the mirror in the morning?”
— then Enron is filling up our rearview mirror.
4. A narrow view of profits Like happiness, shareholder value can’t
come directly. Increased shareholder value is a by-product of valueadding
(play the current game better) and value-creating (play a
different game) by employees, contractors, partners, suppliers, and
everyone else who has a smidge of commitment to the organization.
Shareholder value is a summary measurement of how well we are
providing “profits” to everyone who can make a difference. What
ROHI (Return on Human Investment) are you giving your
employees? Why should they invest their creativity, passion, and
commitment in your organization?
5. The “chain of command” In some ways, this is a perfect metaphor
for the majority of organizations. People are held by a chain of
command that allows only for open communication downward which
is seldom delivered, anyway. There is no upward communication.
Truth gets filtered, problems get filtered out, mistakes get buried, and
hard-to-sell opportunities are left unborn. When we set up a structure
that leads to “think at the top, do at the bottom” rather than
powersharing, to massive reporting systems rather than mutual trust,
to leadership by policy and procedure rather than shared vision and
values, and to a system of “watchers and watchees” rather than true
freedom, we can hear Enronism whispering in our ear.
6. The wrong question on openness Instead of asking the Enronish
question, “Is there any reason to share this with our people?” great
organizations ask, “Is there any real reason why we shouldn’t share
this with our people?” When we spin news with ourselves, how can
we not create a culture of spin with everyone else? How can our
people make informed decisions if they’re not informed? How can
they help us make money if they don’t know how we make money?
How can they keep us from insanity if we hide the symptoms?
7. Unfettered competition Many organizations preach teamwork and
cooperation but reward dog-eat-dog competition between individuals,
teams, and departments. Where is the incentive to cooperate in your
organization? Is there voluntary cross-pollination of ideas between
business units, functions, and positions, or is it us vs. everyone else?
Some organizations, like Enron, use the relentless forced ranking, the
monolithic bell curve that turns most employees into “average,” the
“up or out” drumbeat of a Roman man-of-war. All great competitors
learn to compete against themselves, against the best they are capable
of doing, and not against people who could help them be great. What
kind of competition are you selling in your organization?
8. Unfettered consensus No idea, as presented, is worthy of consensus.
Most organizations are crippled by groupthink and paving over
differences. Great leaders know they have to manage consensus so it
doesn’t get out of hand. We have to put formal “devil’s advocates” on
every project and team. We have to refuse to move forward until
every question and doubt is on the table. We have to insist that every
report have a section that talks about the uncertainties and fears and
differing perspectives. What are you doing to make sure you don’t
have too much harmony in your place of business?
If you have any of these signs in your organization, get out the broom. If
you’re an investor and you spot any of them, hide your wallet.
A Few Steps You Can Take To Avoid Enronism
There are steps leaders can take to inoculate themselves from Enronism. I’d
suggest starting with:
Make truth the priority.
We can get used to not hearing the truth. Make your number one priority
developing the organization’s ability to face, understand, and define reality.
Develop a theory of reality that really corresponds to your marketplace and
the needs of the people inside and outside of the organization. Wipe out the
idea that hard news and mistakes and problems are better buried than
exposed. Fire consultants and other professionals who won’t tell you the
truth, whatever it is and no matter how much it annoys you. The old proverb
says, “You will know the truth, and the truth will make you free.” Nothing
but truth ever makes people, organizations, or nations free.
Ask the right questions.
If you understand that perception is not reality, help your people modify
their perceptions to align with reality. Encourage people to ask you the tough
questions. Create forums for people to actually do it. Use anonymous
surveys, hot lines, interviews of employees by outsiders — anything you can
think of to create safe places for very unsafe truths. We’ve all heard that
“knowledge is power,” but in most organizations it is power when it is
hoarded rather than when it is shared. Find ways to ask your people what
they know that is hard to share, and relentlessly penalize clamming up.
Replace empowerment with powersharing.
Empowerment is better than command/control, where all power is located at
the top. But empowerment still says, “I’m the king or queen, and you’re not.
But I’m a benevolent monarch, so I’ll trickle some of my power (usually
meaning responsibility and accountability without authority) to you.”
Powersharing defines power (as in physics) as the ability to get work done,
recognizes power as a tool rather than a goal, associates power with adding
value rather than with position (vice president) or function (the purchasing
department), and uses power to liberate rather than to dominate. Leadership
is very much about getting power out of the wrong hands and into the right
ones. The mission is to get everyone who is strong and ethical fully into the
game, to create (in Richard Rhodes’ descriptive phrase) “a community of
independent men and women freely cooperating.”
Focus on the right kind of control.
For the most part, control is an illusion. The classic management functions
— planning, organizing, directing, and controlling — are wonderful and
useful when applied to projects and processes and horrible and useless when
applied to human beings. Great leaders focus on self-control by mutually
agreeing on the results to be achieved and the framework (including the
values) that will put clear and useful boundaries around the work. They
leave the day-to-day decision making alone. The alternative? The boss
replaces the real customer as the customer-in-fact, and everything gets bent
toward satisfying this internal controller.
Penalize destruction.
At every level, make sure that you and your leadership team do “thy patient
no harm.” Really penalize destruction at every level: the organization’s
destruction of shareholder wealth (why do most organizations only get
religion about cost-cutting when times are bad?); formal leaders’ destruction
of people’s passion, creativity, and commitment; and everyone’s destruction
of human dignity. Eliminate leaders who browbeat people, because you
know that leaders who cow people also cow the truth and cow achievement.
Ensure that boards of directors add value rather than illusion.
Most boards give the illusion of wisdom and protection without delivering
the goods. People who join boards to pad their resumes, owners and
entrepreneurs who load boards with their buddies, not-for-profits who focus
on diversity at the expense of even minimal competence, all contribute to
board folly. If boards are really going to do something useful, the first thing
they need to do is to make hearing the truth their number one priority. This
means selecting its own members rather than be filled with the CEO’s
cronies (which has been said by numerous people who have studied board
governance). It means getting past the chain of command (very appropriately
named) and the CEO’s fine-mesh filter, and making “What are our possible
illusions and follies?” an agenda item at every meeting. The board should set
its own agenda, which should always start by creating a forum for truth (e.g.,
“Who down in the bowels would the CEO most like us not to talk with
privately? Get them up here”).
The CEO should be given clear expectations and restrictions rather than
support and allegiance, and automatically fired if the size of the permanent
workforce needs to be cut by a large percentage (“You mean you couldn’t
see this coming by a factor of two?”). All operating officers, from the CEO
down, need to be eliminated from board membership. The CEO should be
the servant of the board rather than its guide, because the board isn’t there to
catch the CEO’s vision — it’s there to catch the CEO’s lunacy.
Too many — most — board meetings are composed of salesmanship
shrouded by advance filtering (“You can’t say that to the board!”). Finally,
the board needs to make time to do these other things by giving up its
useless and farcical duplication of internal operating committees. Have your
board bring in outside truth-tellers, rather than trying to find it all by
themselves. One Fortune 1000 company that I know had a policy of
admitting no “outsiders” to its board meetings. Brilliant.
I smell Enronism.
Make a declaration of independence.
Every organization has a bevy of people — accountants, auditors, lawyers,
consultants — who should be able to see objectively. Much of the time, they
do. The problem is telling the truth after seeing it, which is tied to the more
basic problem that these groups are making their living off the organization
(hardly conducive to “independence”). Auditing should be separated from
consulting, but that won’t get the job done unless the audit is required to get
information from mavericks and anonymous outlets and get off the bland
mix of superficial analysis and nitpicking number-crunching in order to
expose major problems.
Lawyers need to tell us what is decent and ethical and not just legal, and not
give us 100 reasons not to do a good thing because of “legal complications”
and miss pointing out the poison because it doesn’t seem to violate a known
law. Consultants should be required to give us the bad news in every report,
probably in a section designated for the purpose so it can’t be dodged — in
other words, they need to be given ongoing permission to say what perhaps
no executive really wants to hear. Peter Drucker uses the term “management
insultant.” Any board worth its salt would want to know just how many
management insultants are on retainer and would want to hear from them in
an unvarnished, unscripted way on a regular basis. And analysts who tell the
public to “hold” while they tell their major clients to “sell” should get
twenty-to-life at Leavenworth.
Don’t trust stories that hype companies.
Business literature — if that isn’t an oxymoron — seems to thrive on stories
about companies that prove the wonder of some new approach. But
examples only illustrate, and can never prove, anything. This is especially
dangerous when the writer is an outsider who isn’t intimately involved with
the company (or at least intimately aware of what they are doing) and
doesn’t point out all of his or her potential blind spots or problems with the
company. All of this gets compounded by the rage over benchmarking and
best practices, which often replaces building something unique with an
attempt to copy our way to greatness. Some writers said, “But Enron fooled
everyone else too!” Maybe they should stop writing until their nonsense
detectors are more fully developed.
There are certainly other things you can do to avoid being on a local or
national magazine cover for opposite reasons just few years apart, but this
short list should keep you from an Enron-like press pendulum.
Being Strong — And Ethical
To a great extent, avoiding growing up to be like Enron is about avoiding the
temptation to believe the lie. It is about creating and sustaining channels and
forums for telling the truth. It is about everyone who relates to the
organization in any way — outsiders, insiders, and outside-inside links (like
the board of directors) forcing the organization to tell itself the truth, a vital
precursor to telling the truth to anyone else.
And to a great extent, it is remembering that organizational life is not an
either/or situation — either results or ethics — but a both/and — results and
ethics. Being strong and being ethical are only opposites to small and petty
minds.
DONT BECOME AN ENRON Make Truth and Ethics Your Road to Success - To learn more about this author, visit James R. Lucas's Website.
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Dianne CramptonDianne Crampton is an executive leadership coach, team culture consultant, author and president of TIGERS Success Series, Inc. Dianne has been helping CEO's and Executives connect their employees to their core values and goals for over 20 years using the trademarked TIGERS team culture process, which stands for trust, interdependence, genuineness, empathy, risk and success. To download a free white paper on behaviors that build strong teams and behaviors that will predictably tear them down go here. Dianne's contribution to the 2010 Pfeiffer Consulting Journal (an imprint of John Wiley and Sons Publishers) entitled TIGERS Hearted Teams is available in November 2009. Her new book TIGERS Among Us: 5 Winning Business Team Cultures And Why, Three Creeks Publishing will release in March 2010. To receive publishing discounts, subscribe to the free TigerTracks Newsletter here. - Visit Dianne Crampton's Website |
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Kim CastleWith nearly two decades in the advertising and design business, with clients like Domino's Pizza, General Motors, Direct TV, Pedigree, Wolfgang Puck, Higher Octave Music, Hollywood Celebrity Products, Disney, and Paramount, as well as thousands of entrepreneurs around the world define, structure, communicate, and position their business for greater profits, BrandU(R) co-creators Kim Castle and W. Vito Montone discovered that entrepreneurs could experience the same power that big brands command for a fraction of the cost with the world's only process-based results-drive Integral approach to business creation. BrandU(R) is helping entrepreneurs grow with the power of extreme clarity from idea...to brand...to market(TM) and helping one million entrepreneurs become successful and whole so that they can make a difference in the world. Are you one of them? If you want to experience clarity all the way to the bank(TM), get started now at http://www.brandu.com. - Visit Kim Castle's Website |
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George LudwigGeorge Ludwig is a recognized authority on sales strategy and peak performance psychology. An international speaker, trainer, and corporate consultant, he helps clients like Johnson & Johnson, Abbott Laboratories, Northwestern Mutual, CIGNA, and numerous others improve sales force effectiveness and performance. Though it's George's strategies and processes that help corporations increase productivity and performance, it's his tremendous energy and dynamism that spark the transformation. Again and again, clients remark on his amazing ability to unleash human capacity and inspire men and women to break out of their comfort zones. The result is a whole new type of salesperson. His customized presentations teach achievers to make stunning advances in their lives. From helping salespeople realize cherished dreams to helping corporations exponentially accelerate revenue streams, George Ludwig leaves audiences and individuals empowered, emboldened, and clamoring for more. George is the best-selling author of Power Selling: Seven Strategies for Cracking the Sales Code and Wise Moves: 60 Quick Tips to Improve Your Position in Life & Business. - Visit George Ludwig's Website |
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Leanne Hoagland-SmithAre your sales where you want them to be? Will you be one of the few who achieves sales or business success or one of the many who have failed to change? Are you tired of being told you are like everyone else? Then you may find my first book on sales of interest. Be the Red Jacket in the Sea of Gray Suits, The Keys to Unlocking Sales available at Amazon or at http://www.processspecialist.com/red-jacket.htm. This book is a reflection of my no-nonsense approach to improving sales to overall business results. If you are truly committed to making sustainable changes, then I can help you secure a positive return on your investment because I focus on executable solutions not telling you the problems you already know you have. From training to corporate (group) coaching to executive one on one coaching, my approach is to assess, create awareness, build a goal driven action plan and then execute. The bottom line question is "Not do you or your employees know it, but do you or they want to do it?" Please call for a free strategy session at 219.759.5601. - Visit Leanne Hoagland-Smith's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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