Monday, January 19, 2009

Lessons from "Conspiracy of Fools"

Recently I just completed "reading" this book about Enron, titled Conspiracy of Fools. I wrote "reading" because I didn't actually "read" it, instead I listened to the audio version of the book during my long commutes.

Besides bringing back memories of my previous job (where our firm was hired to represent one of Enron's investment banks and I did some serious studies on the company), this book does a good job personifying the people involved in the whole debacle and teaching me some valuable lessons.

Ken Lay and Jeff Skilling:
Ken Lay was the charismatic CEO, who in the later years of his Enron career, was not heavily involved in daily operations. Instead, he was functioning almost exclusively as the company's public face, the goodwill ambassador, if you will. Delegating the operations to underlings, he plainly believed what subordinates reported and he relentlessly always believed that the company was stronger than ever and never had any problem. That is really his biggest mistake.

Jeff Skilling was the brainiac, creative inventor of energy trading, the genius that transformed the company and the industry. While Lou Gerstner transformed IBM from a products-oriented (hardwares) into a service-oriented (IT consulting) company, Skilling transformed Enron from a traditional pipeline company into a energy merchant/trading giant. However, he was no leader. It's interesting to see how a former McKinsey director --supposedly a very strong leader-- managed and led, and eventually failed.

1. Be engaged. Even if you are a top manager or CEO, do not be completely disengaged from operations. Delegation is a must. However, you still need to do some due dilligence on how the company operates. You still need to look at the details, albeit not every detail.
s a former consultant, Skilling was understandably focused himself in the big picture, grand strategy of the company. This is good and I accept that it is his forte. However, the devils are in the details. As a leader, you still need to look, or at least peek, at the details. Not micromanaging, just quality control and due diligence. This takes hard work, and sometimes it can be time consuming and usually not the most fun thing to do. But it's necessary and your survival -and the company's- may depend on it.

2. Create accountability. Related to #1, do not depend on a single source of information. If you are Lay, don't exclusively depend on Skilling the COO as your sole source. If you are Skilling, when Fastow tells you something, cross-check with other sources. Cross check your source against other sources; make him accountable for his reports. Disagreement means further investigation is warranted.
At the same time be cognizant of the political reality; accountability does not mean distrust. To mitigate this, accountability or check and balance process should be 'institutionalized'. In other words, instead of applying on case-by-case basis, it should be widespread. Then it will be viewed as nothing personal; it is just part of the company culture.

3. Face the reality. If it smells rotten, looks rotten, sounds rotten, then it must be rotten and something needs to be fixed. And fix it early.

4. Integrity is supreme. When you try to be aggressive on the accounting end, when your conscience -and people- says 'enough', it is probably 'enough'. Do not bargain with your conscience, and do not cross its limit. When a leader neglects integrity, he invites others to do the same.

The Crooks

While the general public thinks that Ken Lay and Jeff Skilling are the two evils, I genuinely believe that the real crooks are Andy Fastow (CFO, a Kellogg grad!) and his associate, Michael Kopper. They were the drivers of Enron's demise, the very people who committed the criminal actions, people with the dirty hands, by definition, the crooks. They should have received the longest sentence, and the heaviest condemnation among others.

But the world, as always, is full of hypocrisy and compromise. To satisfy the public (and maybe prosecutors' ambitions), the CEOs were regarded as the utmost target. The big game to hunt. Through plea bargain, Fastow and Kopper escaped with relatively light sentences. Not fair, but reality is rarely fair.

This is an illustration of a society that centers on personalities. Good guys are worshipped as heroes, and for every bad thing there must be guys to blame, and they are usually -conveniently and attractively- the guys on top. Attractive proposition to the public, and the media, and the consultants and lawyers involved in the litigation, and maybe the government. The truth doesn't matter as much as perception, as long as everybody is served!

The Survivors

Jeff MacMahon, Vince Kaminski , ... survived and became future leaders, because they refused to sacrifice their integrity. Sometime preserving your integrity means taking a step back in your career... and sometimes that can take several years. But integrity is the safest path and it will serve you well in the long run.

Last but not least, the book's title couldn't have been more appropriate. The people involved in the debacle are fools not because they were intellectually incapable; but because they did not act in wisdom. They were acting in greed, pride, and ignorance. The fear of God is the beginning of wisdom!


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