Learning from the Enron debacle

Last updated on May 13th, 2019 at 02:22 pm


The Dec. 2 bankruptcy filing by energy giant Enron, the largest company to do so in the history of corporate America, was said by many to be the most criminal and negligent white-collar crime ever committed.
We know the shredding of incriminating documents by top Andersen partners, led by David Duncan, is the tip of a massive iceberg. The Jan. 24 resignation of Kenneth Lay, Enron’s chairman and CEO, its leader since 1986, was not unexpected. He failed and has cast his legacy into the corporate record of other corporate icons who have similarly fallen so abruptly, such as Eckhard Pfeiffer of Compaq, Gil Amelio of Apple Computer, Robert Stempel of GM and John Akers of IBM.
Why do CEOs fail? My appreciation to fellow Ohio TEC Chair Glenn Waring for summarizing eight key reasons why failure occurs. This month I offer them with the hope that our CEO readers will heed their inherent wisdom. If you already are, congratulations! As Arnold Palmer says, "Drive on."

1. Inability to see the big picture. When times get tough, there is a tendency to focus on the negatives and forget the positives. Myopic issues such as "cut this, cut that, manipulate-so-it-doesn’t-appear- as-bad-as-it-looks" kind of thinking become the big picture. Distortion is the inevitable result. The failing CEO surrounds himself or herself with people who can sympathize with and perpetuate such a myopic view of the world.

2. Not following solid financial practices. Enron’s situation was unbelievable. Billions in debt was wrongly left off the basic financial books of the business. The remaining picture looked pristine until, of course, the firm ran out of cash! The P&L and the balance sheet and associated ratios must be treated symptomatically. A failing CEO doesn’t see or does not care to see foreboding symptoms such as an eroding current ratio, falling margins, rising inventories, increased returns and so on.

3. Inability to define a clear vision. Frequent readers of this column know that I am a strong advocate of articulating a clear vision as a CEO. The vision defines the "what" of what you want your business to become. A good vision also implies a code of conduct for you and for your employees. Failing CEOs don’t do visions that they stick behind or do visions that make sense to employees and other stakeholders.

4. Lacking a passion for the business. Companies today, more than ever, need "hearts and minds." Successful CEOs sense burnout when all that is going on is solving the same problems over and over again. If routine has become the order of the day, that’s symptomatic of a failing and "unenergized" CEO. In Jack Welch’s new book Jack, Straight From The Gut, he makes that point repeatedly to describe his persistence in making GE best in any class.

5. Having no clarity on the reasons for success. Failing CEOs don’t seem to be able to clarify what needs to be done, much less get their key associates involved in the process. A failing CEO, moreover, does not insist upon reliable, measurable, improving and innovative methods to move the business to the next level. As a result, employees put in their time, stick to the routines, and wait for the next event as the company begins to cascade toward weakness.

6. Being unable to focus relentlessly. This is redundant, but Enron was anything but focused. Dazzling acquisitions, stock hyping by insisting that employees vest their retirement plans with predominantly Enron stock, the formation of debt-laden partnerships among key employees and outsiders, and other highly questionable financial meanderings were anything but focusing on central business issues. Failing CEOs stop being focused on their core businesses, and their distractions echo throughout the entire organization.

7. Not being connected to customers. It has been said that effective CEOs spend half their time — directly or indirectly — on behalf of the customer. It has also been said that there are two "kings" in any business: customers and cash, in that order. Failing CEOs retreat from the customer, avoid the customer, and view customers as a battlefield enemy.

8. Lack of consistent integrity. Integrity is clearly a "top-down" phenomenon. It has to with being consistently fair, honest, unbiased and public about issues involving corporate ethics and values. The CEO is the "billboard" for all of these things. Once the billboard is painted over in any inconsistent or questionable way, you may as well tear it down. Failing CEOs are billboard painters in this respect.

I was horrified and stupefied by 9/11. I am embarrassed for corporate America by the Enron and Andersen fiasco. In both cases, I know that justice will prevail. Until next month, here’s to "successful CEOing it!"

Harry S. Dennis III is the president of TEC (The Executive Committee) in Wisconsin and Michigan. TEC is a professional development group for CEOs, presidents and business owners. He can be reached at 262-821-3340 or at hiduke@aol.com.

February 15, 2002 Small Business Times, Milwaukee

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