Fusaro, P. and Miller, R. M., 2003. What went wrong at Enron, Everyone's guide to the largest bankruptcy in U.S. history. John Wiley and Sons, paperback, 240 p.
The moral and cultural lessons of Enron range from the need for ethical behaviour, grounding in truthfulness, honesty, transparency and a need for complete disclosure in accounting and corporate structure. This is the ultimate source of insight into how it all happened. Other sources also point to the underlying dangers represented by a betrayal of trust within the capitalism market system.
The Enron style of approach to flourish in newly deregulated energy and utility markets that have been engineered by governments since the mid 1980s. The levels of executive culpability and it shows the decay and or frailty of underlying value systems which should stand against such events. The events and actions that led to Enron's demise have far more and significant implications to the fate and quality of our own society.
But is Enron a systemic problem or is the ultimate problem the nature of market capitalism itself. If the latter then to avoid more Enron's it is necessary to have moral and ethical tethers to clearly defined absolute terms such as right and wrong (good and evil) in a corporate business environment, otherwise concepts on which an economic system depends, such as trust between all participants, will ultimately breakdown.
Internally, the dynamics of the Enron enterprise set out in this book show a salutary lesson of what should not be present in an apparently healthy and profitable corporate enterprise: failure of 'knowledge conditions', senior management being isolated from those at operational levels (?); individuals pursuing sub-goals that are contrary to overall corporate goals; restrictions on the flows of bad news as opposed to any positive 'spin'.
The underlying causes of an Enron outcome are in fact within the nature of corporations themselves. Their hierarchical structure, limited span of control, self-interest, limited discourse and intimidatory corporate culture all point to a flaw in the nature of many public-listed corporations. Some suggest that the Enron case is one which warrants a revaluation of the shareholder centric model of corporations; management actions should not longer be orientated at maximising the current share price.
Some see the lessons of Enron as being a company that, when in trouble, was unwilling to admit its own shortcomings and thus became driven to cover-up a few bad decisions by making even worse ones. An early admission and some critical changes in operations could have saved the trading side of the business. Instead profit growth at all costs an unwillingness to admit that poor decisions had been made, led to even more exaggeration and fraudulent reporting.
The key problem with Enron was that it had all the surfical signs of a good corporate citizen in place with corporate social responsibility, business ethics tools and status symbols all in place. The greatest danger is that the Enron situation is not atypical of many aspects of many corporate organisations: those who closed their eyes to wrong doings (in Enron) were rewarded; others who sought to give warnings were punished; the win-at-all-costs mentality. The Enron lesson is that business is in the long term only going to survive by virtue of developing and following ethical behaviour. No one single error occurred just the compounding of many errors, all of which were preventable. It was based on a success at all cost culture where the ends always justified the means.
Enron is not explicable as just ethical and moral failure without examining why these failures occurred. Enron was a corporate product of both willingness to bend the rules and the opportunity to bend them. Others suggest that there are limited lessons to be learnt from the Enron story: that is to say Enron is bankrupt because of speculation and legal but unsound accounting and financing schemes. This view suggests that this proves that the free-market works; speculators and those at the margin of the market must suffer as and when the market turns. As such Enron investors were punished by the stock market for their poor judgment. The energy markets adjusted to Enron's collapse with few problems. As for the stock market crash, well, booms and busts are a natural part of a healthy capitalist economy.
A must have book for anyone who wants to know the inside story.
Other academic reading:
. Benston, G. J., and Hartgraves, A. L., 2002. Enron: what happened and what can we learn from it. Journal of Accounting and Public Policy, 21, 105-127.
Carson, T. L., 2003. Self-interest and business ethics: some lessons of the recent corporate scandals. Journal of Business Ethics, 43, 389-394.
Chatergee, S., 2003. Enron's incremental descent into bankruptcy: a strategic and organisational analysis. Long Range Planning 36, 133-149.
Cohan, J. A., 2002. "I didn't know" and "I was only doing my job": Has corporate governance careened out of control? A case study of Enron's information myopia. Journal of Business Ethics, 40, 275-299.
Currall, S., and Epstein, M. J., 2003. The Fragility of Organizational Trust: Lessons from the rise and fall of Enron. Organizational Dynamics, 32 (2), 193-206.
Desai, A. B. and Rittenberg, T., 1997. Global ethics: an integrative framework for MNEs. Journal of Business Ethics, 16, 791-800.
Sims, R. R. and Brinkman, J., 2003. Enron ethics (or: culture matters more than codes). Journal of Business Ethics 45, 243-245.
Spector, B., 2003. HRM at Enron: the unindited co-conspirator. Organizational Dynamics, 32 (2), 207-22.
Dr I Lavering
MBT Program UNSW