Introduction from Alana:
In December 2001, the seventh largest public corporation in the world filed for bankruptcy. Its demise came virtually without warning. Over a ten year period, ending December 31, 2000, Enron would present investors with a total return of 1415%. Compared to the S&P 500 meager 383% returns, Enron was considered the darling of Wall Street. Much of Enron’s rapid growth had come as a result of its trading of derivatives with Wall Street firms such as Bear Stearns, Lehman Brothers, and Goldman Sachs. Despite being named the “Most Innovative Company” for six years in a row by Fortune Magazine, suddenly Enron imploded much the same way financial firms did in 2008.
As one of the top 20 executives of the company, my friend, Cindy Olson, was at the epicenter of the Enron debacle, doing her best to manage through an exceptionally difficult period. She is one of the most upstanding, principled individuals I know so it is fitting that she now focuses much of her energy and time helping professionals understand the critical role culture plays in business success borrowing from her Enron experiences to shape the discussion.
Understanding that the nature of many professional relationships stems from the tone set from the top of the leadership chain within a firm, I asked Cindy to share some thoughts on the importance of establishing a values-based culture in order to achieve personal and professional success.
With that, I give you Cindy Olson…
Guest post from Cindy Olson, CEO of Leadership Accelerated:
In 1996, Ken Lay, then Enron’s CEO and Chairman of the Board, knew something was changing as energy trading became more of the central source of the company’s revenue. While the world began to focus on Enron’s success . . . based solely on external metrics – accolades or rapid rise in stock price, Ken began grappling with the changing culture. In early 2000, as the executive management team began to set a new vision for the company, Ken suggested our vision be that Enron become “The Most Respected Company.” Jeff Skilling on the other hand, suggested that Enron would become “The Coolest Company on the Planet” as he envisioned a pair of giant sun glasses on the top of Enron‘s 50 story building in downtown Houston.
As Enron’s culture became more aggressive in its pursuit of more and more earnings to support an increasing stock price, Ken watched the accolades grow in number as Fortune Magazine hailed Enron the “Most Innovative Company” for six years in a row. Ken held a Ph.D. in economics. Modeling and metrics were the foundation for his leadership. While the accolades and stock price provided Wall Street with a measure of Enron’s success, Ken was asking an essential question for which no metric existed, “Is our culture strong enough to sustain our performance?”
In 1996, Ken asked me a key question which gave me insight into what he believed the impact our traders were having on the culture of the rest of the company but was unable to quantify. He knew in my position as head of operations I would know how the traders (who were seen as the primary source of the company’s revenue) treated other employees (who were seen solely as support for the traders). My answer, in retrospect, probably said more about how much the traders had subversively changed the culture than I realized at the time. “They are kind of rough but they make a lot of money for us,” I said.
Years later, as a result of Enron’s failure coupled with the financial crises that took place in 2008, I personally needed to wrap my head around what happened. As such, I conducted an exhaustive post mortem on as many of the Enron internal employee surveys as I could locate. Based on that research, I now believe that the key to Enron’s demise was the shift from the Values and Ethics that Ken Lay modeled to the value system of Jeff Skilling. Even though Jeff did not take formal control of Enron as its CEO until late in 2000, he was gradually taking control as Enron Capital and Trade became a bigger part of the Enron earnings. That question that Ken asked me in 1996 was telling of the impact Jeff’s values were having on the entire company.
So, what are the lessons learned from this dramatic failure? I firmly believe that a values based culture is critical for any corporation’s survival. I have concluded that there are four essential steps in creating and maintaining a values based culture:
1) Create a set of Values for your company. Define clearly what those values mean in terms of everyone’s behavior. The Enron Values were: Integrity, Respect, Communication and Excellence. Each were defined in detail and most employees could, more than likely even today, recite for you what those values were and what they were supposed to mean.
2) Leadership must model those values every single day. Without this step, the values simply become words on paper or a plaque on the wall. In 2001 when Jeff Skilling resigned and Ken Lay took the stage to address 5,000 of our employees in Houston, he received a standing ovation as soon as he walked onto the stage. This was because the employees hoped that with Ken back and Jeff gone, we could return to the values and ethics that Ken stood for. As Ken concluded the meeting, he invited everyone to get with me, then the head of Global Human Resources and Community Relations, to express any concerns and ideas they had for moving us forward. Needless to say, I was inundated with issues and questions all related to our values.
3) Communicate those values so it is crystal clear what is expected of employees. We did this very effectively at Enron but when you do this and there are leaders in the organization that do not model the values you are communicating, you create confusion and cynicism.
4) Enforce these values in everyone (even if they are the COO or CFO). If all leaders do not model and live the values of the organization those leaders must change or they must go… even if they make a lot of money for the company. The contradiction in communicating a set of values for your organization but not enforcing them in everyone by linking pay and making them a stay/go criterion is a dangerous and destructive plan.
Just this past fall, I was speaking to a Masters Business Class at Bedictine College. Famed author and leadership expert, Patrick Lencioni, happened to join the class with the President of the College. Most of my speaking revolves around culture and more specifically about the values of the organization and how critical they are to the entities success. When Lencioni raised his hand and asked me what caused Enron’s failure I explained that it was the shift from the values based culture of Ken Lay and his failure to enforce those values in the person he and the board had chosen to succeed him as CEO. Lencioni’s response was telling as he went on to explain that what I had described was one of the leading issues he sees in corporations today. He said in many cases the CEO is simply not able to address that kind of issue with his Leadership team. My hope is that through telling the Enron story leaders will think about the price their companies may pay if they don’t.