Although it seems that everybody now
has an opinion on the Enron debacle, I still think that the business lessons to be learned have been slighted. In sense, what has happened with this three-card monte version of corporation is reflection of the worst single tendency of the last quarter-century of American business – reliance on short-term results in order to influence Wall Street. That Enron exploited the weaknesses of this rigid and unrealistic form of measurement and used it to manipulate the market can certainly be seen as poetic justice, but that’s hardly consolation to the thousands of employees and investors who were lured into losing their retirement savings.
Unfortunately, there is little chance that Wall Street will change its adoring embrace of short-term numbers anytime soon. That does not mean, however, that we should overlook the management errors behind Enron’s collapse. No company, whatever its size or its industry, can afford to ignore these errors, which are as much ‘character’ issues as anything.
There are no ‘side’ ventures
Enron, of course, kept its losses off the books by shunting them to various side businesses. The truth is that there are no side businesses. Sooner or later, all chickens come home to roost. The number of companies brought to grief by innocent side trips that turned into major and costly detours is legion. But what Enron did has become more prevalent in recent years – letting executives participate in quasi-separate enterprises. It is not un-usual as well to hear of companies spinning off parts of their operation in order to subcontract back to themselves. Sometimes the reasons for this are legitimate, but often these arrangements devolve into opportunities to siphon off profits or disguise loss.
When your company starts devoting its energies to side businesses, the possibilities for conflicts of interest, for fuzzy thinking, and for outright chicanery are just too great.
Hire number-crunchers who will tell you the truth
No matter if it’s the bookkeeper in small business or one of what used to be called the Big Eight (now Five, and perhaps soon to be Four) accounting firms, you’ve got to be able to trust your base-line numbers.
In order to ensure that your numbers are trustworthy, however, you’ve got to avoid the ‘telepathy trap’; that is, the tendency for the people managing the accounts to assume that their job is to ‘pretty up’ the figures to make you look better. If you’re the kind of manager or CEO who welcomes this kind of boost, I can only advise you to keep your parachute packed. Sooner or later you’ll be so high up in the clouds you won’t know up from down.
Be frank about numbers
Make commitment to hearing, and speaking, the truth about numbers. I have feeling this is where many CEOs or executives will privately disagree with me. They’ll argue that there are too many variables for single truth to emerge that will be palatable for public consumption. “You have to blow little smoke in their eyes because they’re not smart enough to understand,” they’ll say.
The problem with this approach is not only what happens when the smoke clears, but what has already happened to public whose confidence has been cynically betrayed by decade of fast-talking hustlers. These days people are more than willing to assume that where there’s smoke there’s fire. If you’re in the habit of lying just little, they’re going to assume you’re lying all the time. Thus starts the erosion of good will, reputation, and eventually market share.
You can speak frankly about numbers. Such talk can even be motivating, inspiring, and good for your bottom line. But to do that you have to create company context and be known as company that values character. The strongest American companies throughout history have kept their footing because every employee, from the top executives right down to the janitors, has sense of their company’s character. “We stand for this,” they can say, if situation arises.
Companies with character share few common attributes. Typically they give employees more, rather than less, responsibility, encourage open communications, and try to compete with innovation and hard work rather than contacts, sweetheart deals, and favours. (Companies that employ teams of lobbyists rarely maintain character.)
The great advantage to being company with character is that being one saves you tremendous amount of energy and time that otherwise would be devoted to convincing people that you mean what you say. Companies with character can afford to speak plainly because their word means something. They can stimulate action because they do what they say. When customer or client needs something done without fail, they know who to turn to.
Companies with character reward performance. Companies without it, such as Enron, equate spin with performance. And when’s the last time you boasted about that great spin you bought the other day?
Mark McCormack is the founder of International Management Group. www.successsecrets.com
