GERALD BEPKO Commentary: Enron’s lessons for business conduct

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A symbol of recent corporate scandals and excesses is Enron. Its implosion created a corporate tsunami destroying careers, investments and Arthur Andersen, one of the nation’s largest accounting firms.

Much has been learned from the Enron tragedy. Some of those lessons are reflected in costly stricter accounting standards and the even more costly Sarbanes-Oxley law enacted by Congress. More important lessons of Enron may take a longer time to absorb in our national culture.

Whatever lessons are to be learned will be accelerated by the recent publication of “Conspiracy of Fools” by New York Times reporter Kurt Eichenwald-a book important enough to provide long excerpts published on two successive recent Sundays in the Times business section.

Eichenwald describes all the characters and events in the kind of dramatic detail reminiscent of a John Grisham novel. His descriptions bring to mind many issues that confront corporate leaders. Here are a few.

When should you listen to new, sophisticated financial analyses and when should you listen to experienced industry people who know existing markets, customers and products? Eichenwald says Enron became a “cult of creativity, often placing swagger over substance” with accompanying derision of mature business assets like gas pipelines.

How important is it for senior management to have a deep understanding of all its various businesses and be watchful so that one segment of a business is not in conflict with another? Eichenwald says Enron diversified into “business after business with no unifying strategy … becoming anything and everything.”

Is there a tendency to think in technical patterns using financial and economic theory, which can marginalize common sense and ethics? The undoing of Enron stemmed from some complicated off-balance-sheet entities that arguably played a role in making financial markets more efficient. Their complexity, and its allure, seemed to provide a cover for misconduct.

Eichenwald says it was “Enron’s tragedy to be filled with people smart enough to … maneuver around the rules, but not wise enough to understand why the rules had been written in the first place.”

Warren Buffet put this another way in an often-quoted statement: “In seeking people to hire, look for three qualities: integrity, intelligence and energy. If the person doesn’t have the first, the other two will kill you.”

At Enron, it was primarily self-interest or greed that lured people away from successful models of behavior. The off-balance-sheet entities were designed to enhance reportable earnings and reduce reportable costs. Enron executives were rewarded through bonuses for “doing such deals.”

As Enron teetered on the brink of bankruptcy, one last hope was a merger with Dynegy. Because of Enron’s rapidly advancing meltdown, Dynegy stopped the merger talks, but not before Enron executives engaged in time-consuming discussions about who would accompany the Dynegy CEO on a “road show” to inform the investment community or who would fly on whose planes. At the same time, Ken Lay, the person responsible for the Enron debacle, asserted a right to a $61 million change-of-control severance under an employment agreement.

Leaders must not only know what is right, but must have the self-discipline and courage to pursue the right course. This is a matter of values that should pervade an organization. In his book, “Put the Moose on the Table,” Randy Tobias says that “when I hear corporate leaders refer to values and culture as soft issues, I wonder what they regard as being hard. In my experience, cultural beliefs are the heart and soul of all business matters.”

Bepko is IUPUI chancellor emeritus, Indiana University trustees’ professor at IUPUI, and the inaugural director of IU’s Tobias Center for Leadership Excellence. He can be reached by e-mail at

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