Corporate Governance and Enron

ENRON & ETHICS To say that the behavior and outlook at Enron was myopic would be putting it lightly. Indeed, to be myopic means to be short-sighted and intellectual about decisions made and the effects that will be rendered. Besides that, it is terrible leadership and only sets up a firm to fail. That is precisely what happened at Enron given that decision after decision was made that was immoral on its face and/or just did not keep the long-term effects in mind.

In the end, this led to the complete evisceration and obliteration of the firm and it left many people penniless. Even so, the lessons that should be learned from Enron and what happened to that firm are many and they are lessons that should not be ignored or disregarded.

Even if leaders have to go so far as to rattle through checklists and double-checks, missing important things relating to governance and company culture just cannot be missed when there are millions and billions of dollars and the livelihoods of so many people at stake, not to mention affected external stakeholders like customers and community members. Enron & Ethics The overall depth, breadth and sheer magnitude of things that went terribly wrong at Enron are voluminous.

Some of it was unwitting and unknown but a lot of it has been revealed as premediated and criminal in nature. Myopic thinking, the lack of proper leadership and the improper influencing of people with a toxic company culture were all in play with Enron. This report will address that myopic thinking, the lessons to be learned, the proper role of corporate governance, how all of this dovetails with the twenty-one laws as put forth by Maxwell and a good checklist to follow when it comes to ethical leadership.

While there was clearly some horrible people at the helm at Enron, it could have (and should have) been identified and stopped a lot sooner than it was and before so many people lost everything or close to it (CEMI, 2010). Myopic Thinking As indicated in the abstract, to be myopic means to be short-sighted and devoid of thinking of the long-term effects of one's decisions or indecisions.

When it comes to Enron, they were clearly engaging in myopic actions, both legal and illegal, so as to provide short-term fixes rather than considering the long-term picture. One of the more nefarious examples was their use of shell companies and moving money around to conceal losses. Just like any other Ponzi scheme or something similar, there is always a point where those sorts of tactics end terribly. It is similar to a person that gets a payday loan.

While the short-term money needs might be met, the money has to be paid back and with significant interest. In other words, short-term gains and results are not irrelevant but short-term gains can actually hurt a person or firm in the long run if those decisions are made excessively and/or over time (Singletary, 2014). Sometimes, it is normal and expected for hard decisions to be made. However, making those decisions does not have to be myopic in nature.

What Enron was going, overall, was manipulating the market and trying to hide the fact that their tactics were absolutely not working out for them. As a result, it ended up destroying the company and Arthur Andresen as well since they were in on the fraud and deceit to some degree. Maxwell's 21 Laws & Enron What follows in this section and the next are lists of the relevant subjects and their facets. First up is Maxwell's list of laws that relate to leadership.

There are twenty-one in total and they are referred to, with all sincerity, as "irrefutable" in nature. For each one, what the law means and how they can be applied to Enron, for better or worse, will be explained (Maxwell, 1998). They are as follows: The Law of the Lid The thing to know about this law is that the leadership has a "ceiling" that is created by the abilities and foresight of its leaders.

In other words, a business will not exceed the capabilities and foresight of the people in charge. If the people in charge are myopic or they are otherwise making ill-informed or bad decisions, the whole organization will be limited as a result. Certainly, Enron and its people were limited (and done in) due to the lack of capabilities and failure to act properly by the executives in charge (Maxwell, 1998; Thomas, 2002).

The Law of Influence Another thing to keep in mind when it comes to leadership is that it is all about influence. Whether good or bad, every single thing a leader does is about influence. Regardless, the person being influenced may or may not be influenced or changed by what the leader tells them to do or otherwise impresses upon them. In the case of Enron, what was being stated was one thing and influenced people in one way, correspondingly.

On the other side of that coin is the bad things that the Enron leaders did and what some of the people in the organization did in response to the same. To be sure, there were traders and other people within Enron that were being influenced in a terrible way and they subsequently engaged in terrible actions in response and reaction to this. Regardless, the key thing to remember about leadership is that a leader is not a leader without people that follow them.

Just because a leader says to do something does not mean it will get done and it does not mean that the leader will be followed (Maxwell, 1998; Thomas, 2002). The Law of Process The scintilla of knowledge to glean from this rule about Maxwell is that leadership is not something that just "comes" to a person, good or bad. Leadership is a set of facets that evolve and change over time. These facets include ethics, emotional strength, vision, timing, momentum and so forth.

A leader, if doing their job, is someone who is learning non-stop because there is always something new to know or something that is changing. As such, there will never be a point where a leader can say he or she is "learning." That will never happen from a perspective of practicality as well as from reality. Enron's leaders were developing and learning.

However, so many of them were going in the wrong direction and it happened long enough and to enough of a degree that it caused the firm to be eviscerated (Maxwell, 1998; Thomas, 2002). The Law of Navigation What is needed to be known about this law is that the leaders and people in charge need to know how to lead and steer the proverbial ship. This dovetails neatly with the discussion of myopia and shortsightedness.

If a leader either has no clue what the long-term destination happens to be or they know the right path but take a different one, then they are not being a good leader. It is debatable whether Skilling, Law and Fastow knew what they were doing but it is clear that they made the wrong choice, regardless of whether they knew the right course or not.

No company can progress and grow in a way that is healthy and organic when deception and bilking customers is in any way the foundation of what is being done and why. This was not true of all of Enron's people and managers but it was true of the people that mattered, those being the three executives just mentioned.

While Enron existed on a very large scale and crashed in such a way on top of that, this holds true of any business, no matter the size and structure therein or thereof (Maxwell, 1998; Thomas, 2002). The Law of E.F. Hutton E.F. Hutton was a man that used to be the most prominent stock market analyst in the country (Kadlec, 2015). He was a man that made people take notice, stop and listen to whenever he had something to say.

A somewhat controversial yet true expression in the eyes of many is that a woman having to say she is a "lady" is a little unseemly because it should already be clearly obvious whether that is true or not just based on the way the woman acts and carries herself. In other words, what is being said may or may not dovetail with reality and it will become clear right away, or at least eventually, whether there is substance to what is being espoused and said or not.

In the end, Enron was saying that everything was fine...and it was not. Even worse, the top executives at Enron knew that with full clarity and said it anyway. Even with that, it became clear that Enron was a proverbial house of cards and it all came crashing down. Talking up good results and celebrating good progress is all well and good. Lying to people and portending something that is simply not true, on the other hand, never works out for the best...nor should it (Maxwell, 1998; Thomas, 2002).

The Law of Solid Ground Consistent with the above, myopic thinking and actions that are not based on reality as it truly exists will only lead to problem. Decisions need to be informed and there are no shortcuts when it comes to becoming strong in a field and staying that way. Even firms that acquire others and otherwise grow inorganically are no different. If the assets and people in the fold are not well-controlled and properly assembled, the outcomes will tend to be mixed to terrible.

Beyond that, the leadership has to be trusted and this comes back to being honest, telling a story and narrative that is consistent with the facts and so forth. Only with time and those words matching up to results will trust and proper dialog truly take hold. At least in the later years of Enron, this was not happening (Maxwell, 1998; Thomas, 2002). The Law of Respect This one is simple. The people at Enron, just like any firm, will follow people stronger than more powerful than themselves.

However, when there is an absence of leadership or the hint of fakery, people can absolutely lose faith and it can happen quickly. Lay and Skilling, just to name two, talked a big game but, as they say, the emperor had no clothes (Maxwell, 1998; Thomas, 2002). The Law of Intuition Yet another thing that Enron got terrible wrong, at least at the higher levels, is that people have intuition and their gut. While people may be wildly guessing or otherwise be wrong, there is sometimes fire to match the smoke.

In the case of Enron, it was a wildfire (Maxwell, 1998; Thomas, 2002). The Law of Magnetism Yet another truism that came to pass with Enron was the rule about magnetism. What this refers to is that leaders tend to attract people that are similar to themselves. This is true on a personal level and is also true when it comes to corporate culture and leadership. Beyond that, it can apply to situations where the leadership and principles are good, but bad situations as well.

The latter was obviously the norm when it came to Enron, at least where it truly mattered (Maxwell, 1998; Thomas, 2002). The Law of Connection This one is similar to a prior law, in that leaders are not leaders without followers. The point to add to this is that a person to be led need to be convinced to follow the person. Beyond that, the reason and impetus to follow the person must be positive. Losing one's job is often a motivation but it's not a good one.

A leader should have followers based on good things such as being inspired, wanting to accomplish a common goal or something like that. When it comes to firms like Enron, this should come down to running a business ethically and in a way that improves the lives of employees and customers alike. In the reality that was Enron, at least at the end, that is not what happened...internally or externally.

If anything, the connection that occurred was greed and it had results that are to be expected when it comes to such avarice (Maxwell, 1998; Thomas, 2002). The Law of the Inner Circle This one is also simple. Enron and any other firm of its prior size need to have a strong and cohesive "inner circle." The people in that circle need to have the proper aggregate level of skills, ethics and motivations.

Enron certainly did have that as Lay, Fastow and Skilling were all doing exceedingly nefarious things and they certainly were working in concert while doing so (Maxwell, 1998; Thomas, 2002). The Law of Empowerment It is commonly known that leaders need to be able to delegate and trust the people to which they delegate. Indeed, in a firm of any size, it is not possible or practical for the leaders to do everything themselves. They need others to do that.

Enron was certainly about that but the people that were empowered were being empowered by the wrong sort of leaders (Maxwell, 1998; Thomas, 2002). The Law of Reproduction Similar to the law just mentioned, it takes good leaders that are empowering others to create new and strong leaders in their own right. It was mentioned earlier that leaders are not "born" and have to be developed.

That development must be under the tutelage of mentors and more senior executives that have learned the right way to do things and thus can empower others and impart their knowledge to the same (Maxwell, 1998; Thomas, 2002). The Law of Buy-In This one is similar to the leaders needing to "hook" the followers, but a little different. Change and change management is a huge thing for any firm but it is much more complicated when people are tepid or resistant to change.

For any major change that is undertaken by a firm and its leaders, the people of the firm have to sign on to and believe in what is happening and changing. Enron was making changes and certainly had buy-in but many of the changes were presented on false pretenses or were just wrong on their face (Maxwell, 1998; Thomas, 2002). The Law of Victory This one is an obvious one. A good leader finds other leaders employers that can do a good job and then allows them to do it.

With Enron, it was surely a combination of leaders that could not or would not go along with the right path and, regardless, they all failed due to the company falling apart financially (Maxwell, 1998; Thomas, 2002). The Law of Momentum Any good firm has to be moving in a positive direction. If there is no forward progress, no true growth can occur. Enron not only failed to have good momentum, they also lied about the momentum that they had and just made a bad situation worse (Maxwell, 1998; Thomas, 2002).

The Law of Priorities It is also important to know what the true and proper priorities should be. The thing to know about this one is return, reward and required. Enron was not doing what was required and they were not getting proper rewards and return on what they were doing. The appearance of progress and forward movement is, by itself, not proof that anything good is happening (Maxwell, 1998; Thomas, 2002).

The Law of Sacrifice The one thing to know about this law is that leaders must be selfless and must defer to the people they lead in many ways. This clearly was not the case with Enron as the triumvirate of leaders at the firm was clearly being greedy and selfish and this is what led to the demise of both themselves and the firm (Maxwell, 1998; Thomas, 2002). The Law of Timing This is another easy one. Knowing what to do is a good thing.

However, knowing when precisely to do it and why it is another important consideration. Just because a decision is right does not mean it should be done now. Both the event to be executed and when to execute it should be a consideration. The big issue of timing with Enron is that the trio of leaders should have given it up long before they did that the company was not solvent or on the right path. The company could have been saved had those three done that (Maxwell, 1998; Thomas, 2002).

The Law of Explosive Growth This law is about having decent growth to great growth. To get decent growth, this can be done by getting good followers. To get explosive growth, one must learn to lead the leaders. However, the problem with this lesson, and the way it was learned by Enron, is that the same thing can happen in reverse of the followers and leaders in question are doing the wrong things (Maxwell, 1998; Thomas, 2002).

The Law of Legacy Just as leaders should not be selfish, they must also plan for.