Enron & the unbearable lightness of being
How the knowledge economy makes us drowsy, not free
By Subhash Agrawal
Online Journal Guest Columnist
February 7, 2002—Journalists take great pleasure in unraveling conspiracies and reporting major power shifts, and the Enron story offers exactly the right mix to make for a great plot: greed, corruption, cronyism, arrogance, bankruptcy, suffering and cover-ups.
There are thousands of articles out there in the US and other western media on "why Enron went bust" or on the "lessons from Enron." How is it that a company once ranked 7th on the Fortune 500 list and among the top 20 of many "most admired" lists collapsed so dramatically? If truth be told, Enron's strong-arm tactics and power connections have been well known and well documented. In fact, quite aside from the financial dimensions of this tragedy, the real story ought to be how a spectrum of reputed opinion leaders helped Enron from being discovered a long, long time ago.
Goldman Sachs, once considered the bluest among the blue-chip of Wall Street firms, has long been out and out bullish about Enron, in fact defiantly so even after all the signs pointed in the other direction. As late as October 2001, the company's equity report said "Misconceptions abound and perceptions are far below reality. We view Enron as one of the best companies in the economy, let alone among the companies in our energy convergence space."
A countless number of other analysts—people whose opinions are beamed across TV, reported in the press and quoted in countless seminars—were equally gung-ho 'til well late into night. In November 2001, after Enron shares had already tumbled to less than $10, Credit Suisse First Boston continued to put out a strong buy recommendation on the company and at a $25 price target. Harvard Business School did nearly 17 case studies or articles on Enron, most of them showering what must now seem embarrassing accolade. Enron is talked about in awe as a real "entrepreneurial company" or "a company with a vision of the future."
A 1998 HBS book, "The War for Talent," put forward Enron as one of five examples of pioneering and innovative strategies for "attracting, developing, and retaining the very best people."
Not just Wall Street, but also from the non-corporate world. In a speech on "Corporate Integrity and Globalization" given in March 2001, a member of the Board of Directors of Transparency International cited Enron as part of a new generation of companies which "recognize the importance of integrity." As it turns out now, Enron has long been a major benefactor of Transparency International, and one of its vice presidents is still on TI-USA's Board of Directors. Former Vice President Al Gore hosted a high-profile conference on anti-corruption in February 1999 where government ministers, academics, economists and NGOs from over 90 countries participated. Called the Global Forum on Fighting Corruption and Safeguarding Integrity, one of the main invited speakers was the CEO of Enron International.
The Enron saga is a unique event of our times, a fraud on society and public money where the principal actors are not the typical cast of yesteryears. Yes, family businessmen, politicians and bureaucrats are no doubt involved. But the main culprits are the professionals, those hundreds of Wharton MBAs, Harvard lawyers, Arthur Anderson accountants and McKinsey consultants in whom we reposed our trust. In other words, the Masters of the Universe: restless for action, armed with slick presentations, fluent in dazzling euphemisms and generally feeling invincible. These are the people who fooled the world, and ironically even themselves, perhaps proving yet again that the gullible and naive sometimes inherit the earth.
From the very beginning no one really understood how Enron was making money. The company signed a lot of contracts on all kinds of commodities and things—power, hydrocarbons, broadband, wood pulp, steel slag—and then pretty much sold these rights elsewhere. It even bet on weather. It was as if the company was trading in a complete spectrum of life items. Or on "the future," as Enron officials were prone to put it cockily.
In a magazine interview, one Enron executive described the hundreds of partnerships it formed as "derivative instruments which eliminate the contingent nature of existing restricted forward contracts." Nobody understood what he meant, perhaps not even the journalist who reported this delicious gobbledygook, but nobody questioned it either.
In fact, many others on the outside went further, including the McKinsey Quarterly which once wrote: "Enron has built a reputation as one of the world's most innovative companies by attacking and atomizing traditional industry structures. Enron has focused on the business sliver of intermediation while avoiding incumbency problems created by a large asset base and vertical integration."
The closest one got to an honest confession was this from a former chairman of the US Federal Energy Regulatory Commission: "One of our problems is that we do not have the expertise to truly unravel the complex arbitrage activities of a company like Enron." As it now turns out, all the fancy jargon and paperwork was sleight-of-hand attempts to hide Enron's mounting debt of almost $ 13 billion, a mind-boggling figure even by US standards.
But baffling others and speaking big has sadly become a way of life in the new world, supported by constant replenishment of fuzzy mantras and delirious optimism by economists, accountants, consultants, lawyers, analysts and business journalists. Many of these standard bearers of society shoulder the blame for Enron, at least for lending so much credibility to what was clearly a recklessly run company with large amounts of phantom profits.
In his recent op-ed piece, the conservative Republican commentator William F. Buckley used an old aphorism: "The trouble with communism is communism, but the trouble with capitalism is capitalists." True. But Enron represents not only corruption and arrogance but also a larger societal abandonment of common sense, a kind of mental numbing under a glut of information and numbers.
One of the unfortunate consequences of globalization and the new knowledge economy is that there is just too much false glitter and far too many 'experts' willing to peddle it. However, despite it all, mankind's desire for a truly liberal and market-driven society will carry on, thankfully, and there will flow many real benefits from the knowledge economy. What can be better a testament to both than the fact that Enron-related items and cornucopia are now the hottest selling items on eBay, the online auction site. The highest bid received so far has been for Enron's Code of Ethics book—evidently, there really was such a thing—which was available "in mint condition, apparently unread."
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Subhash Agrawal is a New Delhi-based analyst and the editor of India Focus, a journal of political and business policy issues. He is a frequent writer on international developments.
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