More Reasons to Get Riled Up...
Incompetent CEOs create just as much misery as criminal ones do. So let's get mad at them too.
FORTUNE
Monday, March 4, 2002
By Geoffrey Colvin
NBC Nightly News tells us about the church ladies' investment club in Bowling Green, Ohio, that invested $10,000 in Enron and lost it all. The New York Times reports--front page, above the fold--on a single father, laid off by Enron, who must care for an autistic son. Repeat such stories on every TV network and in every newspaper, and it's no wonder a cast member on Don Imus' national radio show calls Enron's former CEO "Osama bin Skilling" and, referring to the evaporation of Enron's market cap, asks furiously, "How in the hell can you lose $63 billion?!"
Just about everyone in America is furious over Enron, their feelings fanned by the most intensive media coverage any U.S. business scandal has ever received. The mob is baying for blood, which is always a good time to ask: What--exactly--are we angry about? The answer isn't as simple as it seems.
Let us stipulate a few points. This is an amazing, irresistible story that deserves tons of coverage. It apparently involves criminality of world-class innovativeness that should and probably will result in some Enron executives wearing horizontal pinstripes. And the innocent employees and investors who lost out in this debacle--the victims whose fate is fueling the outrage--deserve every bit of the sympathy they're receiving.
Now: Exactly what are we angry about? Start with how it's possible to lose $63 billion of value. Many people seem to think that since Enron's Chapter 11 filing was the largest U.S. bankruptcy ever, its loss of shareholder value from its peak was also a record setter. In fact it isn't even close. Here are ten companies whose shareholders, as of today, have lost at least twice as much value as Enron's: AOL Time Warner (FORTUNE's parent), Cisco, EMC, Intel, JDS Uniphase, Lucent, Microsoft, Nortel, Sun Microsystems, and WorldCom. These value declines range from $155 billion (WorldCom) to $423 billion (Cisco). Americans who depend on pension funds and mutual funds lost way, way more value in each of these stocks than in Enron. Where was the outrage?
Ah, some say, but Enron lost all its value. So did Global Crossing (more than $48 billion), yet the noise isn't nearly as loud. And it's certainly splitting hairs to argue that Enron lost 99% of its value while JDS Uniphase, for example, lost only 95%.
Of course, you could argue that those non-Enron declines are misleading because those stocks never should have risen so high. Amen to that. But it's the same with Enron. Even if every financial result the company reported had been gospel truth, there was no rational case for a price anywhere near the $90 the stock reached at its height, just as there was no case for Lucent at $75 or JDS Uniphase at $140.
So how did prices get that far out of line? Blame old-fashioned market mania, aided and abetted by deeply compromised Wall Street analysts who recommended those stocks, including Enron. The analyst problem is now well known. But the media attention it has received and public anger it has provoked, relative to the misery it has caused, have been tiny. How come?
Then there are the people who have lost jobs. Enron has laid off about 4,000 of its 20,600 employees. You've got to feel for every one of them, but let's also keep some perspective. Nortel announced it was laying off 35,000 last year; Chrysler, 26,000; Lucent, 22,000. Those employees were just as innocent as Enron's. Yet the announcements of those layoffs got just a few paragraphs of ink and elicited more shrugs than anger. Why?
The answer to these questions, most people will say, is that Enron's demise was apparently caused by criminal activity, which is more outrageous than everyday mismanagement. But if a company impoverishes legions of investors and employees because the CEO wasn't up to the job and the board was permanently out to lunch, is there some reason not to be furious at them? If analysts pump a stock full of air because doing so brings investment banking business to their firm, and they own the stock--and then trustful investors lose billions when the bubble bursts--might that not merit some merciless scrutiny?
It's actually no mystery why Enron is getting unprecedented blanket coverage. The story has a political angle, which has triggered the scandal apparatus in Washington, the center of the world for most mainstream media. Congressional investigators possess unique power to extract and publicize information. And, heaven knows, it's juicy stuff.
So what makes us mad and what doesn't? If we're rightly concerned with punishing bad guys, then full speed ahead on the criminal investigations. But if we're also concerned with averting human suffering at the hands of wayward managers, then let's put our anger and righteous outrage in all the places they belong.
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-Scott |
