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ENRON'S GREAT FALL FROM GRACE
DECEMBER 27, 2001 (P.7) -
BUSINESS TIMES
THE recent downfall of "once-mighty" Enron Corp may have
caught many by surprise.
There is really nothing surprising about the fall of
America's leading energy trader - a company greatly admired
by institutional investors, and "a darling of the Wall
Street".
If we only care to take some trouble to look into Enron's
corporate practices and its books, we would soon realise
those who had lost millions of US dollars dealing with
Enron, or owning its shares, had fallen prey to a
well-orchestrated confidence-game.
Mind you, at its peak on August 23 2000, its share price
was US$90.56 (US$l = RM3.80) each, and just before it filed
for bankruptcy protection of its US$49.8 billion assets
under Chapter 11 on December 2, the share was worth around
61 US cents, a drop of more than 99 per cent!
Who are some of Enron's victims? Based on a Business Week
report, Enron's major shareholders are Alliance Capital
Management, Janus Capital, Putnam Investment Management,
Barclays Bank & Fidelity Management etc.
Its main bondholders are GE Financial Assurance Holdings,
Prudential Global Asset Management, ING Investment
Management and others, while its main lenders are Citigroup
Inc, JP Morgan Chase, Bank of America and others.
Enron, a darling of the Wall Street as recent as a year
ago, had pulled wool over the eyes of reputable
institutional investments and prudent bankers. Of course,
Enron's management couldn't have pulled off this con-game
without the help of many other quarters, one of which is
the powerful mass media. Some years ago, Enron succeeded in
impressing the Wall Street and also gained the "unbounded
admiration" of institutional investors.
And with that coup, the writer theorised that Enron's top
management exploited the power of the press through the
glassy- eyed and naive Wall Street analysts, and the hype
began. This fiasco of a huge US corporation, ranked No. 7
on the Fortune 500 list last year, caused losses not only
to shareholders, bankers, energy suppliers or partners, but
also to its very own employees.
"People have had their total savings disappear. Some lives
have been pretty well destroyed," said William Miller,
business manager of the international Brotherhood of
Electrical Workers Union in Oregon, which represents the
employees of Enron's Portland subsidiary company.
And lest we forget to mention, the reputation and
credibility of auditing firms - particularly Arthur
Andersen, one of the "Big Five" - have been badly smeared
by this fiasco, Now that the largest company ever had gone
bankrupt, what else is left except to start counting the
losses; and to ask honest questions, to find the root-
cause of this great fall from grace.
Of course there will be many so-called senior executives of
America's corporate world who will deny any knowledge of
wrong- doings or financial malpractices and so on.
But as economist Tan Sri Ramon Navaratnam mentioned in an
open letter to The Star on December 5, "Hence it is hoped
that the US authorities and the press will be diligent and
transparent enough to unravel the mysteries that have been
hidden from the world, so that business and consumer
confidence will soon return".
And continuing from the above, let us also hope that some
lessons can be picked up from this biggest corporate
collapse in US history. This giant Enron's downfall
resembles in a way the fall of the great Roman Empire 18
centuries ago - both rotted from within. Also triggering
here is a memory of an ancient Eastern saying that, the
"fish rots from the head".
Back to crumbling empires. A few decades ago, one of 20th
Century's greatest historians, the late professor Arnold
Joseph Toynbee (1889-1975) in his scholarly Study of
History (1934-1961) attempted to find out the laws
governing the rise and fall of civilisations.
And one of his surprises was, out of a total of 21,
empires, in the likes of the Babylonian, Roman, Mongolian,
Ottoman and so on, 19 fell because of decay from within!
Only two succumbed to enemy attacks. In -a sense, Enron's
fall is just another tale of "history repeating itself ";
it will nevertheless be immortalised as a classic case of
an organisation that pushed its own "self-destruct" button.
During the last couple of weeks, a few articles in the
press had hinted that Enron's failure may be caused by its
arrogance. There is some truth in this. Ancient Romans had
the saying, "Whom the gods would destroy, they were first
made mad".
Similarly, Eastern proverbs warn that "failure follows
arrogance". Let's take a brief look at corporate arrogance
in Enron. To begin with, the press had described Enron, and
its top executives, in the following terms:
* They have "overweening ambitions".
* They are very cocky and self-assured.
* They can be compared to past self-proclaimed masters of
universe such as Drexel Burnham Lambert Inc in the 1980s,
and Long- Term Capital Management in the 1990s, and so on.
Chairman and founder Kenneth L. Lay had been described as
someone who bullied recalcitrant regulators into making
speedy deregulation reforms. Recently resigned chief
executive officer Jeffrey K. Skilling was singled out as
someone who is brash and who dislikes criticism. Skilling,
in fact, boasted in December 2000 that Enron would rapidly
overtake ExxonMobil to become the world's No. 1 energy
company, and also the world's largest company, period.
Continuing with corporate arrogance, the writer recalls a
survey carried out by Development Dimensions International
(DDI), a global human resource consulting firm. Its senior
vice-president, Richard Wellins told The New York Post,
"Many executives are like golfers who have little hitches
that ruin their swings. They have knowledge and skills, but
one little hitch in their personality can ruin. their
career".
The DDI survey identified 11 executive personality hitches.
Interestingly the study singled out or highlighted
arrogance. Listed here are six of the more common flaws:
(i) self-promoting or self-praising;
(ii) defensive;
(iii) micro-managing or petty;
(iv) risk-aversed or lacking guts;
(v) non-perceptive or "blur", and,
(vi) volatile in temperament.
According to DDI, anyone of these hitches can leave the
executive in the corporate equivalent of a deep sand-trap.
Closely related to arrogance is egotism. In fact they are
Siamese-twins.
In his book Managing (1984), Harold S. Geneen, who is
former chairman and CEO of ITT, a US$22 billion
conglomerate in 1977, described egotism as "one of the
traps devised to ensnare the successful businessman".
"I have seen it happen again and again, and yet I have
never seen it theorised about at Harvard or the Fortune
magazine," he said. Few can deny that the success or
failure of any corporation or empire hinges on the calibre,
experience, skills, and so on, of its leadership.
Countless articles and books have been written on
leadership during the last two decades.
But have they enlightened us on how to produce leaders? Can
the world's Ivy League such as Harvard, Yale or Stanford,
and soon, produce leaders?
The following statement by leadership guru, Warren Bennis,
may provide some answers, "Leadership is less about
competence, It's more about character".
It is time we go back to basics; something the ancients two
and a half millennia ago already understood.
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