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Jeff & Kenny-boy Get Theirs

Several of you have urged me to comment on yesterday's verdicts ... so I will. Fact is I knew Jeff Skilling in his early McKinsey days (he once worked for me), and guilty or not—and doubtless guilty—one shudders when a colleague faces the prospect of years and years in the Big House.

Jeff was indeed the "smartest guy in the room" and a micro-manager to boot—which certainly made it clear to me that the idea that he was unaware of details of his subordinates' affairs was utterly absurd. Likewise the idea that he was ignorant of the shades of gray and then black concerning the border between legal and illegal market manipulation insults his intelligence. So I guess I conclude "beyond a shadow of a doubt" that the prosecutors and the jury got it right.

And, alas, I don't particularly wonder why. One starts as a consultant-turned-senior-manager at a modest pipeline company, and a couple of years later one is the Toast of World Business for having created a uniquely important new variety of enterprise; i.e., "smartest guy in the world—ever." (That's an exaggeration, but not too far from the level of Enron hype—after all, it was the 90s.) Moreover, the "guru set" (e.g., Gary Hamel) was at the head of the cheerleader-sycophant parade. (I was mercifully mostly absent—but only because I hadn't gotten around to penning my own "hurrahs.") Hence even the most casual student of human nature can hardly be surprised that no stone, legal or illegal, was left unturned to keep the image of omnipotence alive. In this case that boils down to managing the earnings' stream to Wall Street's liking—and, no matter how smart, coming to believe one's press clippings.

Silicon Valley, my home for 30 years, is a macho place. (Understatement.) (Gross understatement.) Competing with other very smart macho guys for bragging rights is rampant in Santa Clara County CA. In fact, such competition has been rampant wherever boys doused with testosterone have gathered—since we slithered out of the brine. (Sorry, Kansas.) And Enron was a swashbuckling, macho place—for a while the "macho place extraordinaire." Enron, with me applauding, was a band of self-acclaimed "pirates" trashing enterprise stodginess and building a spanking New World Economic Order. I was subsequently appalled at the "screw grandmother" flavor of quotes Enron-ies used as they savagely messed with the California energy market—but not in the least bit surprised. Frankly, that's the way us boys have always talked when nobody was around to hear. (In this case the biz version of the NSA was indeed listening.)

All of which is to say that while the contours of the Enron-Skilling-Lay case are unique, I'm sure it fits neatly into one of the "only seven basic plots" categories.

So, my more or less pal probably goes to jail—doubtless following the best appeals that money can buy. Incidentally "it" has already taken its toll in part. Jeff was a great-looking, buoyant guy—and now it's a pudgy, forlorn visage that emerges on our TV screens. (For what that's worth.)

Some of my closest friends have reddened their hands applauding the string of successful prosecutions at Enron. As I ponder the financial fate of the thousands upon thousands who lost every penny of their pensions, I applaud the verdict, too—though many of those folks did not object at the time to being even bit players at "the coolest place on earth."

I'm glad when the crooks get caught. I even applaud the blunt weapons such as Sarbanes-Oxley which must be occasionally concocted to right the cumulative imbalances of cowboy capitalism run amok. On the other hand I also acknowledge that "cowboy capitalism" is near the heart—and even the soul—of America's 2-century rise to unprecedented global might. (Which I, on balance, consider to be a "very good thing.") Jeff Skilling had nothing on Leland Stanford, for whom my beloved University was named. (Actually it's Leland Stanford JUNIOR University—named after his son.) Mr Stanford was a Member in Excellent Standing of the Robber Barron's Club of America, which stole us blind—and among other things gave us the Transcontinental Railroad. Needless to say, said railroad was one of the Top 5 stimuli to the creation of America's amazing continent-spanning economy that spawned America's amazing global economic enterprise. As I recall (and I shan't Google it), about 10 decades earlier Charles Morris nearly went to the Big House; he was a greedy crook who lined his pockets in grand style—but simultaneously raised a huge share of the money that allowed our forebears to fund the nascent American Revolution. Curb Mr. Morris' "wretched excess"—and we might have sung "Rule Britannia" at the start of the 40th Super Bowl. (Nothing against the Brits mind you—it's that as a Baltimorean* I like our song better.) (*Francis Scott Key, Ft McHenry, etc.)

Without extending this commentary forever, I'd add that Jeff ("smartest guy in the room") Skilling & Kenny-boy were not alone among Renowned CEOs (hint hint) at sailing close to the wind when it came to fixing up earnings on a regular basis in the wild & woolly 90s.

Skilling and Lay had their metaphorical hand in the till. Big time. They got caught. It appears they'll get punished. The system of checks and balances by and large works. And Cowboy Capitalism that underpins the Land of the Free remains a messy business. And thus it shall always be.

God bless America. God bless Cowboy Capitalism. God bless the U.S. Attorney. Life goes on.

(And: Happy Memorial Day. And blessings to the active duty forces and vets and their families everywhere.)

Tom Peters posted this on 05/26/06.

Comments

Tom: The actions of Lay and Skilling are making the jobs of all leaders harder than ever. How? The Enron trial underscores the number of highly publicized corporate scandals in recent years, and these disgraces have affected employees at all institutions.

Thanks to corrupt officials like Lay, Skilling, Ebbers, Kozlowski, et al., many employees are now looking at their own bosses, even frontline supervisors, with unwarranted suspicion. Employees everywhere are perpetuating stereotypes associating leaders at every level of their organizations with a lack of credibilityâ€”even if those leaders havenâ€™t done anything unethical. As a result, establishing trust with employees is an uphill battle for even the most ethical leaders.

The Lay and Skilling convictions bring the number of guilty verdicts in the Enron debacle to twenty-one, including those people who pleaded guilty. No wonder CNNMoney.com called Enron "the granddaddy of all corporate fraud cases."

I, too, applaud the jury's verdict.

Posted by George Brymer at May 26, 2006 11:49 AM

Thank you for your balanced commentary on the verdicts. It seems all I have read or heard lately is on the order of "hang 'em now!" It makes me want to remind these punishment cheerleaders of the old adage about he who is without sin.

And what about the analysts, brokers, and stock-holders who demanded the stock value go up, up, and up? Are they not also complicit? How about the bankers and lawyers who also got fat during Enron's rise AND fall? Maybe the best we can hope for in their case is for them to remain "un-indicted co-conspirators." Deming claimed we are all prisoners of the corporate system we belong to, and there may be some higher truth to that in this case.

Posted by Mike at May 26, 2006 11:53 AM

What a great post. Thanks for lending a unique insight to the Enron scandal.

I've always been struck by the handle "Smartest Guys in the Room". Skilling and Lay are going to prison for most likely 12 - 18 years, an almost life sentence tto be sure. The proof of their "smarts" lies in a thin sliver of context that mixes deceipt, manupulation, political savvy and ultimately greed.

In that context they indeed were the "smartest" throughout their careers as they ascended corporate riches on the backs of hard workers doing their job and building a company. The "smartest guys" could work the system to immense personal benefit, rip off thousands of decent, honest, working people â€” with nary a tinge of remorse, regret or empathy â€” other than an occasional on-air soundbite to win sympathy.

Smartest guys in the room? God bless 'em.

Posted by Michael Longfellow at May 26, 2006 12:45 PM

"Smartest guy!?" "Swashbuckling, macho place!?" "Cowboy Capitalism!?"

As you say, Tom, we need more women in the boardrooms.

Posted by Ramla A. at May 26, 2006 1:14 PM

Tom - That was a great commentary. I, too, believe that the jury system got it right.

To follow-up on George Brymer's comment - while I hate to think of people having unwarranted suspicion of their leaders, I'm thrilled if one impact of this ordeal is that people question their leaders. The good ones (leaders that is) will welcome it too!

Posted by Ann Michael at May 26, 2006 1:21 PM

Ann Michael, I'd even go further: if you don't question your "betters" (bosses) you more or less deserve your fate. And as a boss, I'd urge removing unquestioning employees--they are obviously without initiative.

COL John Boyd, the Air Force Officer and peerless strategist, comes at something like this brilliantly: "If your boss demands loyalty, give him integrity. But if he demands integrity, give him loyalty."

Posted by tom peters at May 26, 2006 4:15 PM

Ramla, and even more important in CEO roles in elected politics.

Posted by tom peters at May 26, 2006 4:16 PM

Tom, just a second to the thanks for your openness and honesty to even admit knowing of these guys - most other ceos would not have the guts. - Eric in Rutvegas,VT

Posted by eric lapp at May 26, 2006 4:51 PM

Tom:

Thanks for sharing your insight in this manner. My mother was an employee of Arthur Andersen in Chicago for over 13 years. The implosion of AA was the start of a downward spiral in her life (just a few years from retirement). That being said, these guys ruined a lot of people's lives. They need to be an example that there is more to life than artificially inflating a company's stock price. These people cannot create their own rules. Thankfully they didn't get away with it. Seeing Ken Lay talk about his "higher power" almost made me want to puke, as well. where to buy viagra in australia without prescription

pfizer viagra 100mg Posted by Tim at May 26, 2006 11:38 PM

Amen (as it were) to Lay's response. Apparently his preacher, in the courtroom, compared Lay's conviction to the last agonies of Jesus Christ. Has the man--Lay or the preacher--no shame at all?

(Somehow I have problems imagining Mel Gibson playing Ken Lay in the movie?)

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Posted by tom peters at May 27, 2006 7:44 AM

Tom, Lay and Skilling had it coming. But you usually so impatient with process inefficiency and bureacracy seem awfully light on Sarbanes Oxley. Every body has piled on - auditors, software companies, controllers to add burden to our corporations. So 4 years after Sarbox let's ask

Have our watchdogs â€“ external auditors and the SEC â€“ retooled themselves to better deal with Chewcos (one of the more complex Enron transactions)? If SarbOX had been in place 4 years ago would Enron management have not attempted such transactions? Are we as individual and institutional investors any savvier about Chewcos - or similar risks in our portfolios?

The answers are No, No and No. Instead of helping us find the Lays and the Skillings, our watchdogs want our Immelts and McNealys and other CEOs to continue to bear the cross for a few bad apples. It's costing us hundreds of billions a year just to feel good we are cleaning the system of the Lays.

Posted by vinnie mirchandani at May 27, 2006 1:31 PM

When people mess their pen and refuse self-cleansing (businessmen in this case), then eventually public ire coalesces and legislation ensues. Legislation is always a shotgun blast, never a sniper round. Thence some undeserving get wounded and a different kind of mess ensues. This is exactly what happened after the Great Depression. Eventually, as in the case of the Great Depression's aftermath, we will either learn to live with Sarbox or it will slowly erode or be dismantled one clause at a time. Such is the way of Democracies. As to the legislation, speaking as a businessman myself: We asked for it!

(NB: God knows what Nardelli's absurd behavior at yesterday's Home Depot Annual Meeting wil spawn.)

Posted by tom peters at May 27, 2006 4:50 PM

The trend in corporate governance seems clear - the courts end up doing it!

Pleased with results from Martha [she was slammed too much perhaps] to these two who appear to have been especially greedy.

Posted by Sean at May 27, 2006 5:59 PM

Tom-

The most thoughtful piece I have read on this topic to date.... and, in my opinion, perhaps your most thoughtful post.

Thank you.

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Posted by James Hathaway at May 27, 2006 8:54 PM

The post on employee suspicision of CEOs is exactly right in my case. I am one of the 4000 Enron employees laid off at the bankruptcy. I am now employed by another Fortune 100 company. My current employer points with pride to a long, unbroken period of increasing sales and earnings. The thought has crossed my mind that my top management must feel pressure to keep the string going. That is the kind of pressure the Enron managers felt, too, and it led to disastrous results. I hope my current managers will 'fess up quickly if results are bad.

Posted by Richard at May 27, 2006 11:08 PM

I remember working in the startup world in the late 90's and having all of my colleagues urging me to invest (heavily) in Enron. They kept telling me it was the hottest thing, the future of business and the best investment anywhere. I never bought it because none of them could tell me what exactly it was that Enron was doing to change the world, other than seemingly print money.

I'm a big believer in Warren Buffett's view that if you don't understand it, don't invest in it. I guess that is always sage advice. As for the "swashbuckling capitalists" I was working for at the time, they ran the company into the ground (drunken sailors) and cost a lot of investors a lot of money. Too bad none of them were ever held accountable.

Unfortunately, I think a lot of people who held those kind of ideals back then, still don't understand what it means to be accountable or responsible. I fear that we will see these same kind of scandals all over again - just look at the level of government corruption currently in the news (on both sides) - and we will see more scenes of people who lose everything so a few guys - yes guys - at the top can get very rich.

If Lay and Skilling rotting in prison for the rest of their lives acts as an object lesson for others who might potentially follow in their footsteps, then maybe some good will come from all of this.

Posted by Andrew Hayden at May 28, 2006 5:57 PM