Learning the Wrong Lessons From Enron Et Al

By Michael Maccoby

Research Technology Management, Vol. 46, No.6. November-December, 2002; pp 57-58.

What have you learned from the collapse of Enron, Worldcom and the many smaller companies that once seemed such highfliers? What are the lessons from the busted strategies of AT&T, AOL, Time Warner and Vivendi, companies that once excited the business press and stock market? Reading articles that try to explain what went wrong, I'm concerned that technology managers will learn the wrong lessons.

Writing in The New Yorker (July 22, 2002), Malcolm Gladwell attacks what he calls "The Talent Myth" as the main cause of Enron's troubles. According to Gladwell, Enron bought the view sold by McKinsey and Company, the management consultant firm, that success would be gained by finding and hiring the best business talent and supporting their ideas for improving the company. Some of these ventures were costly failures while others proved profitable. With approval from the McKinsey consultants, Enron leaders held an "open market" for talent to move within the company. "When an Enron executive started the company's global broadband unit, he launched what he called Project Quick Hire. A hundred top performers from around the company were invited to the Houston Hyatt." Recruiting booths were set up outside the meeting room, and fifty top performers were hired from other parts of the company. Gladwell tells us this left fifty holes in the company which presumably hurt the units that lost the talent.

But did it? We are given no evidence that this was a major problem. What we do know about Enron and other failing companies is that top management hid bad numbers, some cooked the books. These companies made many acquisitions, paid too much for them and were burdened by heavy debt.

Gladwell contrasts the Enron chaotic star system with companies that control what their people do. "The talent myth, "he writes" assumes that people make organizations smart. More often than not, it's the other way around." There is some truth in this statement, but for the research technology manager, it can be seriously misleading. Gladwell's exemplary organizations include Southwest Airlines and Wal-Mart. To be sure, both companies benefit from great organization and supportive systems. Both hire not on the basis of sheer brilliance but of fit with company culture. But neither are in the business of innovation. In both companies, the key to success is doing the same thing over and over again, more effectively and more efficiently.

Gladwell also claims that Enron was a "Narcissistic Corporation" defined as taking more credit for success than it deserved, not acknowledging responsibility for failure and lacking disciplined management. Now, a company can't be narcissistic but a leader can model this behavior (see my article "Narcissistic Leaders, the Incredible Pros, the Inevitable Cons," Harvard Business Review, Jan-Feb 2000.) However, all narcissistic leaders do not fail. Gladwell's description fits Michael Armstrong of AT&T, Joseph P. Nacchio, formerly of Qwest, Jean-Marie Messier formerly of Vivendi. But it does not work for productive narcissists like Jack Welch, Bill Gates and, yes, Herb Kelleher the flamboyant self-promoter who built Southwest Airlines. These leaders have developed disciplined management by partnering with operational managers who implement their strategy.

Vision and Boldness

Narcissists can be honest or crooked, brilliant or ordinary, wise or foolish. What they share is vision and boldness. They tend to be sure of themselves and persuade others by their unshakable conviction about the value of their visions. What differentiates the most successful from the failures is what I've called strategic intelligence (see, "Successful Leaders Employ Strategic Intelligence," RTM, May-June, 2001), including foresight, systems thinking, visioning a business-social system and partnering effectively both internally and outside the company.

Another article, "Expanding Without Managing" (New York Times, June 12, 2002) by Jeffrey Sonnenfeld, of the Yale School of Management correctly calls some of these failed CEOs "serial acquirers," tacking so many different companies on to their core business in order to bolster overall financial holdings, rather than managing and creating companies that reinforce and complement each other. However, Sonnenfeld goes on to recommend that in making acquisitions, companies stick to their "core competencies." But what is the core competence of GE or IBM? If anything, and I don't find the concept very useful, it is integrating and managing different competencies. Both companies use services and solutions as a way of selling products. Managers in both companies work at breaking down the barriers between departments and business units.

Some of the failed CEOs acquired companies in order to achieve an illusory synergy that never materialized: Enron's energy and telecommunications, AT&T's cable-voice-Internet-data, Vivendi's various media companies. In contrast, narcissistic visionaries with strategic intelligence, like Gates and Welch have effectively integrated acquired companies and built a common culture. As much as Enron, they have recruited talent and supported entrepreneurial activity. They depend on innovation and recognize that the best way to kill it is overcontrol.

Recognize the Human Side

Welch remains the model of a leader who understood that a strategy wasn't worth much unless the organization could implement it. He and his top lieutenants spent considerable time evaluating the company's talent, but he also made sure that all managers understood GE's goals and values. A remarkable number of his EVPs have gone on to become CEOs at other companies. Larry Bossidy at Honeywell, Jim McNerney at 3M, John Blystone at SPX, Bob Nardelli at Home Depot, Dave Cole at TRW and Allied, and Larry Johnston at Albertson. I am reminded of the philosophy expressed by Joe Gibbs, one of the most successful coaches in pro-football. When Gibbs selected players from the draft for the Washington Redskins, he looked for two qualities: talent and character. He didn't care where the person had played and whether his team had won or lost. A talented player might have been on a team with less talented players or a poor coach. He believed, and his record supports his belief, that he could teach talented players who were also conscientious, hardworking and honest. He couldn't make a slow player run 50 yards in 4.4 seconds or make a careless or dishonest player into someone responsible and honest. But he could mould the right kind of talent into a great team.

It is a mistake to take observations from one or even a number of companies and try to apply them across the board. Companies should be seen holistically as socio-economic systems that need to adapt to particular markets. They can be typed in different ways. One of these is how much they depend on talented people to innovate and lead change. It is true that much of the damage done to companies has resulted from the arrogant, unethical behavior of corporate leaders. But it is also true that many leaders, even honest ones, don't pay enough attention to the human side. Building a great organization, that is able to innovate, is not a question of talent vs. control systems. It requires leaders who know how to manage talented and ethical people, not just their actions but also their interactions.

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