The Unlearned Lesson of ENRON (Creator, Article)

[Darkdale]

the unlearned lesson of ENRON

Enron rose to prominence first as a successful provider of natural gas, and then as a creator of markets for trading natural gas as a commodity. The company made profits by performing a genuinely productive function: linking buyers and sellers, allowing both sides to control for risk.

Unfortunately, the company's leaders were not honest with themselves about the nature of their success. They wanted to be "New Economy" geniuses who could successfully enter any market they wished. As a result, they entered into ventures far beyond their expertise, based on half-baked ideas thought to be profound market insights. For example, Enron poured billions into a broadband network featuring movies-on-demand--without bothering to check whether movie studios would provide major releases (they wouldn't). They spent $3 billion on a natural-gas power plant in India--a country with no natural gas reserves--on ludicrous assurances by a transient Indian government that they would be paid indefinitely for vastly overpriced electricity.

Observe that Enron's problem was not that it was "too concerned" about profit, but that it believed money does not have to be made: it can be had simply by following one's whims. The solution to prevent future Enrons, then, is not to teach (or force) CEOs to curb their profit-seeking; the desire to produce and trade valuable products is the essence of business--and of successful life.

Instead, we must teach businessmen the profound virtues money-making requires. Above all, we must teach them that one cannot profit by evading facts. The great profit-makers, such as Bill Gates and Jack Welch, accept the facts of reality--including the market, their finances, their abilities and limitations--as an absolute. "Face reality," advises Jack Welch, "as it is, not as it was or as you wish. . . You have to see the world in the purest, clearest way possible, or you can't make decisions on a rational basis."

This is what Enron's executives did not grasp--and the real lesson we should all learn from their fate.

[michel]

Pressures in the board room are so high now, to achieve..............


Yet, I remember when in the bank that two of the managers of a Branch we had in Geneva managed to lose M£2 (and that was back in the 60's). They had simply started using the bank's money to buy currency futures; for a while all went well, but then their luck broke.

From that moment on, it was double the bid each time, to recoup........but they of course didn't.

Working in the Bank taught me one thing; the guy with the mansion, the plush cars, servants.the works, more often than not, were on a knife edge; it was the quiet little watchmaker who was the saver.