Enron: Ethics Gone AWOL

by Murray Hogarth

The words have been bashing around in my mind like angry atoms. Enron. Ethics.

Enron’s a target for just about every commentator in the known universe. But gee, Kenneth “Kenny Boy” Lay and some of his executive team have really earned the attention. Not long ago Lay was bragging in his company’s 2000 Corporate Responsibility report about Enron upgrading its “vision” from being the World’s Leading Energy Company to being the World’s Leading Company.

It’s worth visiting the company’s corporate responsibility section on their website (under press room!) for a quick refresher on Enron’s hubris and the emptiness of its rhetoric. All the words you’d expect from a good company are scrolled across the report’s cover. Corporate values. Social responsibility. Diversity. Community relations. Transparency. Ethics. Environment. Health. Safety. Sustainability. Human rights.

Lay, looking avuncular in his portrait shot in the annual report, waxed almost lyrical about the anticipated Enron ascension to top global company status, saying: “Realizing this vision requires that we produce strong returns for our shareholders by leveraging our intellectual capital, creating open and new markets, and maximizing logistical efficiencies in both the energy and non-energy sectors.” (Hindsight suggests a riposte like: Why stop there, Kenny Boy? Let’s go for total world domination.)

In those much, much better times for Enron, Lay continued: “However, it also requires a commitment to corporate responsibility, ensuring that our behavior and impacts produce positive returns for all of our stakeholders, including customers, employees and communities where we operate.” Knowing what we know now, with Lay and some of his minions taking the Fifth Amendment at February’s congressional investigations, the fine words were just so much Texas bull dust.

That’s a damn shame, because sustainable success at Enron would have sent a powerful message to the financial markets in America and throughout the world. Enron’s business model seemed bold and different, with Fortune magazine naming it America’s most innovative company six years in a row. Intriguingly, business success for Enron also would have meant big air quality and greenhouse gas pollution gains, thus benefiting broader society as well as shareholders.

Nearly a year ago at the 2001 CERES conference in Atlanta I heard an Enron representative extolling the sustainability virtues of its business model, with existing contracts held by its energy management services forecast to wipe out 6 million metric tons of greenhouse gas emissions over the next decade or so, mainly through increased efficiency. (The Corporate Responsibility report boosted the figure to 9 million metric tons and included big cuts in nitrogen oxide and sulphur dioxide as well.)

I have no reason to believe that this man from Enron was other than genuinely committed to a cleaner, leaner, greener energy future. But when I look back at my notes from that session, the irony is overwhelming. Among the keys to success he cited were Enron’s superior risk management capabilities and its management commitment, vision and leadership. And he stressed “agility”, being the ability to stay ahead of the competition and to adapt quickly to changing circumstances, saying: “We are fast on our feet.”

Ultimately Enron was too fast and lose for everyone, Wall Street included. For sustainability advocates, meanwhile, there are two big lessons from Enron’s demise. One is a powerful reaffirmation that like pregnancy, you can’t really be a little bit sustainable, or a little bit corporately responsible. The other is that if a company fails to create real and lasting value for shareholders, then even great contributions to sustainability will count for little in terms of business survival.

Even if its climate contribution was as good as it sounded, a moral vacuum opened up in the heart of Enron. The disastrous outcome is bad for shareholders, because they suffered a dramatic implosion of value, and its bad for many other stakeholders too. Presumably many of Enron’s predicted greenhouse and other pollution savings have disappeared along with the dollars. That’s assuming they weren’t fictitious all along, like the reported profits.

Ethics and transparency clearly are important to both shareholder value and societal value. But Wall Street, it seems, can go to sleep as long as companies keep pumping out good 90-day profit reports. The truth is, the financial sector’s “masters of the universe” should be watching their stocks like hawks to ensure that high standards of corporate governance apply at board and executive levels, and that companies pay more than just lip service to wider issues of corporate responsibility.

Sustainability advocates should be aggressive watchdogs as well. The interests of shareholders and society are intertwined. Value creation isn’t assured if companies don’t have values too, and progress towards sustainability can evaporate if value is destroyed. There are few if any winners when a company like Enron goes belly up.

++++