Fall of the arrogant
Enron's demise has discredited a vicious market ideology and given a boost to the anti-corporate cause
Madeleine Bunting Monday January 28, 2002 The Guardian
It's hard to overstate the enormity of the impact of Enron's implosion. The biggest corporate collapse in US history is now dragging politicians, banks, accounting firms, other corporations, pension funds, investment analysts, the reputations of so-called business experts and millions of investors into an astonishing vortex where they risk losing billions of dollars and some of the most trusted reputations in corporate America.
It claimed its first death last week - a multimillionaire former Enron executive was found dead in his Mercedes beside an "explosive" suicide note. John Baxter was facing a class action from former Enron employees whose share certificates, once worth millions, are now being traded on the internet as souvenirs of the catastrophe. Baxter stood to lose his Mercedes, his Enron mansion, and everything.
With at least 10 investigations beginning work on Enron, we have glimpsed only a fraction of what will be the repercussions of this corporate disaster. The main focus of interest so far has been the stench of political corruption: can anything be pinned on the Republican administration? For the first time in history, Congress is suing the White House to find out the exact details of the cosy relationship between "Kenny boy" (Kenneth Lay, CEO of Enron) and Vice-President Dick Cheney, which had been bankrolled by $326m to the Republican party over three years.
Enron provides a textbook case of how corporate power subverts the political process in whatever country it operates (the US, the UK or India) through donations to political parties combined with intensive lobbying. It's mucky stuff, and heads will roll, but it's also a very familiar theme. What makes Enron such an extraordinary story is that it spells the end not just to some nasty pork-barrel politics but to an ideologically driven, vicious corporate model which was rippling from its Houston base across the globe.
This vision of a Darwinian dog-eat-dog market, which could be applied to everything from gas supplies and fibre-optic capacity to hedging against the weather, drove Enron's political campaign for privatisation and deregulation. Its pitch rested on a near-fundamentalist faith in the self-regulating efficiency of the market; true believers claimed there were simply no limits to its application. To Enron's legion of admirers on Wall Street, in Harvard Business School and elsewhere, it epitomised the free-market philosophy which emerged in the US and shaped the Thatcher-Reagan era before being exported to the developing world under the aegis of World Bank and IMF's deregulation and privatisation programmes ever since.
The anti-corporate movement's struggle to assert that the world is not for sale - and certainly not to the casino gambler types of Enron - has had a massive shot in the arm from Enron's demise. Plenty will drive that point home at the World Economic Forum in New York this week and at its alternative counterpart in Porto Alegre, Brazil. Just how much of that free-market fundamentalism, if any, will survive Enron will be a key theme. The tide began to turn against deregulated free markets after the Californian black-outs, in which Enron played a notorious role. Now it's in full flood. Re-regulation is back on the agenda and in the US its remit will run from accounting procedures, power supplies and all other public utilities to pension provision.
Let's be optimistic and predict that Enron will come to be seen as the high-water mark of the state's retreat before deregulated corporate power. There are plenty of Ohio teachers who've lost their pensions to drum home the point, not to mention Enron pensioners now dependent on social security. But these hard-luck stories are just one part of a spectacle of unprecedented corporate humiliation: egg on famous faces all round the US. The list is long of management experts, business school professors, journalists and Wall Street analysts who fell over themselves to lavish praise on the radicalism and innovatory brilliance of Enron. These are allegedly some of the cleverest people in the US and almost all were duped by the emperor's new clothes.
Only a year ago, Fortune, which ranked Enron as the most innovatory company in the US for six consecutive years, described Enron as "It stock" even while admitting that it was "largely impenetrable" to outsiders and it was impossible to answer even a basic question such as how it made its money. Fortune brushed aside its reservations, blithely concluding that "in the end it boils down to a question of faith".
Most intriguingly, Enron fooled the vast majority of its employees. Alleged whistle blowers came very late in the day. It boasted of hiring the brightest MBAs in America - 250 a year. It generated a corporate culture which was intensely competitive (10% were weeded out every year in a "rank and yank" performance review process) and fanatically loyal to Jeffrey Skilling, then CEO. A turbo-charged workaholism left no room for dissent or even doubt. One former executive likened Enron to the Taliban. Another admitted that every time Skilling spoke, "I'd believe everything he'd say." The result was "cult-like", admitted the Economist before the crash. Skilling favourites got to go glacier hiking in Patagonia or off-road motorcycling in Mexico with him.
Enron prided itself on the daredevil entrepreneurial freedom it cultivated among its youthful employees who could rise at dizzying speed. Andrew Fastow, architect of the off-balance-sheet debts, was 36 when he was made chief financial officer.
Enron became the example par excellence of how, in the late 90s, US corporate culture hijacked and inverted 60s' radicalism. Business guru Gary Hamel praised Enron's "activists" who saw themselves as "revolutionaries". They lived the rule of "creative destruction" in which all conventional assumptions were to be challenged. In their adverts, they had the cheek to liken themselves to Gandhi and Martin Luther King. It bred a culture of breathtaking arrogance that Enron could do the impossible.
The most astonishing piece of the puzzle is why the Enron "activists" were believed by everyone even when their balance sheet was no longer under stood. In part, it was presumably greed as the share price soared 1,700% in 16 years. In part, it is down to the bizarre millennial fever of the late 90s, and which bamboozled many into believing that the internet had revolutionised all business and that nothing was going to be the same again. As such, Enron was the biggest of the dot bomb explosions.
With any luck, Enron has finished off a pernicious ideology that markets with minimal regulation are an effective way to organise and deliver the public interest and that they develop organically the self-correcting mechanisms to ensure its smooth functioning. Instead, we have witnessed how market capitalism can throw up an astonishing charade of greed, ambition, stupidity of even the cleverest, and irrationality.