Systematize Success #24 - 7 Career Lessons from the Enron scandal you can't afford to ignore
7 Career Lessons from the Enron scandal you can't afford to ignore
Hello Friends,
And happy Monday!
You don’t want to work for the next Enron or Theranos.
How to be sure not to?
Here are 7 lessons learnt from the Eron scandal that might help:
Do you truly understand the organisation's goals and incentives structure?
"Show me the incentive and I will show you the outcome" - Charlie Munger
"What one former international executive called the "fatal flaw" in the business was the compensation structure. Developers got bonuses on a project-by-project basis. The developers would calculate the present value of all the expected future cash flow from a project. This was also the model the banks used to lend money. When the project reached financial close—that is, when the banks lent money but before a single pipe was laid or foundation was poured—they were paid."
Kerr (1995, On the folly of rewarding A, while hoping for B) illustrates this brilliantly:
He also shows how awfully dysfunctional it made the Vietnam War:
Do you understand what - and thus who - matters in the organisation?
"The part about RAC, \[the risk management department\], being a serious force within the company, able to stop bad deals dead in their tracks: that part wasn’t even close to the truth. And everyone in the company knew it."
"RAC was a hurdle, a speed bump, but not an obstacle," says a former Enron managing director. "If a deal had overwhelming commercial support, it got done. I treated them like dogs, and they couldn’t do anything about me. The process was there, sure, but the support wasn’t. If RAC had complained about me and I got paid $100,000 less bonus, I would have changed. Never happened. I told my guys to fuck ’em."
A former RAC vice president agrees: "We didn’t approve shit," he says.
I'll share this fantastic essay again: Using Head Fake Questions To Achieve Your Career Goals 8min
Does the organisation value execution above idealised goals and vanity metrics?
Agency is the key personal value Elon Musk hires for.
Does the company encourages, helps, and rewards employees who roll up their sleeves and actually move the needle?
Regarding vanity metrics, I recommend reading Lean Analytics, by Alistair Croll & Benjamin Yoskovitz
Do you believe in the organisation's culture?
The Smartest Guys in the Room (Book Review) by Taylor Pearson 13min
There’s a dichotomy that the most successful companies and the most fraudulent all look like cults. Accounts of Amazon’s early days don’t sound too different from Enron’s in terms of the missionary zeal that permeated the company (however, the respect or and focus on operations at Amazon was the complete opposite of Enron’s disregard).
The difference between a company culture that is judged by outsiders as successful and a company culture that is judged as a failure is often just market cap rather than some other qualitative features.
A lot of ink has been spilled about how to build a company culture, but I think a pretty simple version is just to think of it in Pavlovian terms: you get more of what gets rewarded and less of what gets punished.
If sucking up to the boss and playing politics gets you promoted, then eventually everyone that stays at the company will be the type of person that sucks up to the boss and plays politics. If keeping your head down and getting stuff done is rewarded, then you’ll end up with those people. Enron was very much the former, a sycophantic culture rather than a meritocratic one.
Does the organisation value its employees' know-how as well as their intelligence and drive?
Skilling (Enron's CEO) was a consultant.
He believed smart people were fungible: they could be hired and moved around in the business at will.
Don't get me wrong: I would hire a smart and driven person over a not-so-smart not-so-driven knowledgeable person every time.
But organisations often forget that experience, especially company-specific, is invaluable.
Knowing who to talk to to get actionable answers and things moving is what often makes the difference between a frustrated smart employee, and efficiently delivering one.
Organisations who discount the value of tenure in employees lose big.
Have you done thorough due diligence, not just seeing what you wanted to see?
"There have been scandals in corporate history where people are really making stuff up, but this wasn’t a criminal enterprise of that kind,” Yale law professor Jonathan Macey says.
“Enron was vanishingly close, in my view, to having complied with the accounting rules.
They were going over the edge, just a little bit.
And this kind of financial fraud—where people are simply stretching the truth—falls into the area that analysts and short-sellers are supposed to ferret out.
The truth wasn’t hidden.
But you’d have to look at their financial statements, and you would have to say to yourself, What’s that about?
It’s almost as if they were saying, ‘We’re doing some really sleazy stuff in footnote 42, and if you want to know more about it ask us.’
And that’s the thing.
Nobody did.”
- Malcolm Gladwell
When there is a doubt, there is no doubt
This holds true in terms of hiring, investing, relationships, etc.
When you are lucky enough to stumble upon a yellow flag, cherish it and take it into account.
Red flags are easy. Yellow flags are hard - we want to give people the benefit of the doubt. Don't. Simply don't.
I like this example, which leans towards the orange a lot:
Thanks for reading, and have a safe week ahead,
V