Enron is a name that is synonymous with scandal, corruption, greed and arrogance. Its collapse in 2001 left 20,000 employees out of work and $1.2 billion missing from their retirement funds.
In its heyday Enron was the poster-child of Wall Street. A true stock-market darling, reporting revenues of $100 billion and shares trading at an eye-watering 55 times earnings. It was America’s 7th largest corporation and valued in excess of $70 billion.
Analysts everywhere praised the organisation for its game-changing approaches. Fortune magazine named it “Most Innovative Company” six years in a row. Its trading floors were packed full of the smartest and brightest minds. Enron was a force to be reckoned with.
At the helm was its founder Ken Lay and CEO Jeff Skilling; two guys fuelled by an uncompromising desire for wealth. They drove their employees hard; Enron was famous for its tough, aggressive culture. Skilling was once quoted “money is the only thing that motivates people”.
To the outside world, Enron told a different story; a carefully crafted tale of a company that cared.
Just watch this extract from Enron’s corporate video to see Lay and Skilling talk about the importance of “integrity”, “playing by the rules” and “standing by your word”.
Sadly for the thousands of employees and shareholders, these weren’t values that the company rewarded. What they cared about most was making money – at any cost.
Keep making us millions
The seeds of a greed focussed culture were planted very early in Enron’s existence. In 1987, just two years after the company was formed, Louis Borget, the president of Enron Oil was caught with his hand in the cookie jar – lining his pockets to the tune of $3 million worth of corporate funds.
Auditors revealed to the Enron board that Borget had manipulated earnings, destroyed trading records and had indeed diverted company profits to his own accounts. Instead of firing him, Ken Lay did nothing. He wasn’t even disciplined. According to the book “The Smartest Guys in the Room” by Bethany McLean, Peter Elkind and Alex Gibney, Lay sent a Telex to Borget stating “please keep making us millions”.
It appears that at the time Enron Oil was the only part of the company that was actually making any money. Therefore, Lay ignored any values of “integrity” and “playing by the rules” and highlighted to his foot soldiers what really mattered, the pursuit of the dollar.
Lay and Skilling were fanatical about Enron’s share price. It took precedence over anything else. The only real “innovation” and “creativity” that the company encouraged was how to drive the stock higher, no matter how morally wrong the actions undertaken were to achieve it.
In order for a business to survive, it needs to make more money than it spends – not rocket science. Unfortunately Enron didn’t actually make any money. In an illusion that would make David Copperfield green with envy, Enron used a whole host of magical trickery to make its vast debt pile disappear right before its investors eyes.
At its heart was a concept dubbed “Mark-to-Market” accounting. This scheme allowed Enron to book future profits, regardless of how much physical cash actually came through the door. Therefore, profits could actually be … well, whatever Enron wanted them to be!
In 1999 the company attempted to get ahead of the curve by announcing a deal with Blockbuster to stream movies online. It was all part of an ambitious, but crazy plan to create a bandwidth trading market. Unfortunately despite a massive PR campaign, the technology which underpinned its big idea didn’t work. Blockbuster pulled out and Enron made no money. However, thanks to “Mark-to-Market” accounting, Enron still booked $53 million in earnings – despite not making a penny.
Saying one thing. Doing another
On the surface, Enron was a hugely profitable and successful organisation. It had gone from $10 billion to $65 billion of assets in just 16 years. Sadly for its numerous investors and loyal employees, Enron was a fantasy land. The earnings were false and it was $30 billion in debt.
Despite knowing this, Ken Lay actively encouraged employees to not only keep their Enron shares, but to use all available funds they had to buy more. Lay did the mirror opposite. He cashed in $26 million worth of stock inside of just two months. In fact, when the story finally unravelled in 2001, it was revealed that Enron’s top executives cashed in $116 million worth of stock before it fell (that was on top of the $55M they collectively took in bonuses). In contrast, Enron’s employees lost $1.2 billion in retirement funds and Enron retirees waved goodbye to $2 billion in pension payments.
Behaviours dictate values
The design and nurturing of a company’s culture is still viewed by many as the “fluffy stuff”. Just like Enron, what leaders really care about is profit and shareholder value. Airy fairy discussions around what a company values, or what its big purpose is, are just a waste of money and time.
What these leaders fail to understand is that company culture happens whether they like it or not. The day to day behaviours and actions of executives dictate what a company really values. Companies can write anything on the wall, the website, or in the annual report, but if these values are not actively demonstrated by the leaders of the organisation, then it simply doesn’t have them.
For most companies, values are something that they portray to the outside world. A bunch of words that they think customers want to hear, so in turn it will help them sell more widgets. Beware of any company that highlights their values in a sales presentation. If they truly live these values they don’t have to tell you, their actions will simply serve as proof.
In this new always-on world that’s dominated by social media, the correlation between what companies say and what they do has never been more important. Employees want to work for organisations with a strong sense of purpose and a strong sense of ethical values. And customers want to buy from humanised, authentic brands that keep their promises.
Inside out. Not outside in
Building a great brand has nothing to do with straplines, logos, or PR campaigns. Great brands are built from within. They are steered by inspiring leaders who physically embody the values the brand promotes. Herb Kelleher, the visionary behind Southwest Airlines was once quoted “If the employees come first, then they’re happy. A motivated employee treats the customer well. The customer is happy so they keep coming back, which pleases the shareholders. It’s not one of the enduring green mysteries of all time; it is just the way it works.”
Herb built Southwest from nothing, to more than 3,500 flights per day. It’s turned a profit every single year since 1972 – including after 9/11 when most airlines were facing bankruptcy. Herb is the master of understanding how the power of culture can be used to build an enduring company. In Herb’s world, his employees, company values and culture come before anything.
Southwest and Enron are both powerful examples of company culture, but in very contrasting ways. The story of Enron demonstrates no matter what values you put on the website or in the company report, if the leaders don’t personify and embody those values, then they are just meaningless noise. To build a values-driven culture, it has to start at the top. The values have to be things that the leaders themselves demonstrate daily.
Herb Kelleher is a prime example. Southwest is a place that celebrates fun and Herb himself is the master. He drives a red Jaguar with a bumper sticker reading “Fly Southwest, Herb Needs the Money”. When Southwest was named official airline for San Antonio’s Sea World in 1988, Herb had a plane painted to look like Shamu, the park’s killer whale.
Southwest knows its culture isn’t for everyone. The company once asked a group of prospective pilots to change into Southwest Airlines shorts prior to their interviews – even though they had come impeccably dressed in suits. The ones that refused demonstrated that they weren’t right for the “fun” Southwest.
Your culture is your brand
Tony Hsieh the CEO of on-line retailer Zappos once declared “a company’s culture and its brand are two sides of the same coin.” I couldn’t agree more. I believe this has always been the case, but in the days of the broadcast-era companies could easily claim whatever they wanted and customers couldn’t really talk back. In the social world they can. Inauthentic brands are going to find it increasingly tough.
Building a values-rich culture starts with a commitment to using the values to guide all decisions, both big and small. Zappos uses its core values as the beacon for hiring, firing, rewarding and promoting. In essence, its values are its culture. If it hires or promotes someone that doesn’t physically embody the values, then how can it say it has them? I never worked for Enron, but I can imagine that evaluating a candidate against its core values wasn’t part of their interview process. More like, does the applicant demonstrate the ruthlessness and single-mindedness to rake in the big bucks?
Ann Rhoades, the HR guru and author of the brilliant “Built on Values” has a very simple mantra:
- Leaders drive values
- Values drive behaviours
- Behaviours drive culture
- Culture drives performance
I particularly love the last part. Culture does drive performance; you only have to look at Southwest and Zappos for proof. Brands need to understand that people aren’t motivated by profit and shareholder value, they are motivated by doing something truly great. They want to show up and deliver their best work, in an environment that values what they do.
Think about your company values. Could you recite them at gunpoint? Could your staff? If not, the chances are they are just meaningless words – window dressing on your website.
Try taking a copy of your values and putting them alongside some of your competitors values. Ask your employees to pick which set of values belong to the company. If your employees can’t pick the right ones its a prime indicator that your brand’s values are just hearsay.
Culture is not fluffy stuff. It’s one of the biggest weapons in your competitive arsenal. Culture is the reason that people will work for you, buy from you and believe in you. And in our always-on, connected world, saying one thing and claiming another is a recipe for disaster.