Enron Revisited: Commonsense from the Trade School of Capitalism

Mal Salter, of the Harvard Business School, has written a new book: Innovation Corrupted: The Origins and Legacy of Enron’s Collapse (Harvard University Press),

Before you say “oh no, not another Enron book,” let me suggest this is Harvard Business School at its best.

In HBS’s always-provocative Working Knowledge series, Salter is interviewed by Martha Lagace in Innovation Corrupted: How Managers Can Avoid Another Enron It’s clear we have here not just a take on Enron, but a take on business takes.

Salter writes about Enron not as morality play, conspiracy, tragedy, or bubble (though if you like Trust Matters you’ll love Malcolm Gladwell’s indictment of “the war on talent” using Enron as the smoking gun in The Talent Myth: Are Smart People Overrated). Instead, Salter writes thoughtfully about an important phenomenon in our society—with the aim of gleaning practical lessons for improving our social future.

Salter doesn’t force upon us databases, 2×2 matrices, or even structural functionalism. There are “villains,” but they are not the stuff of fantasy—they are all too real and like us. Grotesque, maybe, but born of our own lauded institutions—including Harvard Business School. A cause for concern.

I always liked to think of Harvard Business School as Harvard’s only trade school. The other obvious candidates—law and medicine—are in thrall to the academic model, graduating professionals, not tradespeople. (Not that there’s anything wrong with that. The “profession” label probably fits law and medicine better anyway).

But academia breeds methodologies and specialists. Peer reviews. Tenure. Snobbery is a distinct possibility.

Yet honor doesn’t require “professionalism” or academics. There is great honor in the trades. A tradesperson takes great pride in his or her craft—and doesn’t confuse it with art or science.

I learned only one methodology at Harvard Business School—3 times a day, 5 days a week. It was simply to remember to ask, “What should Joe do? What would you do?” I think of that as a tradesman’s methodology—Git ‘r done, done right, and done well. For career value, it’s as good as they come.

A trade is best taught not by the smart, but by the wise. Inductive reasoning is favored over deductive. Reductive models are suspect—yet reductive commonsense is prized.
Fine tradespeople don’t take themselves too seriously, though they are serious. Character is a big deal. So are some sense of worth, mission, and purpose.

Mal Salter writes that way about Enron.

He is clear and positive about the brilliant innovations Enron—particularly Skilling—introduced. He is equally clear, and just as conclusive, about Mr. Skilling’s abysmal character defects (also an HBS graduate; not, however, one who learned much from Salter).

Here is Salter’s statement of the essential problems of Enron:

* Enron’s stated purpose was too general to permit disciplined and responsible decision-making in the face of difficulty.
* The lessons of Enron relate to strengthening board oversight, avoiding perverse financial incentives for executives, and instilling ethical discipline throughout business organizations.
* Directors of public companies can adapt key aspects of the private-equity governance model to ensure that they fulfill their oversight responsibilities.
* Incentive systems should reward accomplishments other than economic performance, and penalize failures.
* Companies can take steps to help senior executives avoid the two sources of leadership failure at Enron: personal opportunism and flights to utopianism.

Those are dense, content-rich, jargon-free, meaningful statements. They demand to be read carefully, else they yield up nothing. That is not the often dumbed-down “business English” of today. But neither is it fluff or jargonish. It’s dense because it packs a punch.
His aim is very much about practical conclusions—as he puts it:

I outline organizational processes that are required to reinforce the kind of discipline that was noticeably lacking at Enron.

These processes include:

1. Liberating evaluation processes by adding qualitative judgment to whatever standard quantitative measures of performance that business plans may require
2. Designing and implementing incentive systems that reward accomplishments other than economic performance, and penalize failures
3. Conducting routine, systematic audits of critical decisions by key executives where the rules of the road are clearly ambiguous
4. Helping senior executives avoid the two sources of leadership failure at Enron: personal opportunism and flights to utopianism

Too much of today’s business academia looks at statements like these and says, in deed if not in word:

• Qualitative judgment? No no, Mr. Salter, “if you can’t measure it, you can’t manage it.”
• Rewarding non-economic performance? And penalizing its absence? Hey I thought you were teaching capitalism!
• Routine review of decisions made in ambiguity? Don’t study the decisions, Mr. Salter, bulldoze the ambiguity for Pete’s sake!
• Personal opportunism and utopianism as leadership threats? What is this, Mr. Salter, a liberal arts curriculum?

Salter’s take on Enron is radical in its distance from today’s thinking. And it’s conservative in the sense of preserving the best of the past.

Writing like this is old school in the best sense of the word. Above all, he celebrates commonsense—which despite the term, isn’t common at all. In this respect Salter is like, for example, Tom Peters, David Maister, Jim Heskett and Peter Drucker.

Not bad company, in my view.

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