It is interesting to speculate on the Enron
situation, and in this, the first in a series of
periodic newsletters, we’ll do just that. But
before we do, some cautionary thoughts
regarding recently reported conclusions
about the Enron failure. First, the conclu-
sions:

speculation or “covering” that one is en-
gaged in, and how well-matched is the
hedge to the risk and time profile of the un-
derlying revenue stream?

But there is clearly something amiss. In a
report cited in the February 18, 2002 issue
of Fortune, “some two-thirds (of large com-
pany CFOs) said they had been pressured
by their bosses to misrepresent financial
statements. Only 55% said they had suc-
cessfully resisted.”  

“. . . a shocking absence of the usual
corporate checks and balances . . .”

“This was a company which simply
placed a lot of bad bets on businesses

At Enron, did a sound strategy collide
with questionable leadership and a ques-
tionable organizational culture?

that weren’t so promising to begin
with.” –
2002

The strategy: Build an energy-trading com-
pany with minimum energy “hard-asset”
exposure and maximum reliance on match-
ing supply and demand risks to maximize
return.  

“Enron was engaged in a series of high
risk transactions . . . (including) hedg-

ing . . .” – from an Audit Committee-
sanctioned report of another Board of
Directors.

The leadership: Was it overly driven by
quarterly earnings to engage in increasingly
questionable transactions with special pur-
pose entities and its own employees, all in
the pursuit of driving higher short-term
earnings  growth? This leadership group
apparently forgot a key principle – you
must identify and be responsive to all stake-
holders, including employees and regula-
tors – not just yourselves.

Before we fully embrace these conclusions,
we might want to consider the  following:

Appearances, as they say, can be deceiving –
as one who has gone through an Enron-type
debacle at the board level, and who found
that he and his fellow outside board members
were skillfully lied to by insiders, I strongly
urge all of us to reserve judgment in the
Enron case until we have more of the facts.

The organizational culture: By all appear-
ances, an initial culture with strong values
was subverted rapidly over the last couple
of years by a senior management and com-
pensation system powerfully directed to-
ward near-term earnings growth and intol-
erant of dissonant views.

We are undoubtedly going to learn (or re-
learn, as the case may be) some good lessons
from Enron, but we don’t want to over-learn.
For example, to generalize that hedging as an
activity is wildly speculative is highly ques-
tionable. Indeed, an oil or gas producer who
doesn’t take advantage of hedges today is
probably engaging in more speculative activ-
ity than one who does. The question is, is it

What are some lessons we might take away
from Enron that are likely to survive any rea-
sonable disclosures about additional relevant
facts?*

How does one deal with these issues?
Start by asking:

Is the strategy sound, as it applies
to all stakeholders (shareholders,

Strategy is what drives the organiza-
tional effectiveness of any organiza-

employees, officers, customers,
vendors, etc.)?

tion – even good leaders and a sound
culture probably won’t lead to success
without a sound strategy.

Do the CEO and management team
possess appropriate values, and

align themselves with the strategy
and with these values?

Conversely, a sound strategy can be
corrupted by poor/questionable leader-

Are the levers of management
(recruiting, training, compensation,

It is amazing how quickly a few ques-
tionable leaders can corrupt an other-

etc.) aligned to achieve the strategy,
meet the values, and reinforce the
appropriate culture?

wise sound culture – and compensation
can be the key tool causing that decay,
as Enron suggests.

*I’m indebted to Dr. William Schneider and
his book, The Reengineering Alternative, for
the organizational culture concepts dis-
cussed here.

Competence cultures, like Enron’s, are
not in and of themselves “bad,” (just as

control cultures are not bad). It is when
they get “out of balance,” as appears to
have been the case at Enron, that the
trouble begins.

WHAT IS AN INFLECTION POINT AND
WHY DOES COACHING AT THAT
MOMENT MAKE SENSE?

Marie, a senior manager in a technology
firm, receives total compensation in excess
of $1 million per year for her contribution to
the firm, by far the highest in her organiza-
tion, except for the two managing partners.
However, her abusive behavior was having a
materially negative impact on the firm’s ef-
fectiveness. When the managing partners
explained that her way to ownership was
blocked unless she was able to change her
behavior, Marie truly came to a Coaching at
the Inflection PointTM moment in her career.

We often use our trademarked phrase, Coach-
ing at the Inflection Point,TM
about when coaching can be most effective.
What exactly is an Inflection Point?
an excellent example. A cardiologist I know
always has a session with his patients after he
has installed a pacemaker. As you might imag-
ine, after what has often been a near-death ex-
perience, patients are generally very attentive
to suggestions about improving their lifestyle
so they might live longer – and they also seem
more committed to the change!

With coaching, she was able to receive hon-
est feedback from her superiors, peers, and
subordinates about those behaviors that truly
bothered them, and is now well on her way
to changing those behaviors and to a poten-
tial partnership in the firm.

The combination of the proximity to death,
plus the reprieve given by the pacemaker, cre-
ates the classic Teachable Moment.TM It is that
moment, or what we at Cook & Company call
the Inflection Point, that offers perhaps the
most profound opportunity to create behav-
ioral change.

We’ll explore more about what causes such
moments and how to take advantage of them
in future issues.