Corporate scandal

9 11 2009

Much has already been said and written about Enron. And probably everyone in the world knows about the great scandal since ages. But much to my chagrin, I haven’t heard about it until recently. As per my understanding, a huge accounting fraud took place where executives hid billions of debt and eventually brought the energy company to bankruptcy. Reference to this shaking event keeps coming up in various books/articles I read, whether the subject is business or economics or corporate culture or markets or technology or even evolutionary psychology. A few of such interesting unusual contexts are:

  1. Michael Shermer, in his latest book Mind of the Market on Evolutionary Economics, says that the corporate culture Jeffrey Skilling brought with him is the main reason. He believed that the cutthroat competition leads to efficiency and success and implemented a policy called Peer Review Committee system, which resulted in steady cut down of jobs and personal humiliation for the relatively low performers. In the course of time, this led to mistrust, low employee morale – selfishness and greed. The author was trying to demonstrate the power of situation to draw out the better or worse angles of our nature. The other extreme is of course Google.
  2. Laurence Gonzales too mentions Enron fleetingly in his social psychology book, Everyday Survival where he observed that when the top executives were arrested once the company fell in disgrace, police handcuffed them with their hands behind them, even though they are not violent criminals. The author was explaining the significance of hands in our evolution and how we see bound hands as ultimate loss of status as humans.
  3. Malcolm Galdwell, the bestselling author of Tipping Point, Blink and Outliers, has spoken out his mind in his latest interview with Lou Agosta of BeyeNETWORK after his talk at the Discovery 2009 conference and Innovators’ Summit in Chicago. While I know nothing more about the actual presentation of Gladwell except that he opined that the Enron scandal was the “canary in the coal mine” – an early warning – for the September 2008 financial meltdown. In the interview, he explains that in the modern day, there is just too much information. While Jeff Skilling was sent to prison for 24 years for withholding information, Gladwell points out that the information has always been there – accessible to public but the thing is – the huge amount of data hid the lack of integrity and made company operations a mystery. In other words, it was utterly incomprehensible for non-experts and made it difficult for them to draw correct conclusions in a timely manner. Gladwell also mentioned that according to some of the best financial minds, Enron’s disclosures were perilously close to being legal. The main point is of course that the information overload increases receivers’ responsibility.(For anyone interested to read the full interview, click here. But you might need to register on the website in order to view the full article.)

Certainly an event can be viewed and analyzed from various perspectives. And Enron scandal is a kind of historical event which people would never forget.

On a different note:

Indians, especially Andhrites, can immediately relate Enron scandal to the recent Satyam fraud. Exactly same thing happened- manipulation of accounts. In this case, funds were transferred to subsidiaries owned by the family. This scandal too has shaken the Indian corporate world and cast shadows of doubt by the first world nations on the integrity of the Indian outsourcing industry. Much is being said and analyzed about Satyam too. Here is an interesting viewpoint of Gurucharan Das: On the difficulty of being good.

It only seems natural that Satyam is being referred to as Indian Enron!



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