Four Lessons from Enron

[1] The Enron scandal is a painful example of what can go wrong in American business. Fundamentally, the American style of capitalism depends on trust. It needs to be able to depend on promises made, on reports being truthful, on facts being facts. To be sure, occasional relatively small mistakes, short delays, or little lies occur and can be worked around, but a big breach of trust can wreak havoc.

[2] Sensible principles have evolved to protect against such havoc, but Enron did not abide by these sensible principles. Here are four examples of such principles and how Enron betrayed them.

[3] 1. Good corporations establish a structure of reasonable rules to guide their executive decision-making and their employee behavior.

[4] But the executives who created the Enron scandal shredded its trust and the ethical structure that had supported it.

[5] 2. A good corporation reports accurately and adequately to its shareholders, its regulators, its suppliers, and its communities.

[6] But Enron reports to the outside world were far from adequate. The most egregious omission was their neglecting to report the huge debts building up in the many “partnerships” that were being created.

[7] 3. A good corporation keeps its employees informed of developments that would affects its customers, the marketability of its products and services, and the employees’ own financial position.

[8] But Enron repeatedly hid information about risky ventures, developments adverse to its stock price, or other events that worked to affect the employees’ pensions.

[9] 4. A good corporation develops and implements a practical code of ethics, including fair play in dealing with customers, fair treatment and training of employees, and respect for human rights and dignity.

[10] But whatever Enron’s statements show, when Enron’s bubble burst, most of its key executives seem to have taken care of themselves and not their partners, their customers, or their employees.

[11] At root, there is an ethical backbone in American capitalism. Enron broke its own ethical back.

[12] Let’s hope that many other corporations learn from Enron’s bad example.