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We Must Avoid Another Enron

Updated: Jan 29, 2021

What did we learn from the Enron collapse in the early 2000s?

In the classroom, positive examples of superstar CEOs, such as Elon Musk, Giorgio Armani, Jeff Bezos, Richard Branson, or Jack Ma, are typically those we use for inspiring our students in business schools. Yet, the allure of the big personality leader comes with certain perils, as The Smartest Guys in the Room at Enron can also attest to.

When discussing the Enron bankruptcy with students, I am still always tremendously moved. At the beginning of this new century, when this scandal came to light, I was an undergraduate student at the Tor Vergata University of Rome. At that time, I had to choose the subject of my final dissertation in General Management. Enron’s story was so fascinating: The most innovative company in Corporate America that shifts from Hero to Zero in about 6 months.

No doubt, for my dissertation I definitely “bet” on Enron, which then also became the first published article during my PhD in Management and Organizational Behaviour.

We actually are approaching the 20 year-mark since this (still sadly famous) American energy, commodities and services company declared bankruptcy. The accounting fraud shenanigans that took place about two decades ago costed thousands of jobs and shred the investments of countless shareholders. In February 2000, Enron launched its Ask Why campaign. The slogan reflected the company’s successes a decade earlier in creating complex financial instruments that could be used to buy and sell natural gas and that could then be applied to other industries.

With Ask Why, the executives at Enron intended to persuade investors, and employees, that a new “work culture” was possible; that the opportunities offered by the new economy were tremendously higher than those offered by traditional models; even, that dreams could become true simply through incomparable ambition and the hardest work. This macho culture also introduced the well-known rank and yank aggressive performance appraisal system to assess what employees were to be promoted, downgraded, or even fired.

In terms of entrepreneurial, managerial, and policy making implications, three takeaways from the above can seemingly merit further discussion.

1. Rethink corporate governance

One would certainly hope that different government regulations, such as the Sarbanes Oxley act of 2002, would prevent such a catastrophe from happening again. Subsequent reforms were also introduced in Europe after the season of corporate scandals fastly (and also suddenly) came to light. While this is encouraging, I am concerned that the lessons from Enron’s decision-making failures have not been completely heeded.

2. Avoid decisional lock-in

I would like to think that we learned the lessons from Enron on insider trading. But how often do you think that your own past successes can be easily duplicated and you are not open to hearing outside viewpoints because you have been blinded by the positive results you achieved in the past?

3. Be long-term oriented

We can finally see that Enron’s decision-making was impacted by greed, hubris, narcissism, and ego. A look around our chaotic world and you will perhaps perceive that many leaders in power didn’t seemingly get the memo about Enron’s failures.

What do you think about the 3 highlights introduced above? Can they be sufficient to avoid another Enron? What would you add?

I would love to hear your thoughts.

Thank you!


Relatedly, if interested, you can also read the full research article Prioritizing Short-Termism in Behavioural Strategy. Lessons from Enron – 20 Years On, published in the International Journal of Business and Management.


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