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The case of Enron hiding information

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published February 20, 2006

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Fraud and conspiracy allegations against Lay, Enron's former chairman, and Skilling, its former chief executive, are being debated in a Houston courtroom. A jury will decide if they acted criminally.

But let us back up and revisit the world that the two men created inside a company that was taking on water.


Never once to the outside world did Lay or Skilling admit that Enron's financial stability was troublesome. In fact, Skilling's attorney recently told the court that when the CEO left the company in 2001 - just 110 days before its bankruptcy - "He left a sound, vibrant and wonderful company."

This is what Los Angeles psychologist and corporate consultant Henry Cloud calls an unrealistic assessment of the situation.

Cloud, author of the new book "Integrity: The Courage to Meet the Demands of Reality" (Collins; $25), says many corporate leaders fall into the trap of failing to acknowledge reality.

"No matter how we try to run from it, reality will be there at the end," he says. "It's like gravity. It doesn't matter if I think I can fly and step off the roof, I'm going to fall. That's the reality."

Cloud suggests that corporate executives feel so much short-term pressure to maintain quarter-to-quarter earnings gains that they often shield business setbacks or other obstacles from public view until they can no longer be ignored.

"In some ways, the whole system is wired that executives feel they have to spin things to their favor or the stock price will drop and they will be forced out," he says.

Clearly the Enron executives didn't reveal cracks in the company, even though they had been warned by other executives.

Yet, in response to Lay not being more candid during the last days of Enron, attorney Michael Ramsey described his client as an optimist.

"Do you want a Chicken Little at the helm of a company like Enron?" he asked during the trial.

No one asked for Chicken Little, but Enron's customers, investors, regulators and employees deserved at least an honest assessment of the energy company's financial condition.

Instead, they were left in the dark and subject to the consequences of a bankruptcy they didn't know was coming. The problems that led to the bankruptcy of a $63.4 billion corporation - the second-largest on record - did not surface in a matter of days or weeks.

Cloud believes the true definition of integrity is how we face up to the reality before us. We can deceive ourselves - or others - but ultimately reality confronts us.

"You see a breakdown in integrity when leaders or executives believe they can pull things off without considering how it will affect others," he says. "Business integrity happens when there is a strong relational culture. When people isolate themselves or compartmentalize, that's when they start to do squirrelly things."

Cloud recently had his Internet service provider collapse for a couple of days. He is so dependent on e-mail communications that his business ground to a halt. Cloud was preparing to find a new Internet provider when he got a note from the president of his hosting company.

"He apologized, said they made some mistakes, told us what they did right and wrong and the changes they would institute as a result of this situation," Cloud says. "Instead of canceling the service, I sent a note to the head of the company thanking him for being so candid."

That is the kind of executive behavior in troubling times that can build trust.

When Enron's problems first surfaced, Lay and Skilling had an obligation to be candid with everyone around them.

Failure to do that is to deny reality and, in this case, turned Enron customers, investors and employees into victims.

© Copley News Service
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published February 20, 2006

( 3 votes, average: 3.8 out of 5)
What do you think about this article? Rate it using the stars above and let us know what you think in the comments below.

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