Enron:The unbearable lightness of being

Written by Subhash Agrawal | Updated: Jan 31 2002, 05:30am hrs
What is the main story in the collapse of Enron, a company once rated seventh on the Fortune 500 list in 2001 and ranked among the top 20 of its Most Admired list Not the graft and corruption, not even its strong political connections. To many, all this has been well known. Also, well documented on the web. No, the real story is how opinion makers in the global economy helped Enron from being discovered a long, long time ago. Here is a sample of Enrons pre-collapse image:

Goldman Sachs in its October 2001 equity report said Misconceptions abound and perceptions are far below reality. We view Enron as one of the best companies in the economy, let alone among the companies in our energy convergence space. Many other Wall Street firms were equally bullish till well late into night.

Harvard Business School did nearly 17 case studies or articles on Enron; most of them showering what must now seem embarrassing accolade. Enron is talked about in awe as a real entrepreneurial company or a company with a vision of the future. A 1998 HBS book The war for talent put forward Enron as one of five examples of pioneering and innovative strategies for attracting, developing, and retaining the very best people.

Frank Vogl, a member of the board of directors of Transparency International, that ultimate fountainhead of wisdom on global corruption, gave a speech in March 2001 titled corporate integrity and globalisation. He cited Enron as part of a new generation of companies which recognise the importance of integrity. By the way, Enron is a major benefactor of Transparency International, and one of Enrons vice president is still on TI-USAs board of directors.

Vice President Al Gore hosted a high-profile conference on anti-corruption in February 1999 where government ministers, academics, economists and NGOs from over 90 countries participated. Called the global forum on fighting corruption and safeguarding integrity, one of the main speakers at this conference was Joe Sutton, CEO of Enron International. The Enron story is in fact a unique event: a scam where the principal villains are not family businessmen or politicians or bureaucrats, but hundreds of Wharton MBAs, Harvard lawyers, Arthur Anderson accountants and McKinsey consultants. In other words, the master of the universe: scornful of his parents generation, armed with slick presentations, fluent in dazzling euphemisms and generally feeling invincible. These are the people who managed to fool the world, proving yet again that the gullible and stupid shall indeed inherit the earth.

Nobody really understood how Enron was making money: it signed a lot of contracts and then sold these rights elsewhere. An Enron official once described the hundreds of partnerships it formed, as derivative instruments which eliminate the contingent nature of existing restricted forward contracts. The honest answer was these hid debt of almost $ 13 billion, a mind-boggling figure. A former chairman of the US Federal Energy Regulatory Commission once said, one of our problems is that we do not have the expertise to truly unravel the complex arbitrage activities of a company like Enron. But baffling others and speaking big became a way of life, supported by an army accountants, consultants, lawyers, analysts and business journalists. They all shoulder the blame.

Meanwhile, the US media has tackled this story with a vengeance. Academics, business professors and other sundry voices are now coming out from under the woodwork to write long exposes on why Enron went bust The overwhelming opinion is that Enron represents not just greed and corruption but also unchecked arrogance. In his somewhat reluctant op-ed piece, the conservative Republican commentator William F Buckley used an old aphorism: The trouble with communism is communism, but the trouble with capitalism is capitalists. But the system itself will, thankfully, go on.

From Indias perspective, the importance of these developments was reflected in an opinion piece published recently in USA Today, a pro-business journal. Titled Enron past returns to burn us all is a detailed commentary on the Dabhol project which ends with the candid admission that what should be clear now is that when American companies look bad abroad it tells much about how they groom themselves at home. Thousands of Americans citizens have suffered; hence Enron is now a villain in US eyes. This brings to mind an old saying: the innkeeper loves the drunkard, but not for a son-in-law. Maybe a lesson here is that if we just have patience we can expect America to discover Pakistan in similar light.

But let us not get too smug, since we have our own Enrons. I read somewhere that Susquehanna University in Pennsylvania has a business ethics professor, Richard Davis, who for the last few years has got the local jail to lend him guest lecturersaccountants, executives, doctors, lawyers, all doing time for white collar crime. Maybe the Confederation of Indian Industry should invite him as the main speaker at its next annual conference.

Subhash Agrawal is an analyst of Indian political and business trends and the editor of India Focus, a political risk report for international investors