Sunday, September 16, 2007

Soulless Capitalism

Shortly after Enron started to implode on itself, I started receiving a lot of resumes from recently laid off Enron employees. I interviewed a few of them.

One of the questions I had for them concerned how Enron got into the mess it was in. How could a company so lose its moral compass that it ended up making so many unethical decisions?

The answer I got was this: On the first day of orientation, you were taught about Enron’s RICE guidelines. Rice was an acronym for the following four principles: Respect, Integrity, Communication, and Excellence. Supposedly, these were the guiding principles of Enron which were supposed to direct your decision making.

However, the people I talked to said that you never heard about RICE after orientation. After orientation, this is what you saw and heard:

“You will have very aggressive quarterly goals to meet. If you exceed those goals, you will be rewarded very well with Enron stock. If you did not meet those goals, your career at Enron might very well be over.”

Consequently, people soon figured out that Rice was a sham and that the true principle of Enron was “Do whatever it takes (perhaps even questionable behavior) to make your quarterly numbers.”

One of the tasks of strategic planning is to develop a business mission statement. Many executives I have met place very little emphasis on this process. They do not see how it creates much relevance for the day to day business. And given some of horrible mission statements I have seen over the years, I can see why they would say that. Many mission statements are useless gobbledygook. They are just a bunch of fancy words which sound impressive, but provide no guidance to the organization. (For fun you can go to Dilbert’s web site and play a game to make up worthless mission statements.)

Other times, a company may have an “official” mission statement but ignore it, as was the case with Enron. Although they handed you a paper with the words respect, integrity, communication and excellence, it was obvious that the company marched to a different mission based more on greed, deception, and miscommunication.

Given that mission statements are often worthless or ignored, it is easy to see why they are often not a business priority. However, I contend that without a well thought out and well ingrained mission statement, you can end up creating another Enron-type situation in your own company. Therefore, they deserve serious attention.

The principle here is that in war, mercenaries are never as effective as soldiers who believe in the cause and are fighting for that higher objective. Mercenaries fight merely for the money they earn. If the battle becomes too intense, a mercenary may decide that they money is not worth the risk and pull back. Or, when an area is conquered, they may personally help themselves to an excessive amount of the plunder and run away with the riches for themselves rather than for the country which hired them. Worse yet, if the opposing side decides to pay them more money, they may switch sides and use their knowledge about you against you.

By contrast, a soldier who believes in the cause is fighting for something they value more than money. As a result, they are willing to sacrifice more to reach the goal. They will fight harder for the cause and be more loyal to country they are fighting for. Many are willing to even die for the cause.

When a company eliminates, ignores, or writes a worthless mission statement, they are in essence treating their employees as mercenaries. There is no higher cause worth fighting for. The employees are only there for the money. As a result, you are opening yourself up to all the problems which come with a mercenary work force.

1) Without a strong, noble corporate mission, employees are more likely to act with selfish self-interest as their motivation. Personal power and greed begin to choke out cooperation for the greater good. (After all, without a mission, there isn’t much of any greater good to cooperate or make sacrifices for.)

2) When it comes time to hire people, the good soldiers who want to fight for a cause will not apply for jobs at your company, because they want to work for companies who provide more than just a paycheck. This is especially true with the younger generation just entering the workforce. So you will be stuck hiring people who are only in it for the money and also have a more difficult time tapping into the next generation.

3) When the times get tough, the mercenaries will jump ship and go work for a different company which offers easier prospects for growth, promotions and money. Their loyalty is only to themselves and the WIIFM (what’s in it for me) motivation takes over. The costs associated with higher turnover will come into play.

4) The cost of doing business probably goes up because mercenaries probably will demand more money to do the work than a dedicated soldier. In addition, because the mercenary is less devoted to the cause, they are probably less productive. As a result, you would need more mercenaries than dedicated soldiers to get the same amount of work done.

I saw a company make the conversion from being a place with a cause to being mostly just a place to make money. Prior to the conversion, a large number of people were willing to consistently work long hours (60+ hours per week) because they enjoyed being a part of the cause. After the conversion, many of these people said that it wasn’t worth the long hours just for the money, so they cut back to working only 40-50 hours per week. How’s that for a quick drop in productivity?

5) Because you do not have the positive motivation of the noble cause to incent people to work hard, one has to rely more on negative punishment to get the work done. That is why companies like Enron reviewed an employee’s performance every three months to see if they should be fired.

During the initial war in Iraq, the front-line Iraqi soldiers were mercenaries. They were told that if they refused to fight and wanted to turn back, the Iraqi soldiers behind them who were dedicated to the cause had orders to shoot them. Although businesses might not be that harsh, mercenary-type environments have a tendency to become more repressive and punishment-oriented. Fear is more prevalent. It was a combination of the fear of reprisal if numbers weren’t met and the promise of huge stock bonus if numbers were met which caused people at Enron to make bad choices. Cutting ethical corners was feared less than the punishment when numbers weren’t met.

By contrast, a company with a noble cause can create a healthier and more productive environment. The irony is that by focusing a little less on pure profit, one creates an environment which tends to be more profitable (and less likely to be the next Enron).

Business mission statements can help crystallize that noble cause and keep it its awareness high in the organization. However, that only happens if:

1) You can get top management to believe in the higher mission and live it out on a daily basis.

2) The business mission clearly articulates a noble cause which is:
.......Relevant to the business,
.......Meaningful to employees/customers,
.......Not just a bunch of platitudes about becoming bigger and better at making money.

3) Employees see that the mission statement is more than just words, but is a meaningful part of the way the business is run.

Nearly every business can come up with a noble cause:

Wal-Mart: Saving people money so that they can live better lives.
Walt Disney: To bring happiness and joy to people’s lives.
Mary Kay Cosmetics: To give unlimited opportunity to women.
Cargill: To improve the standard of living around the world.

The Johnson & Johnson credo is a great mission statement. It can be seen at Not only is it a great statement, but it is a foundation for how the company is actually run.

Although on the surface a business mission may seem like a minor thing, it can be an extremely useful tool if crafted properly and used as a guiding principle for how the business is run on a daily basis. The value in a business mission statement is that it can crystallize a noble cause for a company beyond just making money. This helps a company fill its ranks with dedicated soldiers who work harder because they believe in the cause. By contrast, without the noble cause in the mission statement, the ranks are filled with mercenaries who tend to be more selfish and can make your company more like what Enron became. And over the long run, the noble cause tends to create greater profits than just a myopic focus on money.

Before Enron imploded, I had a conversation with the President of US Operations for Enron. I told him that I had heard that Enron worked its employees very hard, forcing them to put in a lot of hard, grueling hours. His response was that they had hired a lot of people who came out of investment banking. These former investment bankers were used to these types of conditions, so they did not complain.

I saw the results of a survey which asked investment bankers if they would continue in that profession if it no longer provided the abnormally high wages. Over 80% said no. So Enron appeared to be hiring out of a pool teeming with mercenaries who though they might strike it richer at Enron. Is it no wonder that Enron imploded?

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