Tuesday, June 29, 2004

The Picture of Dorian Gray
Today I’d like to talk about two companies. The first went through a lengthy period of reorganization and reinvention. It not only changed itself, but is on the way to transforming its entire industry. A darling of Wall Street, its competitors must take cognizance of its actions and direction, and many are scratching their heads at the implications of the changes they see. At the same time, it rewards its rank and file handsomely and is a generous contributor to the community.

The second company stands in stark contrast. It is the poster child for chicanery and corruption. Its top management benefited lavishly at the expense of stockholders and has been convicted or indicted for a wide range of felonies. Their hubris took down the entire company, leaving a wide swath of impoverished employees and shareholders in its wake.

Both companies are Enron, as perceived at different points in time. More intriguingly, the picture that emerges from an interview with Ken Lay published in the New York Times over the weekend, is that both may have been accurate. In any case, if the way the former Chairman of Enron managed his vast holding of Enron stock is any indication, he believed in the first, more attractive picture until the end. Contrast Ken Lay, borrowing money to preserve his stake in Enron, with Sam Wachsal, selling out in the face of insider knowledge of adverse news.

These days the media works overtime to create the impression that we live in a binary world. Our invasion of Iraq was first a quagmire, then a glowing victory of American arms, and now a debacle. Enron was the pacesetting firm in its industry; Enron is the devil.

F. Scott Fitzgerald once said, "The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function." We might do well to apply this skill in many areas, but I see particular value in looking at Enron this way. This company created remarkably innovative financial products that addressed entire categories of previously unidentified consumer and business needs, but it also engineered conflicts of interest for its finance officials that were dazzling in their scope and degree of deception.

At the same time it was working to turn the bland world of commodity energy sales into a customized, consumer-centric market, its traders were busily concocting intricate schemes to manipulate the California electricity markets, referring to their customers in the most callous language imaginable. (See my post of June 3, 2004.)

However naïve it may sound, I think it is possible—not certain, but possible—that Ken Lay genuinely believed in the transformation Enron was embarked on and was taken in as much as anyone by the fast footwork of a group of unethical finance executives. This doesn’t say much about his business acumen, but it might be enough to keep him out of jail. Meanwhile, I continue to believe that the wreck of Enron contains valuable nuggets of business innovation that will be mined by future entrepreneurs, when the market is again ready for them. I also look forward to a more complete history of Enron in the 1990s, once today's scandal fever dies down.

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