Arrogance, Ethics and Enron
Newsletter • volume 6 • number 4
One of the biggest stories of the new year is the collapse of Enron, the former Texas energy giant. In early December 2001, the company filed for bankruptcy—the largest such filing in history. Billions of dollars of shareholder value disappeared overnight and 4000 employees lost their jobs along with their life-savings, which were heavily invested in company stock.
Enron officials grossly overestimated profits and shifted hundreds of thousands of dollars in debt off the books to drive up stock prices. Twenty-nine top executives, including former CEO Jeffrey Skilling, then sold off a billion dollars of their own stock before the company tanked.
The Enron debacle is a tale of greed, arrogance and grossly unethical behavior. It's also a story of bad hiring decisions. And since we're in the business of helping our clients make good hiring decisions, we thought it would be instructive to review at least three pointers in assessing candidates.
1. Avoid being blinded by a candidate's credentials.
Enron chairman Ken Lay hired Jeffrey Skilling in 1990 and promoted him to President/CEO in February 2001. Based strictly on credentials, Skilling's hire looks like a "no-brainer." After all, Skilling had a Harvard MBA and was the lead partner in McKinsey's Houston energy and chemical consulting practices.
Yet during Skilling's six-month tenure as CEO, Enron's market capitalization dropped by $25 billion. He resigned in August 2001, just as the magnitude of the company's problems was becoming apparent. In retrospect, Skilling's hasty retreat seems a perfect example of the rat deserting a sinking ship.
Skilling's story confirms that on-the-job failure can't be explained or predicted by a person's credentials. Instead, failure is the result of intellectual, interpersonal, and motivational qualities that can only be discovered by probing the candidate's past behavior during an interview.
What's more, behavior—both good and bad—can't be determined from a resume either. Interviewers need to learn how to "get behind the resume." Using a few good questions before someone is hired can prevent the need for a lot of tough questions later on.
2. Recognize attitude as one of the key motivators that drives performance and behavior.
Skilling was notoriously arrogant, once claiming, "There are two kinds of people in the world—those who get it and those who don't." In this case, "it" was anything to do with the way Enron was run. In fact, when Fortune reporter Bethany McClean questioned some of Enron's business practices, Skilling replied, "Our business is a very simple model. People who raise questions are people who have not gone through it in detail." After a couple more of her questions, he told her the line of inquiry was "unethical" and hung up the phone.
Similar to Skilling's dismissive attitude when confronted, one of our clients recently shared the story of a candidate who falsely claimed a Stanford MBA. When the interviewer continued to ask probing questions, the candidate withdrew his name from consideration for the job, arrogantly stating, "I don't want to work for a company that would question my integrity."
Interviewers should be suspicious of candidates who become defensive when asked probing questions about a claimed skill, credential, or competency on their resume. The odds are these candidates simply don't have the claimed skill and are trying to bluster their way out of a tight spot.
Skilling's hostile and defensive behavior made Bethany McClean suspicious, too, and she became one of the first to raise a red flag about Enron. As Jack Welch, former CEO of GE has said, arrogance is a killer, and there is a fine line between arrogance and self-confidence. Self-confident people aren't afraid to
have their views challenged.
Skilling's attitude was further revealed in his statement, "I've never not been successful in business or work, ever." With an attitude like that, how could he be open to any question or suggestion that all was not right in his world?
Effective interviewers recognize that attitude drives behavior. To probe a candidate's attitude, you can ask some of the following questions: "Describe the values you were taught and how they now support your work ethic." Or "Where do you see yourself on a continuum between following the spirit of the law and the letter of the law?" Then follow up on the answers and ask for further examples.
3. Discover the total person; don't just interview for selected competencies or strengths.
Skilling would no doubt impress interviewers as having everything going for him—bright, ambitious, assertive, self-confident, and so on. But interviewers need to look for more than just what is right about a candidate; instead they need a full assessment that reveals both strengths and weaknesses.
The fact is, competencies interact with each other in subtle and complex ways, and you can be blindsided if you don't have the whole picture. For instance, ambition ceases to be a plus when it's paired with a lack of ethics, as was Skilling's case. Assertiveness can become bullying in a candidate who's also hostile. And decisiveness is a drawback in someone who's a poor listener.
The point here is that no one quality, skill, or trait has much significance in and of itself; it is only analysis of the total person as to how and why these qualities are used that determines anyone's effectiveness in a given job.
To help get a sense of candidates' values, interviewers can ask them to describe the most difficult ethical decision or moral dilemma they ever faced. People lacking ethics usually don't feel they've been burdened with such choices.
This might also require drilling down and continuous probing, which can be effectively done with polite, non-stressful questions. But no matter how non-threatening, this type of questioning is likely to irritate a Jeffrey Skilling or anyone else who has something important to hide. But then, who wants to hire someone like that anyway?
Each interviewer should fully assess each candidate, rather than assign isolated competencies to individual interviewers on a team. This allows each interviewer to get a balanced assessment. If you were planning to attend a play, wouldn't you want to read one reporter's review of the entire play versus piecing fragmented assessments of three reporters each attending only one act? The same applies to interviewing—interviewers should discover the whole person.
Conclusion
In the months and years ahead, the media will no doubt get a lot of mileage out of the Enron mess. But interviewers can learn something from the debacle right now. Those lessons include moving beyond credentials-based hiring, probing candidate attitudes and values, and discovering the total candidate—not just his or her strengths.
Hiring the wrong person is always a costly mistake—often with a multiplier of one and a half times their annual salary. At Enron the multiplier was enormous.