It was on a sunny Saturday morning in August when I came across the fascinating story about the dramatic collapse of energy giant Enron. The story was not new for me; I’d read a book about it, watched an incredible documentary, and read more than a dozen articles, all portraying the same dark picture.
It still fascinates me.
This time however, after finishing the last episode of the podcast series, I really wanted to understand what went wrong. Moreover, I also wanted to create my own perspective about it. What really happened? And why? While two of the main pundits are still recovering from their jail sentences, is there anything that we could learn from it?
Accountability
Well, let me already reveal the fundamental part of my conclusion: At Enron, the leadership playbook was fully based on so-called ‘Accountability’, without any space for subordinates to address possible challenges or even setbacks. The leadership had little to zero appetite for ‘bad news’ or ‘feedback’, which eventually led to a toxic culture based upon fear and possible retaliation.
Quite the opposite of a company or department with a lot of psychological safety! I will emphasize on the specifics of a company with a lot of openness and trust later. Let me now share the story of Enron with you. Where did it start?
Enron, an energy firm
Founded by Kenneth Lay in 1985 after merging two small local companies, Enron was an American energy firm. Named by Fortune magazine as ‘America’s Most innovative company’ for six years in a row, it once had an aspiring vision: to become the premier natural-gas pipeline in America.
Somewhere down the line though the company reversed course. In what is said to be the ‘Come to Jesus meeting’ for Enron, it expanded its business scope.
Enron hired Jeff Skilling and began trading in options and futures, and eventually moved to complicated and extremely speculative financial instruments like swaps.
Later, the company also hired Andrew Fastow. With him on the board, the rat-pack was complete. Gradually, the company started embracing more extremely doubtful business practices and even introduced off-balance-sheet partnerships, mainly to hide its liabilities.
Operating model based upon accountability
After some time, when the scheme had fully started taking center stage, nothing in the company reminded the workforce of the energy company it once was. At that time, it had become an investment fund with an obsession in investing in obscure and high-risk financial products.
With the almost fundamentalistic obsession in investing, it also began nurturing an arrogant command and control management style, with one key compass of the operating model: accountability.
Accountability, a definition
Select 5 people in the corporate world and ask them to share their personal definition of the word ‘accountability’ and you would probably receive at least 6 different explanations, the most common one being ‘to be responsible’. However, it’s the context which makes it interesting.
Let’s say someone is accountable for achieving certain targets. The big question is simple: did this person self-assigned the targets or were they assigned in a trickle-down matter? And what about other targets, like Key Performance Indicators?
Even more critical: is it possible for people who are accountable to report challenges or even ask for help? I must have read more than a dozen stories of organizations with an almost fundamentalistic admiration for results!
Especially the companies with a culture where nobody speaks up, things could become pretty dire; the fear of retaliation could become extremely strong. So strong that some people will gin up numbers or even ignore hard truths.
This build-up of activities, build out of fear, can set off a toxic culture where people are discouraged to report non-flattering facts. And this is exactly what happened at Enron!
Enron board’s definition of accountability: fear
During the final years at Enron, the board of directors acted in an extremely cold hearted ‘no is not an answer’ way. Only surrounded by ‘yes’ men assistants in corner offices on the upper floors, they had no idea what was really going on.
And there was a clear reason for it; people were afraid. The board not only ‘knew what should be done’, but even told subordinates how to do it. For the board it was all about what Donald J. Trump describes as ‘being strong’.
Final days
Months before the actual collapse, the positive theatrics began to crack. More and more people started criticizing their business model by asking provoking questions: ‘how are these guys making money’?
Analysts started talking about the huge depths, which led to increased skepticism amongst investors and financial institutions.
The skepticism really took center stage during the last earnings call, when some analysts became hostile. Jeff Skilling, who had taken over the role as a CEO, answered a critical question from a nagging analyst with a remarkable but honest answer: ‘Thanks, we appreciate it…asshole’.
It was at this time when the culture reached its negative tipping point. When confronted with the extreme financial position of the company, the board of directors decided to fire the senior manager who ‘dared to present such a bullshit story’.
They obviously knew it but didn’t want to be confronted with it. And there were not many people left in the company with enough courage to speak the truth.
A different perspective, my perspective
I started thinking about it and immediately came up with Patrick Lencioni’s pyramid. With a compelling tale about a Silicon Valley darling in dire conditions, he argues that teams could never achieve a mindset of having attention to results or even accountability, without first creating and nurturing a trustworthy work environment.
His theory is to start with the lowest segment of the pyramid: trust. It’s all about creating a lot of trust amongst the people. It should even go as far that there’s a culture in the team – from senior management to actual workforce – to be open about mistakes or even weaknesses.
If there’s enough trust, the team can start working on the second segment within the pyramid: conflict handling. This is hard but handling of conflicts will become much easier if there’s trust. Eventually the team can battle the other elements in Lencioni’s pyramid: lack of commitment and avoidance of accountability.
Lots of research
There’s so much scientific research to prove that too much emphasis on accountability without creating a safe working environment won’t work.
One of my most favorite books is from organizational/behavioral psychologist Ron Friedman. In his book ‘The Best Place to Work’, he advocates for rewarding failure and does so by writing about creative geniuses; suggesting that these geniuses don’t simply offer more creative solutions. No! Instead, they just offer more solutions.
One could never create a working environment where people can fearlessly fail without first creating a lot of trust.
Amy Edmindson
Another example is Amy Edmindson’s book ‘The fearless organization’. The author, a Harvard Business School professor, promotes – based upon 30 years of research – to nurture a culture ‘where it’s safe to express ideas, ask questions and
admit mistakes.
And the good news? There’s a connection between ‘Psychological safety’ and high performance.
Edmindson also quotes from an article which describes Project Aristotle. This is a multi-year study of teams at Google. One of the key findings was a surprising one: psychological safety was the critical factor explaining why some teams outperform others. The study discovered that even the smartest employees at Google needed a psychologically safe work environment to contribute the talents they had to offer.
Conclusion
I don’t know who first coined the term psychological safety, but it definitely could be Adam Grant, another great author. Or maybe it was Amy Edmindson. Whoever it was, I really believe it should become the foundational layer of every department or team. If someone would ask me advice about a non-functioning team or department, I will ask them a question: ‘Does everyone – from senior management to operational workers – feel the liberty to discuss or address every topic, even if it involves missing out things, actual errors, or admitting mistakes? The answer is mostly very telling.