The greatest deception

The most significant news emerging from Bernie Madoff's interview with Diana Henriques published in The New York Times yesterday is that some people with fiduciary responsibilities -- namely banks and investment firms -- suspected that Madoff was a Ponzi artist and chose to ignore their doubts. If true, this is just one more high-profile case of someone in authority saying something like, "As long as you produce, I don't want to know how you are doing it."

In many ways the Madoff story has played out with more than a slight similarity to the collapse of Enron Corporation ten years ago.  The two plot lines start with different premises  -- one a deliberate, and apparently cynical,  effort to deceive others and the other a spectacular failure of corporate leaders who deceived themselves. Both, however, wound up in the same place: a personal, and financial disaster for thousands of employees and investors.

Another New York Times reporter, Kurt Eichenwald, wrote a gripping account of the demise of Enron which left us with the impression that there was never an organized conspiracy. It was, rather, a deadly brew of people, motivations and institutions that was swallowed by the media, investors, employees and others in a sort of corporate Jonestown.

All of which is not to say that there aren't lessons for anyone in a leadership position. Some that come to mind are:

Don't hire people on one dimension alone. Top positions at Enron went to "smart" people. Other factors were not considered important.

Always have a broad perspective on your company. Thinking about the company as a whole -- its risks or even its cash position -- was nobody's job at Enron. Take time to stand back and think about risks and opportunities.

Ask the obvious questions. At a critical juncture late in the story, CEO Ken Lay never asked whether Enron's new merger partner, Dynegy, had received updated documents showing massive, and unanticipated, financial exposures. As with many incidents in the past, he probably didn't want to know the answer.

Blaming the media or analysts is a sure sign that you are out of touch. To the very end, Mr. Lay believed Enron was a victim of rumors and negative stories. The only way to fight back is with facts and actions that address the core problem.

Ultimately, leaders sink or swim because of the environment they create. Enron's supposedly brilliant strategic thinking was never supported by a realistic business model, a cohesive set of priorities, and the discipline of a control system to keep its thousands of motivated employees on the right path.

Don't get cocky. One of the book's minor, but telling, anecdotes concerns the first piece of due diligence documentation that Dynegy -- in its attempt to acquire the struggling Enron in 2001 --sought from Enron: the naming rights contract for Enron Field in Houston. Anytime you begin to think you're wonderful, someone, or some incident, comes along to set you straight. In Dynegy's case, it was the billions in their cash that evaporated before the deal was ever completed. Indeed, it never was.

Perhaps Leonardo da Vinci had it right when he said: "The greatest deception men suffer is from their own opinions."