In June of 2002 ABC's Sunday news show This Week broadcast the kind of howler for which network television is justifiably famous. The business meltdown was much in the news. Enron was history, having declared bankruptcy six months earlier. But WorldCom and Xerox had just revealed multibillion-dollar accounting discrepancies. Even Martha Stewart was heading for the dock.
Sam Donaldson invited his guest, Richard Grasso, the chairman of the New York Stock Exchange, to comment on the "crisis of confidence" in corporate America.
grasso: We've got to root out the bad people, punish them, and we've got to make certain that the accountants and the independent directors that oversee the more than twelve thousand publicly traded corporations in America perform their job …
The University of British Columbia law professor Joel Bakan features this interview in the introduction to his anti-corporate screed, The Corporation: The Pathological Pursuit of Profit and Power. Just after Bakan's book was published, New York's attorney general, Eliot Spitzer, sued both Grasso and the NYSE, charging that the chairman's gargantuan salary and severance package—$187 million—violated all norms of human decency. Well, something to that effect. The show trial can be expected shortly.
The years 2001 and 2002 saw not only the aftereffects of the dot-com implosion and the punishing economic consequences of 9/11 but also the scandalous collapse of huge companies deemed to be market leaders. Highfliers like Enron, the telecom venture Global Crossing, the cable company Adelphia, and Dennis Kozlowski's conglomerate Tyco went both broke and ugly, awash in accounting fraud, self-dealing, and executive behavior deemed wildly unethical even by the pliable standards of the business elite.
After the deluge, the books.
The best of the recent books about these business blow-ups is Roger Lowenstein's Origins of the Crash: The Great Bubble and Its Undoing. It is also the most annoying. Perhaps because of his successes with a best-selling biography of the business guru Warren Buffett and an account of the spectacular failure of the hedge fund Long-Term Capital Management, When Genius Failed, Lowenstein has adopted a didactic, Galbraithian tone that may work for the sage of Cambridge but doesn't for the sage of Westfield, New Jersey. It merely sounds pompous. To be fair, Lowenstein does use simple language well to explain complex situations. For example, "The distinction between self-interest and greed is worth retaining, for it is a distinction that, in the 90s, was utterly lost."
Lowenstein indicts the cult of share value and its effect on the predominantly white men who run big corporations. The chief executive often reports to a board of directors—a "Pet Rock" board, in Ross Perot's memorable phrase—of which he is the chairman, and which rewards him with cut-rate options to buy the company's stock rather than with a large salary. In theory this aligns the executive's interest with that of the shareholders: they all want the stock to rise. In practice, Lowenstein argues, options are the era's "original sin." Executives pump the stock for the quarterly gains that please Wall Street. More insidious, if the stock's value declines, the captive board simply awards the boss more stock, at a lower price. Lowenstein calls stock options "alms for billionaires." Exhibit A would be the Walt Disney Company's capo Michael Eisner, who collected $800 million worth of options from 1990 to 2003
Lowenstein writes that in Alfred P. Sloan Jr.'s memoir, My Years With General Motors, "there is no mention of GM's share price in his decision-making." In contrast, Jeffrey Skilling, Kenneth Lay's notorious Harvard Business School—trained deputy at Enron, based every decision on its effect on Enron's share price. Skilling decided to plunge Enron—at heart an oil-and-gas-trading company—into a deal to sell videos on the Web with Blockbuster, not because it made any sense (it failed quickly) but because he thought it would add $20 to Enron's stock price.
Enron, of course, stands front and center in Origins. When the "crooked E" (its logo was a capital E balanced at an angle) slipped beneath the waves, in December of 2001, it was the largest bankruptcy in American history. The collapse pulled the accounting giant Arthur Andersen under and threw 4,500 employees onto the street. Many of the cashiered staffers were left pensionless, because their savings plans had been locked up in Enron stock. John and Jane Q. Public were also huge losers, because almost every major stock brokerage and mutual fund had been hyping Enron since the mid-1990s. Before the company went bust, a Merrill Lynch analyst opined that Enron was "uniquely positioned to be the General Electric of the new economy."
In his much overpraised book, Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs, the Harvard Business School professor Rakesh Khurana rehashes the do-people-make-history-or-does-"history"-make-history? argument better hashed by Leo Tolstoy in War and Peace. In the case of Enron, one would have to look at the small cast of characters who took a prosperous company and turned it into the greatest business debacle of the young century.
Bosses often boast that they always hire people smarter than themselves, and in Lay's case that must not have been hard. Lay, whose father was a preacher, got off to a fast start in life, parlaying his Ph.D. in economics and his superb schmoozing skills into a sub-Cabinet-level job in Richard Nixon's Interior Department. But Lay's wrong-foot instincts later surfaced when an improbable candidate for the Texas governorship, George W. Bush, sought to kiss the corporate titan's ring. Lay signaled his preference for Bush's heavily favored opponent, Ann Richards. How very unsurprising that when Lay phoned the Bushies in 2001, asking for a bailout, he got a polite runaround.
Lay loved the attention lavished on the moneyed elite of Houston; what he didn't like was running a company named HNG-InterNorth that pushed British thermal units through a metal tube from point A to point B. Selling natural gas was boring. Frat boys from Baylor and the University of Texas could do that. Even the company's name was boring. Lay wanted to rechristen the firm "Enteron," but that had to be abandoned because it evoked the alimentary canal. Enron was the second choice.
Lay's in-house geniuses, including Skilling and the chief financial officer, Andrew Fastow, didn't want to pump gas either. They wanted to wheel and deal, and they soon plunged Enron into businesses it knew nothing about: selling water in Europe; "wheeling" electric power into, and mostly out of, California; installing commercial air-conditioning systems; the Blockbuster deal; and, of course, the Internet. Agglomerating showy but unrelated businesses is the hallmark of Shamco, the fictional "energy-telecom-pharmaceutical giant" that features in Andy Borowitz's satire Who Moved My Soap? The CEO's Guide to Surviving in Prison. It seems worth mentioning that Fastow is headed for ten years in the pen, where one can reasonably assume he will be joined by his former colleagues Lay and Skilling. Company reunion time! In prison, Borowitz writes, "your chances of recognizing someone from your business school class will be better than 50 per cent, and even better than that if you went to Harvard."
For ten rich years Enron beat the band. By astutely buying and selling off businesses, and by shunting loser assets into Fastow's notorious "special-purpose entities" (shell corporations controlled by Enron insiders who bought companies from Enron at inflated prices), it made its stock march upward through the 1990s, more than tripling the gains of the benchmark Standard & Poor's 500. For six years running, Fortune magazine named Enron "America's most innovative company." Enron's success gave new evidence for the depressing observation that everyone is a whore—it's just a matter of negotiating price. Bigwigs such as Nelson Mandela and Alan Greenspan showed up at Enron functions to collect "public service" awards. The writers William Kristol and Paul Krugman pocketed $50,000 honoraria for "advising" the Texas potentates.
In their book, The Smartest Guys in the Room, Bethany McLean and Peter Elkind, of Fortune, portray Kenneth Lay as the Sta-Puf marshmallow man of corporate America, who loved meeting important people and hated saying no to his headstrong subordinates. In his neatly written circling-the-drain memoir, Anatomy of Greed: The Unshredded Truth From an Enron Insider, Brian Cruver calls Lay "Elmer Fudd dressed in late '80s business attire."
Anatomy of Greed reads like a volume in the Worst-Case Scenario Survival Handbook series—"How to survive as a middle manager if your company is lying to everyone, especially its employees, and going bankrupt." Cruver's best survival tip: Sign up for direct deposit. Enron stopped paychecks for laid-off employees, but for some reason kept wiring money to the bank accounts of staffers who had opted for the automatic-payroll-deposit plan.
Maybe Lay should have taken Cruver's advice. Astonishingly, despite having extracted more than $200 million worth of compensation over the years, he was deeply in debt when Enron stock started to plunge, in the summer of 2001. McLean and Elkind grace us with his wonderful reaction—"What the f--- is going on around here?"—upon learning that a senior executive had transferred an interest in a "special purpose entity" to his male domestic partner. It is hard to imagine that Lay's reputation will survive this excerpt from Smartest Guys:
Just before Skilling took over as CEO, Lay appeared in his office. The stock had already started to fall, the broadband business was in meltdown, and the entire state of California was blaming Enron for turning out the lights. In the midst of all this, there was Enron's chairman, holding fabric swatches for decorating the new $45 million G-5 corporate jet he'd ordered for Enron. "What interior configuration do you like, Jeff?" Lay asked.
Yes, Smartest Guys is a bit too full of accounting minutiae. But McLean and Elkind might have sold more books with the perfectly justifiable subtitle Sex! Alcohol! Suicide! There is plenty of each to go around.
Some of the sex in the Enron tale is in the person of the mini-skirted Enron International chief Rebecca Mark, a drop-dead blonde from Central Casting via the Harvard Business School. We see her going to bed with her boss, climbing in and out of private jets, and roaring in and out of the Enron parking lot in her ruby-red Jaguar XK8 convertible. The star energy trader Lou Pai, her colleague, didn't mind blowing Enron expense money on exotic dancers, one of whom he eventually married. Pai fled Enron before the collapse, $250 million to the good.
McLean and Elkind show Skilling frequenting too many dimly lit bars and behaving erratically as the company he was supposed to be running headed south. This past spring Skilling, who once boasted, "I am Enron!," spent the night at a New York City hospital after police officers picked him up, drunk and uncooperative, in the company of his second wife, Enron's former corporate secretary. And the Enron story was darkened by the suicide of its talented mergers-and-acquisitions chief, Clifford Baxter, who shot himself in his new Mercedes S500 not far from his Houston home. He was forty-three.
There is no doubt that in the annals of the crash/meltdown/crisis of confidence/whatever of 2001—2002, the Enron bankruptcy was the main event. But Lowenstein correctly notes that the rot spread quickly from the bad apples to the shinier fruit. He writes that the longtime General Electric chairman Jack Welch's "iconic stature" was "badly damaged" when details of Welch's Caligula-worthy retirement perquisites were published in The Wall Street Journal. With GE's stock starting to slide just as the chairman left, "Welch now looked like just another overpaid boss."
Christopher Byron, the author of Testosterone, Inc.: Tales of CEOs Gone Wild, likewise delights in watching the air escape from Chairman Welch's self-inflated balloon. After a "career that seemed to be arcing toward business immortality," Byron writes, Welch was now "[making] a public spectacle of himself at the feet of an odd woman from Boston who liked to boast of her sexual exploits with CEOs." That would be the former Harvard Business Review editor Suzy Wetlaufer—Mrs. Jack Welch, Release 3.0.
Byron purports to have written a book about the business and psychosexual excesses of four chief executives: Welch, Tyco's Dennis Kozlowski, Revlon's Ronald Perelman, and "Chainsaw Al" Dunlap, the disgraced former chairman of Sunbeam. What Byron has mostly done is embarrassed himself. The book contains some of the most grotesque pseudo-writing of our time, and egregious quotation from Yeats and Tennyson; a better subtitle might be English Major Gone Wild. Worse yet, it is full of small errors—"cachet" misspelled two ways by page 27; a reference to the (gasp) Boston Red Socks—and colossal misprisions of judgment. Byron publishes so much unsourced innuendo about Welch's early years with GE, in Pittsfield, Massachusetts, that I actually started to feel sorry for Jack—until, that is, I read his idiotic memoir, Jack: Straight From the Gut.
Maybe it's me. Perhaps Welch's oddball tales of "deep diving" into the many forlorn crannies of General Electric with some young comer from the Appliances Division fascinate the business elite. (In his 1963 memoir Alfred Sloan's favored colleagues are inevitably praised as "sound.") If you have to buy Welch's book—and don't do it on my account—get the revised, 2003 edition, with "a new afterword." Between the 2001 first edition and the paperback, Jack's second wife took him to the cleaners, just three years after their prenuptial agreement expired. File under "Risks of marrying a corporate lawyer."
Straight From the Gut's gag-inducing new afterword has a nosegay for Wetlaufer, "whose beauty, brilliance, and goodness make every day perfect for me," plus some exculpatory patter blaming the usual suspects for embarrassing revelations about the sports tickets, opera tickets, car, driver, and so on that GE had piled on top of Welch's $350,000 monthly—repeat, monthly—retirement payments. Here's Jack: "In the post-Enron world, the media immediately dove into the fray, and some documents ended up being portrayed as something they decidedly were not—'revelations' about my so-called retirement package."
Doggone reporters! If only they would write about my Six Sigma quality program, or how those Hudson River environmentalists keep picking on me!
In his fairy-tale memoir Welch writes that "women and minorities in [GE] management have increased by over 70 per cent since 1996." Yet for some reason he prints the business agenda of the 2001 GE operating managers' meeting, in Boca Raton, Florida, and it's easy to see that of the twenty-seven executives giving presentations, only one was a woman. (True, there are women named Mike and Tiger, but I'm willing to bet they weren't at that meeting.) As Rakesh Khurana, the Harvard Business School professor, writes in Searching for a Corporate Savior, when a woman or an African-American rises to the top of an American corporation, it's an event worthy of a magazine cover story: "People still expect a CEO to be a white male of a certain age, and, often, of a certain educational and class background."
A few women have broken through the proverbial glass ceiling, but only one has had two books written about her: Carly Fiorina, the chairman and CEO of the Palo Alto—based Hewlett-Packard. Fiorina, who in 1999 was drafted into the top job at HP on the strength of a puffy 1998 Fortune cover story about her work at Lucent, faced a bitter proxy fight in 2001 launched by Hewlett and Packard family members who opposed her decision to merge with Compaq. The prevailing climate of business scandal didn't help her case. Fiorina was looking like a loser in the fight, George Anders writes in Perfect Enough: Carly Fiorina and the Reinvention of Hewlett-Packard.
Like a senator running for President, Fiorina was cursed with insider status. Many large pension funds decided to vote against her, in fact, because she enjoyed the support of HP's board of directors.
No one wants her or his achievements belittled by the conversational asterisk "because she is a woman" or "because he is black." Reading both Anders's book and Peter Burrows's Backfire: Carly Fiorina's High-Stakes Battle for the Soul of Hewlett-Packard, I would have to rate Fiorina's sex as something of a wash as regards her career. She is not a technologist, like Steve Jobs or Bill Gates, but that's hardly unusual; many CEOs hail from the ranks of marketing or corporate law. Her great skill, according to Anders, is "aspirational rhetoric." Of her time at Lucent, Anders writes, "She didn't really sell phone switches. She sold panoramic stories of hope and progress." (Khurana writes waspishly of Fiorina's Lucent years, "Much of this 'success,' it was later revealed, was due to creative accounting and liberal financing of sales to consumers.") Selling panoramic stories of hope and progress worked for Ronald Reagan. It is working for Carly Fiorina.
There is plenty of evidence that Fiorina is uncomfortable trading on her sex. For example, Burrows quotes her former University of Maryland Business School dean as saying that Fiorina was not interested in helping him set up an M.B.A. course specifically for women: "She doesn't play any of the gender games. If you perform well, you can't be denied." But she is smart, and will use the system however she needs to. Once, after Lucent had taken over a particularly rambunctious computer company, Fiorina appeared onstage with socks stuffed into her trousers, to reassure her new charges that "[Lucent's] balls were as big as anyone's" in corporate America. I notice on HP's Web site that six of the thirteen (bad luck—fire someone immediately!) members of Fiorina's "executive team" are women—a very high percentage for a Fortune 50 company.
Membership in the CEO elite has its privileges, and Fiorina is not squeamish about claiming them. Like Ken Lay, she has a thing for Gulfstreams; Hewlett-Packard invested $56 million in two G-IVs a few months after she took over the company. At the time of her hiring, according to Anders, she asked HP to pay to move her yacht from the East Coast to the West Coast through the Panama Canal. "Just sell the boat," an HP director told her, and eventually she did.
Rakesh Khurana downplays the importance of "charismatic CEOs" like Fiorina, who, he argues, perform no better or worse than run-of-the-mill clock-punchers in the long run. That's when we are all dead, if you remember your Keynes. Joel Bakan agrees that it couldn't matter less who sits atop the corporate pyramid, because shareholder capitalism is hopelessly corrupt. Not just corrupt but diseased. And not just diseased but … insane.
A while back I spotted Bakan's book, The Corporation, prominently displayed in the Harvard Business School bookstore. On the inside front cover I read, "An eminent law professor and legal theorist, Bakan contends that the corporation is created by law to function much like a psychopathic personality whose destructive behavior, if left unchecked, leads to scandal and ruin."
I burst out laughing. I couldn't not buy the book.
The Corporation is the book on which the Canadian movie of the same name was based. The movie features the countercultural historian Howard Zinn, the bio-activist Jeremy Rifkin, the professor of linguistics and philosophy Noam Chomsky, and the belle of the anti-globalism ball, the soignée logophobe Naomi Klein. I couldn't survive the two-hour-and-twenty-five-minute movie, but I did soldier through the 228-page book.
The thesis, which is based on an "analysis" of corporate behavior heavily influenced by the American Psychiatric Association's absurd Diagnostic and Statistical Manual of Mental Disorders, fourth edition, is laughable, but the book does have its moments. Who remembers, for instance, that a group of Wall Street plutocrats hoped to recruit a decorated Marine general to overthrow Franklin D. Roosevelt in 1934? Well, I didn't. And Bakan finds our old friend Alfred P. Sloan Jr. defending his decision to continue doing business with the Third Reich in 1939, after the invasion of Czechoslovakia. The German operations of General Motors were "highly profitable," Sloan explained to an inquiring shareholder. The internal politics of Nazi Germany "should not be considered the business of the management of GM." Sound fellows, those Nazis.
If you have been in a classroom lately, you may have heard the teacher say, "So, what are the takeaway points?" I heard this first in a business-school class I was visiting; it seemed to gratify the businessperson's blessed rage for simplification—"Fifty Business Books Condensed on One Audiotape!" So here are the takeaway points from these ten books.
1. Greed is good, until the Securities and Exchange Commission gets involved. Even then it's not so bad if it has allowed you to retain a former enforcement director of the SEC as your defense lawyer.
2. Fortune is fickle. With much fanfare the magazine proclaimed Jack Welch "manager of the century" in 1999. Just a year later it asked its readers, "Who is the world's greatest CEO? … Why not [Cisco Systems' chief executive] John Chambers?"
3. Always—always—opt for direct deposit.