The collapse of Enron

Enron was a company so significant and complex, it was considered too big to fail. When it did, over 20000 employees lost their livelihoods and many more their financial future.

The company was also addicted to risk and missed all the warning signs, at all levels that events were going off the rails.

The management and wider workforce practices defied the laws of financial safe sense – in many cases were also illegal. The checks and balances associated with a complex system were ignored The defences and regulation that should have protected it, were consistently breached.

INSERT ‘SMARTEST GUYS IN THE ROOM’ LINK

Enron-the-smartest-guys-in-the-room

For consideration;

Management culture was profit at all costs
There was a predatory culture fostered in the workforce
Leadership had ‘loose moral compasses’
There was an almost ‘pathological’ loathing of regulation
No consideration for what could go wrong
Contempt for third party stakeholders
Widespread documentation shredding due criminal nature
Shameless ‘passing of the buck’ attitude
Senior management denied any responsibility for the collapse
Risks were known and ignored – ‘Addicted to risk’ (Jeff Skilling)
Performance measurement falsified
Failures were hidden and made to be successes – no lessons learnt
Massive expansion without planning or appropriate consultation
Falsified internal and external audits
Those who raise concerns were dismissed or vilified
Training focused on competitive and predatory market forces
Communication was highly sanitised to meet market expectation. All ‘good news’ stories
Rank and file staff were mostly blindsided by the collapse – few believed it would happen

The outcome for Enron was avoidable. It had sound business foundation and a large market in which to expand. But by ignoring or breaching the defences that should have been protection – it collapsed spectacularly. Perhaps not disimilar to the shock of a major physical disaster such as the two previous examples.

The questions asked in the table above reflect the elements required for SMS in aviation. While the industry may be different, the principles remain the same. The basic components of Policy and planning, risk management, (F-)safety assurance and (F-)safety promotion are the pillars that protect against failure. They provide the means to regulate, predict, analyse and defend against human error, negligence, folly or just bad luck