Monday, July 05, 2004

Pravin Jain, Part III

I continue with a passage in Jain's essay about the structure of the "Capitalism Inside An Organization" as it played out at Enron in the 90s. This may be have been all over the business press during the scandal; I was not tuned to that wavelength at the time, so this is new to me:

Enron needed to create a moblike energy for their task, one that only Adam Smith's relentless pursuers of self-interest could come up with. To attract and cultivate such an army of zealots, Enron was internally designed along free market principles. Every level of the organization invited opportunistic risk-taking. Just as Walt Disney had asked every employee at his theme parks to view himself as part of a performing cast, Enron cast every employee as a potential dealmaker.

Anyone at any level could initiate and pursue a deal, and all profitable deals were rewarded promptly. At Enron International, an employee could receive up to three percent of the earnings generated by his deal, no strings attached. This could easily run in the millions. The dealmaker was free to distribute the bounty as he pleased, usually as rewards to people who helped him close the deal, including his superiors.

Jain points out that bonuses were deliberately made the largest piece of an Enron employee's compensation, to encourage this entrepreneurial behavior. But the most interesting part was this: Employees had to "sell" their deals within Enron in order to gain access to company resources:

No one was entitled to anything. Support groups such as legal and finance could allocate their efforts based on their own estimation of a deal. If they chose right and supported a high-stakes deal that succeeded, they made a lot of money when the dealmaker handed out his rewards....The net overall effect of these dynamics was the awesome competitive energy generated in every part of the company. Manipulating others, devising spins and stories, doing whatever it took to move a deal forward were all part of this ruthless, tribal, capitalistic culture.

Ultimately, though, Jain believes that what happened at Enron is part of what happens and will always happen in capitalist economies, and that it can't be legislated out of existence. He believes they are a necessary part of the process, and that government intervention to "slow or stifle" the reemergence of Enron's method's will fail. There will always be Enrons.

Either that, or we will see the slow atrophying of the larger capitalist experiment. This acceptance and honesty may make us, as a nation, less hypocritical and more tolerant of societies that choose not to embrace capitalism