The collapse of Enron is one of the century’s most infamous, with reverberations being felt around the world. Craig Donaldson speaks with Enron’s interim CEO Stephen Cooper about his approach to people management in the midst of this most extraordinary of working circumstances
The collapse of Enron is one of the century’s most infamous, with reverberations being felt around the world. Craig Donaldson speaks with Enron’s interim CEO Stephen Cooperabout his approach to people management in the midst of this most extraordinary of working circumstances
Enron was one of America’s leading companies prior to its spectacular collapse in 2001. It was frequently named as one of America’s top 10 most admired corporations and best places to work, and its board was acclaimed one of the US’ best five, according to Fortune magazine. As America’s seventh largest company, Enron experienced explosive growth through the 1990s. It had revenues of US$139 ($184) billion, US$62 ($82) billion in assets and employed more than 30,000 people across 20 countries.
While Enron was considered a phenomenon in its heyday, a highly decentralised decision-making and financial control structure made it virtually impossible to get a clear and coherent understanding of the corporation, according to interim CEO and chief restructuring officer, Stephen Cooper.
“In the space of 30 days, Enron went from American icon to Chapter 11,” he says. The collapse brought an enormous amount of outrage from the company’s stakeholders, while the scale and complexity of Enron’s bankruptcy has resulted in 12 separate investigations by the US Congress.
Out with the old, in with the new
Within days of Enron’s filing for Chapter 11, the corporation’s top executives were terminated or voluntarily resigned. With previous experience in large-scale corporate turnarounds, Cooper and his team was brought in to assist.
The first step for salvaging Enron involved a reorganisation of its internal resources. “We tried to move very quickly to simplify and stop the bleeding,” Cooper says. “The second thing was to break the paralysis that surrounded the company. We saw a need to reground the organisation in reality and work on keeping Enron and its businesses intact, rather than having everyone believe the thing was broken.”
Cooper drafted a new senior management team from the upper middle ranks of the corporation within a few days of arrival, and within tow to three weeks had a restructuring roadmap for the coming year. “With the new management team we had to move to a tightly centralised operation so there was literally one nexus point for making critical decisions, commitments and keeping a chokehold on cash. Anyone that violated that principle was sliced and diced, immediately, no questions asked,” he says.
Cooper also worked with the new management committee to flatten out the organisation in order to remove hierarchies. “We’ve probably eliminated two or three layers of miscommunication potential through that alone,” he believes.
Communicating with employees
Breaking the news to workers got off to a bad start. Enron’s previous management sent home about 4,000 to 5,000 employees on the first day of bankruptcy and informed them by email as to whether they had a job or not, Cooper recalls.
“In my view they handled it not particularly well. It was just horrible. There was an enormous amount of bad news, and the shock and the upset and anger that people were dealing with was tremendous. Many of them had been wiped out financially now they had no job, and many others had an enormous amount of job uncertainty,” he explains.
Cooper and his team worked moved to improve employee communication on a number of levels. “Enron has tremendous communication and IT systems,” says Cooper, which made the job of distributing information easier. He sent out weekly voicemails to apprise employees on how the restructure was going and what was need to support it. Regular all-employee meetings were held, and for those who were headquartered elsewhere video replays were made available as were transcripts on the company intranet.
Given the scale of the corporation’s collapse and its impact upon employees, Cooper says it was important to be candid with them about the agenda. “Some businesses would survive, others wouldn’t. Some would be sold, others wouldn’t. We didn’t sugar-coat the situation because you have to be candid with people about the situation and what is or isn’t in it for them.
“At the same time you have to allow people to vent their anger and outrage, so they can get it off their chest and a lot of people would do that with me. You acknowledge that and said, ‘That’s ok – I hear you, I appreciate your point,’” he explains.
Moving on
In communicating with employees, Cooper stressed the importance of moving on. While many had invested not only financially put personally into the corporation, he says employees were able to help themselves with the right perspective.
“At first I didn’t appreciate the depth of anger and upset – I just didn’t get it for awhile. Looking back, hopefully I would’ve gotten it more quickly and I would have moved a little more aggressively in certain areas to reorganise management,” Cooper recalls.
“But you also have to encourage people to move on. As a practical matter holding on to the anger, outrage and frustration isn’t going to get their money back. People ultimately have to make their own choice to get unstuck, but by giving them the right information, the real agenda, the real outlook and so on and so forth. you can help them get unstuck and everybody wins.”
Cooper acknowledges that this was easier with more active employees with a better mindset, and the process was assisted by trying not to lay the blame on particular people. “It’s emotionally gratifying to find a whipping boy, but the problem is that it doesn’t do anything to produce value. So we decided internally that we would abandon the witch hunt at the front end given that there were a dozen committees already looking into this. We were looking to preserve value and move forward, as opposed to blaming or finding out who was or wasn’t culpable,” he says.
Retaining intellectual capital
Given the triumvirate of challenges facing Enron – organisational complexity, financial woes and fallout from job losses – Cooper says it was a priority to retain key employees who were necessary to the corporation’s successful restructuring. In order to preserve this intellectual capital, Cooper and the management team worked with Enron’s creditors to establish a key employee retention program, or KERP.
“You have to make sure your intellectual capital feels safe and sound, so they can come into work each day and make sure they’re still interested in the game. You can’t have things in a state of flux day in and day out, so the KERPs helped us move forward and ensure we had some level of stability in the business,” Cooper says.
The KERPs were put in place across the entire organisation, with the exception of its trading operations, which implemented a liquidation incentive program in order to unwind Enron’s deals. A severance program was put in place following this, which took a number of months to hammer out with creditors. Enron’s corporate staff numbers have shrunk from around 9,000 to 1,000 since its collapse.
A key challenge in preserving the corporation’s intellectual capital has been morale, given that all jobs at the corporate level will ultimately be non-existent. “Obviously that was a shocking situation for them, but people will have to move on with their lives. While they’re with us we try and make it as decent, open and as nice an environment as possible,” Cooper says.
HR’s involvement
Enron’s HR team has played an important role in Enron’s turnaround. Vice-president of human resources Robert Jones was part of the corporation’s new management committee and met with Cooper weekly to review progress. “There’s a whole slate of issues that they deal with, day in and day out,” Cooper says.
“Between working to reduce the cost of our health programs, designing a lot of programs to keep our intellectual capital and helping them deal with all the hardships and upsets, working on internal communication programs and managing thousands of custom tailored transactions for thousands of people, HR has played a prominent role in everything we’ve taken on,” Cooper explains. For employees who lost their jobs as a result of the collapse, HR put in place a number of interventions, such as a job bank, education and assistance programs.
Enron is currently in the process of spinning off companies to be held by the public, and Cooper says HR is also architecting the compensation plans, policies and procedures to be put in place for these platforms. “They’re dealing with many of the HR activities associated with the wind down of various businesses and departments, so they continue to play a very important role.”
Employee litigation
Enron’s creditors included hundreds of the world’s largest financial institutions and investment banks. Since its bankruptcy, virtually all of its economic constituents have lodged more than US$1 trillion ($1.3) worth of claims against the collapsed energy giant.
Aside from financial stakeholders, many employees believed their best alternative was to hold all their company savings and pensions in Enron stock. Cooper says that many employees who invested in the company have since sued, along with those who participated in the company’s retirement programs. These suits are to be resolved largely through insurance and settlements, however employees are in a class below unsecured creditors in Enron’s restructuring and as such, will receive nothing from the estate, Cooper says.
“We tried to handle it as best as we can,” Cooper states. “Ex-employees asked for an employee related issues committee, which was granted by the court. We went to bat for the ex-employees and worked with them on a variety of issues. We went back to court to get some emergency funding for people who had real hardships, then we went back to court again and got them severance over and above what the law provided for.”
Corporate governance & culture
With the collapse of corporate giants such as Enron, Worldcom and Global Crossing, and closer to home HIH and OneTel, corporate governance has become the buzzword of the business world.
However Cooper warns against a prescriptive approach, arguing that good corporate governance is more a state of mind. “I don’t think it’s a contractual thing, but governance is a state of mind – and you either have it or you don’t,” he affirms.
The US government enacted the Sarbanes-Oxley Act in 2002, in an effort to tighten regulation through five main areas of corporate governance: auditors, disclosure, compensation, board of directors and ethics. While Cooper believes that such laws will make it more challenging for executives who may not necessarily have company’s best interests at heart, he says “you can put anything you want in a contract, but if someone wants to wiggle around it, they’ll find a way.
“Despite all that, we have our typical-run boards or senior management that believe they are either above it all or that these laws don’t apply,” he says.
Cooper says the culture of Enron also played a role in its downfall, with an “unbelievably aggressive” approach to doing business – particularly in its trading operations. “Senior management was adamant was about sustaining a too-good-to-be-true performance, and there was a tremendous lack of focus, clarity and accountability. They were promoting that this was all a big mistake and convinced themselves that they couldn’t lose money. There’s an enormous amount of danger in believing your own press releases,” he says.
Stephen Cooper presented at a LexisNexis conference on corporate renewal and turnaround management in November 2003
