On July 27th, Professor Eric Abrahamson led a discussion with MBA students after the screening of the documentary film “Enron: The Smartest guys in the Room”. This summer screening was a session of the Individual, Business and Society curriculum which highlights issues including individual leadership and personal integrity and corporate governance. Students considered whether this was a unique incident or whether there were more generally applicable lessons. Professor Abrahamson initiated the discussion by posing questions such as: “Was this a gradual situation which developed – a slippery slope – where aggressive accounting gradually led to creative then fraudulent accounting, or was it a more “static” situation where Machiavellian people influenced the company?” and “Is greed a driving force that is built into the DNA of society, which implies that it will happen again?” One student highlighted the section of the film which shows an experiment where individuals seemed willing to do something harmful or unethical when given directions by those in authority, without necessarily asking why. Another student pointed out that “there are some people who don’t feel bad unless they’re caught.” The company’s presence in new markets with little regulation and a lack of “checks and balances” also played a factor. The board’s approval of “mark to market” accounting practices and off-balance sheet financing with insiders, despite the conflicts of interests was cited. Abrahamson pointed out that “Fish rot from the head” and this sent a message throughout the firm that self-dealing was acceptable. There was also “complicity at different levels,” with contributing parties such as the accounting and law firms, financial analysts and investment bankers also playing a role. He also highlighted research which shows how “networks of people can close in on themselves, with people talking to each other and not taking into account outside views. Such networks start to develop their own norms and jargon, and people in these small networks don’t see it as unethical because everyone around you doesn’t see anything wrong.” One student commented on the taped conversation of traders as being evidence of this, but another audience member observed that “this culture with traders is not so different today.” Another student pointed out the financial analyst in the film who questioned the numbers faced retribution by his own company, fearful of losing lucrative business from Enron, which was also a client of his firm. The culture of the company was also a contributing factor, with its focus on embracing risk, short term stock price movements and the pressure to perform. However did this become a “self-fulfilling prophecy, where the culture attracted people who liked that environment?” Some contrary evidence exists that there were those in the firm who felt pushed by the circumstances. Abrahamson also pointed out that in business, success is often attributed to leadership but problems are attributed to culture: “Aren’t leaders responsible for culture?” Students also considered the question of what one can do in these situations, or put differently: “How do you raise these issues without being a bug on the windshield?” Often the ability to resign from a company is cited as a solution, which requires a strong moral compass. However one student questioned whether this was tantamount to “tacit compliance with the wrong doing.” Whistle blowing legislation was also raised. Having influential mentors to seek advice from was also suggested. “Power corrupts, but a lack of power can also corrupt,” pointed out Abrahamson, as one sometimes needs to be able to resist being pushed into situations, or to push back. One student returned to questions posed at the start of the discussion and suggested this situation was a “system failure” of capitalism, which needed better checks and balances. Professor Abrahamson posed the question of whether the threat of punishment was sufficient or whether a culture of a “social contract” in capitalism was needed. “Do business leaders need to refrain from wrong doing, even if there is little risk of being caught?” Students were reminded of Kenneth Lay’s comments that whatever regulation was put in place, he believed his people could find a way around it. Abrahamson also highlighted research which shows that “Machiavellian characters” tend to not be as successful at being promoted to leadership positions. While this behavior was more evident at lower management levels, after being promoted “there tends to be more scrutiny to screen people for this behavior”. Participating in the audience, Professor Elke Weber, chair of the Management Division, suggested that mechanisms are needed to prevent myopia. While students have the benefit of the big picture from the Enron film, as a manager and decision maker within the firm, “sometimes things can look grey. One needs to step back to see the bigger picture and get a different perspective. This provides a greater ability to challenge the situation.” Professor Abrahamson left the audience with some final thoughts based on “justice theory”. Research suggests that when business executives are overpaid, they react by inflating a sense of self, and start to believe that this is “just desserts”. However the story of the emperor with no clothes should be borne in mind – that the more that one is promoted, the less likely it is that people will raise contrary opinions. “Part of your ethical responsibility is to participate in discussions like this, which increases the likelihood of testing your assumptions when faced with these situations in the future,” he said.