Listen up, executives

January 25, 2002|By Ira Chaleff

POOR ENRON. Poor Arthur Andersen. Giants who seem mortally wounded.

There are many contributing factors, but there's a common denominator to which boards of directors and senior executives of every large organization need to give close attention: The leadership of these companies didn't listen when their own staffs tried to warn them.

The story is still unfolding. But there are already important lessons to learn from what has been revealed. A mid-level executive, Sherron Watkins, warned Enron Chairman Kenneth Lay, both in a seven-page letter and in person, that the company might "implode in a wave of accounting scandals," according to The Washington Post.

Do you know how hard it is for an employee to deliver a message like this to a CEO or chairman with the stature of Kenneth Lay?

In this letter, The Post said, Ms. Watkins also noted that several other senior employees had "consistently and constantly" questioned Enron executives about the company's accounting methods regarding the partnerships that had been set up. More early staff warnings gone unheeded.

It's true, we are told, that Mr. Lay asked Enron's law firm to look into the employee's allegations. But he instructed them not to make a "detailed analysis" or second-guess Arthur Andersen, Enron's outside accountants. He might as well have said, "Go through the cover-your-posterior motions, but you are instructed not to take these allegations seriously."

We are learning that meetings occurred at Andersen at which questions were raised about whether the company should continue to serve as Enron's accountants. Andersen's staff was raising the alarm about the consequences of condoning Enron's hugely questionable practices. Do you know how much courage it takes to raise this question about a $50 million client?

In neither case did the leadership show the courage of the employees who raised these questions. Why? There could be many reasons, but, in the end, none is as relevant as the failure to meet courage with courage.

Employees who raise really tough questions that senior management would rather avoid run huge personal risks. Shoot the messenger. Marginalize the non-team player. Shun the spoilsport. Defame the whistleblower. These are all terrible responses. The right answer is to assume that anyone who is willing to take such a major risk should be taken seriously.

The iceberg effect is always at work in upward feedback. The top leaders of an organization see and hear no more than 10 percent of what is wrong with their organization. So when someone is desperately trying to call their attention to a serious problem, senior executives should assume there is far more to the matter than meets their eye. Sometimes there's enough to sink the Titanic.

How many senior executives create a climate in which upward feedback is actively encouraged? Nearly every executive vastly overrates him or herself on this point. It takes a deliberate and sustained effort to create an environment in which difficult feedback is given to senior management. A leader's planning and execution are only as good as the information on which they are based. So developing a feedback-rich culture is essential to effective leadership.

The question for boards and CEOs is: Will you remain complacent in your belief that you encourage and use honest, critical feedback or will you ensure that you really do?

Enron and Andersen show just how much is riding on this.

Ira Chaleff is a management consultant and author of The Courageous Follower: Standing up to and for Our Leaders (Berrett-Koehler, 1995). He lives in Kensington.

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