Suddenly, he has pleaded guilty to charges that are likely to land him in prison for 10 years, forfeited $29 million he personally made from operating the off-balance-sheet entities, and agreed to fully co-operate with the prosecutors.
What caused Fastow’s about-turn was the likely indictment of his wife, Lea Fastow. The only condition he made for his plea bargain was that he and his wife should not go to prison at the same time. He wanted to ensure that his two children had at least one parent at home. Basically, he sacriﬁced his self-interest, as he saw it, to protect the interests of his children and, to a lesser extent, those of his wife, who was also his high-school sweetheart. This was the same Andrew Fastow who designed Enron’s entire management system around a ﬁrm faith that employees pursued only their own self-interest.
‘You must allow people to eat what they hunt,’ he used to say, ‘only then will they hunt well.’ It was this philosophy that made Enron adopt one of the most extreme systems of individual incentives: when you started a new venture within Enron, you got phantom stocks relevant only to your venture. As long as your efforts made money, you got rich, irrespective of what happened to other parts of the company. As a result, everyone in Enron, including Fastow, acted like hunters – looking out only for themselves.
The results of such behaviour are now well known. This is an interesting contrast, and it is by no means unusual. Most managers know that they themselves, and most other people, care about others close to them in their personal lives – their children, old friends, perhaps even some of their neighbours – and that they would happily incur some costs to help these people. At the same time, they also believe that, at work, people care only about their own self-interest. Even if they do not explicitly believe that, they design their companies’ organisational and managerial processes as if the motivation to voluntarily help others has no role in the ofﬁce or the factory.
The facts are clear. Most people pursue their self-interest. At the same time, except for a pathological few, most people also have an innate preference for helping others. And they like to help others not just as a means to further their own self-interest but also as an end in itself. This is equally true for people’s personal and work lives. Also, this is not something as grand as altruism; it’s much more mundane than that – it’s how just all of us ordinary folks are. What would happen if senior managers recognised that it was possible to build an organisation in which people derived as much joy from the success of others as from their own success, and designed their management processes accordingly? It would vastly change those processes.
As an example, make a quick inventory of your HR processes and put them into two categories: those that reinforce the self-interest-seeking behaviours of people, and those that support their helping others. Look at concrete processes and mechanisms, not abstractions like values which, unless translated and embedded in speciﬁc practices, have little effect on behaviours.
How long are the two lists? Can you do something to rebalance them? One possible difﬁculty you may face is that you do not quite know what you can do to support the more co-operative behaviours. For example, what speciﬁc kind of incentive systems might you use? What kind of decision-making processes can you adopt? Structurally, too, what can you do to hardwire non-selﬁshness – which is not at all the same thing as becoming a saint and not the obverse of self-sacriﬁce – in your organisation? These are among the key questions that we, fellows of the Advanced Institute of Management Research, will be trying to answer. Much of the existing management research makes the same assumption as Fastow made about what motivates people at work. We will question and
ENRON: SOMETHING’S GOT TO GIVE
broaden these assumptions with the aim of coming up with rigorously researched theories that are not victims of pessimism about people, and that will, we hope, help you build highperformance organisations that are also delightful to work in. Watch this space. Source: Sumantra Ghoshal, People Management, 12 February 2004, p. 23.
1 What is the point of HR if employees are only out to serve themselves? 2 What role could the HR manager play in building an organisation that celebrates the success of others rather than individuals?
The opening vignette gives a disturbing view of management practices. Enron encouraged employees to lose sight of organisational goals, in an attempt to serve their own goals. The chief ﬁnancial ofﬁcer of Enron, Andrew Fastow, encouraged self-interest by offering employees shares, which reﬂected the value of the business they brought to the company. The result: a culture of selﬁshness, which encouraged greed and ultimately destroyed the company. As an HR manager, your role in organisations will not be solely related to the concrete mechanisms of human resource management, such as the functions, but also abstract values, such as culture.
Whether you work as a supervisor in a supermarket with responsibility for the checkout operators, the general manager of the local branch of a multinational bank, the union representative for a major airline or the director of HRM in a technology organisation, you will be responsible for managing people. You may have decided to choose people management because you have a love of people, but empathy for people is not necessarily what makes human resource practitioners effective. According to Hunt (1999), what is important for HR managers, is an understanding of the structures and climate in which people’s potential can be released, developed and rewarded. Andrew Fastow of Enron, although misguided, discovered this in his famous quote: ‘You must allow people to eat what they hunt – only then will they hunt well.’
However, he failed to understand the necessity of developing the whole organisation and the results are history. The Enron view of people management is not the view taken by all organisations. The John Lewis Partnership, for instance, also believes in giving its employees, or ‘partners’ as they are referred to by the company, a stake in the organisation. It achieves this by encouraging workers to co-operate to fulﬁl the company’s aims. In turn, employees are rewarded with a share of the proﬁts.
This book introduces you to the role of the people manager and human resource specialist. It also should be useful for general managers wanting to successfully manage and develop their employees. The book is designed not only to introduce you to the underlying theories and concepts that inform human resource practitioners but also to current practices necessary for the functions of HRM. At the moment, human resources (HR) is in a constant state of change, with Hunt (1999) suggesting that one of the following could happen.
Human resources goes into decline – outsourcing and downsizing has removed the HR specialist from organisations and placed the HR role with the overworked line manager.