The Power of the Herd (19 page)

A particularly articulate and seductive beast named Enron offers the ultimate case study. Remnants of this modern dinosaur should be collected and displayed for posterity, perhaps in the Smithsonian museum as a cautionary tale for high school and college students to study, except that his bones are scattered throughout Texas, California, and India, among other unfortunate places, making the cost of such a massive reconstruction project prohibitory, especially in the currently depressed economy that Enron's demise foreshadowed.

The height of the company's rise in the 1990s, the speed of its fall in 2001, and the limitless depths of its deception are already legendary. In fact, the sheer audacity of the illusions Enron's top executives fed to investors, employees, and the public suggests that advanced intelligence and unchecked predatory behavior are a toxic combination, spawning a particularly delusional form of hubris that backfires, ironically, in a most disturbing mutation: a devastating, highly contagious strain of widespread human stupidity. If we want to know what sets us apart from all the “other beasts,” Enron makes a strong case for the idea that our big crafty brains are not necessarily an evolutionary advantage, that when
intelligence dissociates from empathy in particular, our very survival becomes questionable.

Up until the moment it declared bankruptcy, the Houston-based energy giant represented the sovereignty of unbridled capitalism. Appearing to increase profits year after year, Enron thrived on competition and deregulation, promoting its aggressive, “survival of the fittest” culture as evolution in action while simultaneously positioning its mutual-exploitation philosophy as a new economic religion.

Behind the scenes, however, the company was losing money at an alarming rate. Through the magic of an accounting system known as “mark to market,” Enron would claim potential future profits on the very day a contract was signed, no matter how little cash came in the door. To make matters worse, deal makers would receive bonuses on speculative profits regardless of how accurate those initial projections turned out to be. For instance, the corporation spent a billion dollars building a power plant in India, realizing much later that the country couldn't pay for the power Enron's recently completed plant produced. Executives had already received several million dollars in bonuses based on imaginary profits that never arrived. In another, highly publicized deal, which Enron made with Blockbuster, the companies announced video-on-demand technology when developers were still struggling with the details. The plan collapsed when engineers failed to work out the kinks. Yet through mark-to-market accounting, Enron used future video-on-demand projections to book over $50 million in earnings — on a scheme that never made a cent!

Over time, it became clear that even mark-to-market tricks would be incapable of obscuring a fast-growing behemoth of debt. As a rising number of employees were encouraged to invest their retirement funds in Enron stock, outright fraud became the last resort of executives addicted to the company's “total domination” of trading in power, communications, and weather securities. CFO Andy Fastow came up with the ultimately fatal idea of creating special companies to hide increasing losses. With names like Raptors and Jedi, these deceptive financial entities symbolized Enron's adolescent fantasies of supercarnivores and space-age battles in which a supernatural “Force” was “with” executives, allowing them to defy the laws of financial gravity.

Soon enough, these wily wizards would be accused of black magic: At the end of 2001, tens of thousands of ordinary citizens and trusting employees lost everything. Several key players subsequently went to prison; one committed suicide. And the corporation's founder, a Baptist minister's son who mistook Enron's rapid rise as a sign that God was on the company's side, died from a
heart attack weeks after receiving a guilty verdict that could have sent him to jail for forty-five years.

It's tempting to blame Enron's demise on avarice, pride, and deception, reading the entire fiasco as a moralistic passion play. We could just as easily present it as a case study of capitalism's failure. Or we could take a psychological approach and characterize company executives as sociopathic. Hell, we could even say the devil made them do it. But we'd be missing the point. Enron imploded because of a glass ceiling on predatory behavior that (as mentioned in the previous section and bolstered by research presented at the end of this chapter) seems to be a long-ignored principle of nature itself. This dangerous failure to recognize the profound limitations of predatory power was reinforced in the twentieth century by a gross misreading of Darwin's sorely incomplete “survival of the fittest” concept and a long-standing, culturewide inability to notice that the founders of three of the world's major religions, including Christianity, actively promoted
nonpredatory
wisdom. Until we as a species expand our perceptions, modify our beliefs, and alter our behavior in response to these factors, we
will
keep breeding dinosaurs like Enron, suffering the dire consequences of our own inability to evolve, despite constant warnings and helpful hints from God
and
nature.

A number of fascinating books on the Enron scandal have been written since the company declared bankruptcy in late 2001, including
The Smartest Guys in the Room
by
Fortune
senior writers Bethany McLean and Peter Elkind.
Power Failure,
by
Texas Monthly
editor Mimi Swartz, is a collaboration with Sherron Watkins, the Enron global finance executive who was named one of
Time
magazine's People of the Year for blowing the whistle on her company's illegal bookkeeping schemes. But the printed word alone doesn't do justice to the gestures, attitudes, and interpersonal dramas involved. For a taste of that “other 90 percent,” I highly recommend the DVD documentary version of
The Smartest Guys in the Room.

Among numerous standout moments, taped phone conversations documented callous Enron traders cheerfully encouraging California power plant managers to find “creative” excuses for interrupting electrical service. With Fastow's raptor tricks capable of hiding loss, not making money, Enron eventually felt the need to pirate its own hard-won deregulation of energy at the retail level, secretly causing rolling blackouts, manufacturing a phony California energy crisis to drive up the price of electricity.

As author Bethany McLean observes in an on-camera interview:
“The Enron traders never seemed to step back
and say, wait a minute, is what we're doing ethical? Is it in our best long-term interests? Does it help us if we totally rape California? Does that advance our goals of nationwide deregulation? Instead, they sought out every loophole they could to profit from California's misery,” an incredibly shortsighted move that threatened to bankrupt the entire state, adding further momentum to Enron's cataclysmic downfall. A particularly pathological desire to manipulate the system for personal gain was at work, echoing Goldsmith's recognition that “even when the issue is clearly to our disadvantage, we want to win.”

The corporate culture wholeheartedly supporting this mentality was methodically and consciously developed by Jeffrey Skilling, who served as Enron's president, chief operating officer, and finally chief executive officer during its most profitable years. Filmmakers contrast Skilling's cool, collected demeanor in court with scenes from daredevil motorcycle and Jeep expeditions he led through Baja California, Mexico, and the Australian outback, where small, allmale groups of executives and customers faced an adrenaline junkie's ultimate challenge: to risk bodily injury with the same death-defying attitude that informed Enron's outlandish business practices.

“Survival of the fittest” was Skilling's motto and religion. Richard Dawkins's 1976 classic,
The Selfish Gene,
was one of the CEO's favorite books, but it's clear that Skilling and his traders weren't interested in the nuances of evolutionary theory, acting more like rabid junkyard dogs than those high-functioning, mutually supportive species of masterful group hunters: the lions and the wolves. As McLean and Elkind observe in the book version of
The Smartest Guys in the Room,
those traders and executives “who stayed and thrived
were the ones who were the most ruthless in cutting deals and looking out for themselves.”

The traders eventually lost their jobs too, of course, though Skilling took the biggest hit. He was eventually convicted of nineteen counts of securities and wire fraud, sentenced to twenty-four years in prison, and obliged to pay $630 million to the government, including $180 million in fines. He and his ferocious colleagues subsequently joined a long list of clever, charismatic, unapologetically predatory leaders who've illustrated, over and over again
for centuries,
that this particular combination rarely sustains its perceived advantage in a single lifetime — and never,
ever
thrives in perpetuity, as so many fallen empires have illustrated throughout history.

Even in the innately competitive, profit-oriented corporate model, McLean and Elkind conclude,
“no company can prosper over the long term if
every employee is a free agent, motivated solely by greed, no matter how smart he is. No
company can function if it only hires brilliant MBAs — and sets them against each other. There is a reason companies value team players, just as there's a reason that people who get along with others tend to do well in corporate life. The reason is simple: you can't build a company on brilliance alone. You need people who can come up with ideas, and you also need people who can implement those ideas and are well compensated for doing so.”

In my own tenure as a leader, I've seen the value of educating myself, my students, and my entire staff to do both: find ways to help people develop visionary skills
and
master the art of implementation, further enhancing the reintegration of this previously rigid division of labor through mutual support and consensual leadership. Yet even idealists with the highest integrity and the best of intentions fall back now and then into the same worn-out patterns their ancestors learned as masters, slaves, and rugged individualists. In this effort, it's important to realize that in nature, cooperation trumps competition as an evolutionary force.

Well over a hundred years ago, a budding naturalist noticed that
mutual aid
within and even between species was a significant factor in determining fitness for survival. Prince Pyotr Alekseyevich Kropotkin started out as a huge fan of Darwin's influential theories. In fact, he was so excited about the concept of natural selection that he decided to use his significant influence and financial resources to launch research expeditions through eastern Siberia, northern Manchuria, and later, the steppes of Eurasia. The czarist-era Russian nobleman had high hopes for his first trip, planning to add his own observations to the scientific literature on evolution. In the late 1800s, he commandeered a group of ten Cossacks and fifty horses for the ambitious journey. But soon enough, he was confused and, initially at least, sorely disappointed.

“I failed to find — although I was eagerly looking
for it — that bitter struggle for the means of existence,
among animals belonging to the same species,
which was considered by most Darwinists (though not always Darwin himself) as the dominant characteristic of the struggle for life, and the main factor of evolution,” Kropotkin wrote on the very first page of his 1902 book,
Mutual Aid:
A
Factor of Evolution.

He was even more disturbed by the fast-growing relationship between Darwinism and sociology, emphasizing that he
“could agree with none of the works
and pamphlets that had been written upon this important subject. They all endeavored to prove that Man, owing to his higher intelligence and knowledge,
may
mitigate the harshness of the struggle for life between men; but they all recognized at the same time that the struggle for the means of existence, of every animal against all its congeners, and of every man against all other men, was ‘a law of Nature.' ” In Kropotkin's experience, this potentially destructive view “lacked confirmation from direct observation.” By then, he had witnessed significant instances of sociability, mutual support, and
competition avoidance
in the vast numbers of animals he encountered in the Siberian outback.

Watching huge herds of wild ruminants, including semiwild cattle and horses in Transbaikalia, Kropotkin challenged the notion that quantum leaps in evolution could ever have stemmed from sudden climatic change and other dramatic challenges.
When “animals have to struggle against scarcity
of food,” he insisted, they come “out of the ordeal so much impoverished in vigour and health, that
no progressive evolution of the species can be based upon such periods of keen competition
.”

Retrogression, he argued, was more likely to result from extreme environmental stress and grossly limited resources.
“All that natural selection can do
in times of calamities is to spare the individuals endowed with the greatest endurance for privations of all kinds. So it does among the Siberian horses and cattle. They
are
enduring; they can feed upon the Polar birch in case of need; they resist cold and hunger. But no Siberian horse is capable of carrying half the weight which a European horse carries with ease; no Siberian cow gives half the amount of milk given by a Jersey cow.” And, he was quick to point out, humans forced to eke out a meager existence under the pressures of natural disaster, impoverished ecosystems, or relentless war experienced slower intellectual development as a result of ill health and sheer physical weakness.

Competition for limited resources, he concluded, is not the rule either in the animal world or in mankind. In the frigid reality of Siberia, he observed birds, deer, and wild horses slowly, languidly moving south in the fall as squirrels cheerfully collected nuts, and bears became drowsy, preparing to hole up for the winter, emphasizing the wisdom of hibernation, food storage, and seasonal migrations as instinctual efforts to
avoid
fighting for limited resources. Riding across the vast expanse of the Russian steppes, Kropotkin and his contemporaries also compared notes on what he later determined to be the ultimate evolutionary advantage: sociability.