Apr

25

 It is true Enron's management was engaged in a series of bad decisions. It is also true Enron offered major contributions to the energy industry. Their biggest contribution was to introduce power markets to the electric utility industry.

Because of Enron, control of the nation's transmission lines was wrestled away from utility engineers and put into the hands of traders and bankers. Physical transactions were replaced with financial transactions. Free options to use assets were monetized and priced in open markets.

One example is firm transmission rights (FTRs). Before Enron, owners gave away rights to use transmission lines to a trusted few. Now, FTRs are auctioned in open markets, where users bid for the right to use utility assets.

Because of Enron, Regional Transmission Organizations (RTO's) gained significance. RTOs are what many believe is the "nation's grid." The truth is North America has many unconnected grids, ten of which are open markets in the form of RTOs (most of the nation's population centers are located in one of those RTOs). Every day, RTOs conduct a series of open auctions for energy. They also conduct other auctions for capacity, FTRs and related products and services.

Enron helped transform a highly regulated government-controlled industry into a loosely regulated market-based industry. Enron went bankrupt before the transformation was complete. Initially, only the Northeastern states and California jumped into market-based power. Later Midwestern states, Texas and some Southwestern states joined in. But to this day, many Southern states shun power markets, preferring instead a government-controlled regulatory scheme.

It is true that Enron tried to corner the very market they created. It is also true that the financial techniques they introduced were new in the energy industry, they were borrowed from Wall Street, they were transformative, they were sometimes unfair and most were legal at the time.

Today, RTO's operate under Federal Energy Regulatory Commission rules. Those rules include valuable lessons learned from Enron and other actors. They continue to evolve.

On balance, Enron was a positive force for free markets. They were also a negative force for fair markets.

Russ Sears writes: 

 Enron is a good example of what can happen when a company/species goes from a survival of the first strategy into a survival of the fittest as their niche draws competition and does not survive the process. Normally, growth and high profit margins are a sign of strength, but the temptation as the niche gets crowded is to eat the young to support the current generation of leaders so they can grow and have the high profits they were brought up to believe was their birthright. A similar thing happened in the mortgage backed markets.

These are the times that test collaboration and integrity. It is easy to be honest in passing out the pot when it keeps growing fast and furious. I believe Apple may be a case where it survives through a good collaborative environment within. Time will tell. Given Jobs' reputation of being a dictator and his temper, would this have been the case if he was still running things once continued growth became limited? 

David Lillienfeld comments: 

The issue with Jobs isn't what he would have done. It's whether the management team he left leads the company to continued prosperity. It isn't yet clear that they are so doing, but I'll give them another year to show one way or another.

Managements have two responsibilities–place the right people in their jobs and to provide for an orderly succession that allows the company to continue and hopefully better its lot. (Bettering its lot means ultimately bettering the lot of its shareholders.)

The book on Jobs as CEO isn't yet concluded. Many suggest that he was the greatest CEO of all time. I'm not ready to subscribe to that notion–not until his successors provide some demonstration that the company is not adversely impacted by his departure–no man being indispensable (that great Churchill comment about the cemeteries of Europe being filled with supposedly indispensable men). From my limited perspective, I think the title of the greatest CEO remains a tie between Alfred P. Sloan and John D. Rockefeller. One can argue about what they did, but its hard to argue with the results–both during their tenure and afterwards. J. P. Morgan, too. I suppose one could put George Washington in that league too, but I'll defer to others on this list who can speak to that idea–pro or con–better than I can.

Jobs was an SOB, but the man performed. So was Bob "get rid of the olives" Crandall. And Henry Frick. They all performed, they were all considered magnificent CEOs. The latter two hardly qualify as among the greatest CEOs, and the book is still out on the former.


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