What the Dog Saw

was that she wanted to do it, and Enron was a place where stars did whatever they wanted. “Fluid movement is absolutely necessary in our company. And the type of people we hire enforces that,” Skilling told the team from McKinsey. “Not only does this system help the excitement level for each manager, it shapes Enron’s business in the direction that its managers find most exciting.” Here is Skilling again: “If lots of [employees] are flocking to a new business unit, that’s a good sign that the opportunity is a good one…If a business unit can’t attract people very easily, that’s a good sign that it’s a business Enron shouldn’t be in.” You might expect a CEO to say that if a business unit can’t attract customers very easily, that’s a good sign it’s a business the company shouldn’t be in. A company’s business is supposed to be shaped in the direction that its managers find most profitable. But at Enron the needs of the customers and the shareholders were secondary to the needs of its stars.

In the early 1990s, the psychologists Robert Hogan, Robert Raskin, and Dan Fazzini wrote a brilliant essay called “The Dark Side of Charisma.” It argued that flawed managers fall into three types. One is the High Likability Floater, who rises effortlessly in an organization because he never takes any difficult decisions or makes any enemies. Another is the Homme de Ressentiment, who seethes below the surface and plots against his enemies. The most interesting of the three is the Narcissist, whose energy and self-confidence and charm lead him inexorably up the corporate ladder. Narcissists are terrible managers. They resist accepting suggestions, thinking it will make them appear weak, and they don’t believe that others have anything useful to tell them. “Narcissists are biased to take more credit for success than is legitimate,” Hogan and his coauthors write, and “biased to avoid acknowledging responsibility for their failures and shortcomings for the same reasons that they claim more success than is their due.” Moreover:

Narcissists typically make judgments with greater confidence than other people… and, because their judgments are rendered with such conviction, other people tend to believe them and the narcissists become disproportionately more influential in group situations. Finally, because of their self-confidence and strong need for recognition, narcissists tend to “self-nominate”; consequently, when a leadership gap appears in a group or organization, the narcissists rush to fill it.

Tyco Corporation and WorldCom were the Greedy Corporations: they were purely interested in short-term financial gain. Enron was the Narcissistic Corporation—a company that took more credit for success than was legitimate, that did not acknowledge responsibility for its failures, that shrewdly sold the rest of us on its genius, and that substituted self-nomination for disciplined management. At one point in Leading the Revolution, Hamel tracks down a senior Enron executive, and what he breathlessly recounts—the braggadocio, the self-satisfaction— could be an epitaph for the talent mind-set:

“You cannot control the atoms within a nuclear fusion reaction,” said Ken Rice when he was head of Enron Capital and Trade Resources (ECT), America’s largest marketer of natural gas and largest buyer and seller of electricity. Adorned in a black T-shirt, blue jeans, and cowboy boots, Rice drew a box on an office whiteboard that pictured his business unit as a nuclear reactor. Little circles in the box represented its “contract originators,” the gunslingers charged with doing deals and creating new businesses. Attached to each circle was an arrow. In Rice’s diagram the arrows were pointing in all different directions. “We allow people to go in whichever direction that they want to go.”

The distinction between the Greedy Corporation and the Narcissistic Corporation matters, because the way we conceive our attainments helps determine how we behave. Carol Dweck, a psychologist at Columbia University, has found that people generally hold one of two fairly firm beliefs about their intelligence: they consider it either a fixed trait or something that is malleable and can be developed over time. Dweck once did a study at the University of Hong Kong, where all classes are conducted in English. She and her colleagues approached a large group of social-sciences students, told them their English-proficiency scores, and asked them if they wanted to take a course to improve their language skills. One would expect all those who scored poorly to sign up for the remedial course. The University of Hong Kong is a demanding institution, and it is hard to do well in the social sciences without strong English skills. Curiously, however, only the ones who believed in malleable intelligence expressed interest in the class. The students who believed that their intelligence was a fixed trait were so concerned about appearing to be deficient that they preferred to stay home. “Students who hold a fixed view of their intelligence care so much about looking smart that they act dumb,” Dweck writes, “for what could be dumber than giving up a chance to learn something that is essential for your own success?”

In a similar experiment, Dweck gave a class of preadolescent students a test filled with challenging problems. After they were finished, one group was praised for its effort and another group was praised for its intelligence. Those praised for their intelligence were reluctant to tackle difficult tasks, and their performance on subsequent tests soon began to suffer. Then Dweck asked the children to write a letter to students at another school, describing their experience in the study. She discovered something remarkable: 40 percent of those students who were praised for their intelligence lied about how they had scored on the test, adjusting their grade upward. They weren’t naturally deceptive people, and they weren’t any less intelligent or self-confident than anyone else. They simply did what people do when they are immersed in an environment that celebrates them solely for their innate “talent.” They begin to define themselves by that description, and when times get tough and that self- image is threatened, they have difficulty with the consequences. They will not take the remedial course. They will not stand up to investors and the public and admit that they were wrong. They’d sooner lie.

4.

The broader failing of McKinsey and its acolytes at Enron is their assumption that an organization’s intelligence is simply a function of the intelligence of its employees. They believe in stars, because they don’t believe in systems. In a way, that’s understandable, because our lives are so obviously enriched by individual brilliance. Groups don’t write great novels, and a committee didn’t come up with the theory of relativity. But companies work by different rules. They don’t just create; they execute and compete and coordinate the efforts of many different people, and the organizations that are most successful at that task are the ones where the system is the star.

There is a wonderful example of this in the story of the so-called Eastern Pearl Harbor, of the Second World War. During the first nine months of 1942, the United States Navy suffered a catastrophe. German U-boats, operating just off the Atlantic coast and in the Caribbean, were sinking our merchant ships almost at will. U-boat captains marveled at their good fortune. “Before this sea of light, against this footlight glare of a carefree new world were passing the silhouettes of ships recognizable in every detail and sharp as the outlines in a sales catalogue,” one U-boat commander wrote. “All we had to do was press the button.”

What made this such a puzzle is that, on the other side of the Atlantic, the British had much less trouble defending their ships against U-boat attacks. The British, furthermore, eagerly passed on to the Americans everything they knew about sonar and depth-charge throwers and the construction of destroyers. And still the Germans managed to paralyze America’s coastal zones.

You can imagine what the consultants at McKinsey would have concluded: they would have said that the Navy did not have a talent mind-set, that President Roosevelt needed to recruit and promote top performers into key positions in the Atlantic command. In fact, he had already done that. At the beginning of the war, he had pushed out the solid and unspectacular Admiral Harold R. Stark as Chief of Naval Operations and replaced him with the legendary Ernest Joseph King. “He was a supreme realist with the arrogance of genius,” Ladislas Farago writes in The Tenth Fleet, a history of the Navy’s U-boat battles in the Second World War. “He had unbounded faith in himself, in his vast knowledge of naval matters and in the soundness of his ideas. Unlike Stark, who tolerated incompetence all around him, King had no patience with fools.”

The Navy had plenty of talent at the top, in other words. What it didn’t have was the right kind of organization. As Eliot A. Cohen, a scholar of military strategy at Johns Hopkins, writes in his brilliant book Military Misfortunes in the Atlantic:

To wage the antisubmarine war well, analysts had to bring together fragments of information, direction- finding fixes, visual sightings, decrypts, and the “flaming datum” of a U-boat attack—for use by a commander to coordinate the efforts of warships, aircraft, and convoy commanders. Such synthesis had to occur in near “real time”—within hours, even minutes in some cases.