Ulysses and Enron

Joaquín Garralda

16 September 2002

Homer called him “artful Ulysses, rich in wits.” He is the personification of cunning. In the Iliad, using the Trojan horse is his idea. In the Odyssey, he fools the Cyclops by telling him his name is “Nobody.” Directors of large companies point to him as an example. But this behavior has come under question. Where does cunning end, and deceit begin?

Where does cunning end and deceit begin, in business practices?

Homer called him “artful Ulysses, rich in wits.” He is the personification of cunning. In the Iliad, using the Trojan horse is his idea. In the Odyssey, he fools the Cyclops by telling him his name is “Nobody.” Directors of large companies point to him as an example. But this behavior has come under question. Where does cunning end, and deceit begin?

Judging from recent events, cunning looks more like deceit.

Yet the distinction is not clear, and often sides are chosen based on value judgements.

In the search for creative solutions, hardened professionals may reason, “Why rush in with bad news, if this situation will eventually right itself?” If the company volunteers bad news, its image takes a hit. It is not always easy, or even possible, to fully recover.

A company holds its breath when cunning becomes “temporary” deceit. But a problem arises if the situation persists, since it’s easy to go as far as an outright lie, hoping that it won’t matter or be noticed, and that everything will turn out right in the end.

In their first attempts at creative accounting, directors of large companies have taken Ulysses as their example, modeling themselves on a hero who, with his cunning, won a war (Iliad) and led his men from certain death (Odyssey). The asymmetry of risk, however, is a problem here. In a win situation, people take greater care; but when losing they are forced to opt for more daring action. Two popular sayings can sum this up. Consider the difference between “A bird in the hand is worth two in the bush,” and “In for a penny, in for a pound.”

These maxims express an individualistic point of view. They include no reference to people affected by our actions – those who, in today’s terms, are known as stakeholders. Nor is there reference to the “agency theory,” which highlights the difficulty of aligning managers’ interests with those of owners. Today’s world needs greater transparency and quality of communication.

When confidence is lacking inside a company, stakeholders, and their behavior, can play a big role in conditioning that firm’s value and results.

Shareholders include members of the financial community (financial and strategic investors, analysts, individuals) who condition the firm’s investment and divestment decisions. Recent events are proof of their capacity to dramatically modify the firm’s quotation or to contribute to its volatility.

Employees are important as the firm’s first-hand sales force, especially in the family and social environment, where their comments are awarded considerable credibility. A corporation maintains its reputation by the “broadcast quality” of its employees, particularly where aspects of the firm’s strategic vision are concerned.

Public administrations are agents with which the company must maintain good relations, due to their capacity to make rules and regulations, as well as their buying power.

Communities are all those individuals affected by the company’s activity: neighbors, minorities and other groups who make up its social environment. The media are particularly sensitive to their interests.

NGOs are often leading transmitters of social groups’ concerns and expectations to both public administrations and public companies.

Socially Responsible Investments (SRIs) are experiencing heavy growth in the U.S. and the U.K., where they have existed for many years, but also in Europe, where the custom is more recent.

A 1999 survey showed that 77 percent of participants in pension funds in the U.K. wanted their managers to use socially responsible investment criteria. In 2000, the U.K. introduced new regulations stipulating that pension funds must declare the extent to which social, environmental and ethical factors are taken into account in their investment decisions. Ten percent of all investment funds in the U.S. are SRIs; in the U.K., the figure is 5 percent.

Financial institutions are increasingly using social and environmental control lists to evaluate loan risks.

Countries have different levels of sensitivity. Sweden pays particular attention to the environment; Italy includes criteria associated with Catholicism; companies selling alcohol face greater restrictions in northern Europe.

Related-services sectors are growing, which provide advice and monitor compliance with parameters established by investors to select and maintain a portfolio with the desired criteria. Indices which include only “good” companies, depending on the defined criteria, are likewise developing, such as the Sustainability Dow Jones, FTSE4Good and the Domini Index.

An excess of cunning produces striking headlines, then everything returns to normal. However, one can perceive sufficient dynamic forces in the environment today, as well as data suggesting that Ulysses´ example is far too risky to be followed. For the final verdict is not “full of cunning,” but “liar” – and a liar who must accept his social and criminal responsibilities.

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