Lanny Davis, is a former special counsel to President Clinton who, over the course of hours upon hours shared in green rooms, became a person I trust and a person who has never been anything but supportive and encouraging to me.
I bring Lanny's name up this morning because of an op-ed piece he wrote for Sunday's Washington Post, "Enron? We're Missing the Point," in which he discusses the necessity of corporations coming clean when bookkeeping (which, by the way, is the only word in the English language which has three consecutive double letters) skullduggery is discovered.
At one point in the piece, Davis wrote: "I know something about the culture of obfuscation."
Alas, this was not about the Clinton White House, but about his work at his law firm which involves counseling corporate executives on the dangers of withholding dicey accounting data from the regulators or, worse yet, the public. And his advice, as he describes it, is good advice.
This is everything I know about the finances of multi-national corporations:
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On the other hand, I know a good deal about strategy.
Publicly held corporations have to file forms with the Securities and Exchange Commission every three months, which are supposed to give the public an up-to-the-minute snapshot of the company's financial performance over the previous quarter.
Because of these reports, in many companies, the first six weeks of a quarter are spent dealing with whatever was wrong with the preceding three months; the second six weeks of a quarter are spent trying to arrange sales figures, contract signings, head counts, and other expenses to make the NEXT quarterly report look better.
Enron used to be a natural gas pipeline company. It was a pretty good business, but not terribly high-tech and, therefore, not terribly interesting to investors (or option-holding corporate insiders) who were looking solely at stock price increases, not at whether corporate business practices were providing for long-term value.
Enron wanted to body surf on the dot-com wave. Here was the highly simplified theory:
- Enron went from a pipeline company to a huge brokerage-slash-trading company - finding excess pipeline capacity, matching it up with gas supplies, putting them together with companies which need the gas, and taking a piece of the action.
- If we can do that, they asked, why can't we find companies with excess - say - fiber optic capacity and marry them with companies with a lot of data to move around and take a piece of that action? Fiber optic cable is the analog for the natural gas pipeline; data, the analog for natural gas.
- We know how to do this. We have the back office software and systems, the sales force, the contacts, the financial underpinnings. It is, on a strategic level, exactly the same process.
Enron sold this strategy to the investment community, and the stock price shot up on the prospect.
Pipelines are still critical in moving large natural gas supplies to the places where there are large natural gas requirements. But, the dot-com collapse meant that there was not much data needing to be moved at fiber-optic speeds, so there was not much to broker.
You can have the market cornered on anything, but if no one wants it, the "anything" has little or no value. You could own, for instance, the entire world's supply of blank eight-track tape cartridges. You will not retire on the proceeds.
Enron took a lot of this activity "off the books," a financial maneuver which appears to be outside the scope of my version of Quicken. It also seems to involve being something less than forthcoming - in those quarterly reports - about the scale of the data deals, the worth of the fiber optic lines and, ultimately, the value of Enron as a corporate entity.
The truth came out, the stock price plunged, the company declared bankruptcy, thousands of people lost their jobs, more thousands lost millions in savings, and it is not entirely clear that the executives who cashed out while all this was going on are going to be permitted to spend very much of it - except on lawyers.
Sometimes what looks like an excellent strategic move just doesn't work out. The best course is to admit it and move on.
They should have spent $17.50 (Amazon) on Lanny Davis' book: "Truth to Tell: Tell it Early, Tell it All, Tell it Yourself." He knows something about the consequences if you don't.
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