Enron's management philosophy -- firing up an idea machine

HOUSTON -- Two words sum up the management philosophy of the Enron Corp., according to its president, Jeffrey K. Skilling: loose, and tight.

"We are loose on everything related to creativity," said Skilling, who came here in 1990 to help transform Enron from a regulated natural gas pipeline company into the energy industry's most freewheeling cowboy.

"We like to have smart people try new things," said Skilling, 45. While other energy companies collect engineers, Enron has hired hundreds of MBAs in recent years from top universities -- about 150 this year alone -- and even the occasional liberal-arts major just out of college. "We stick them in the organization and tell them to figure something out," he said. So where does "tight" figure in? With intense controls, imposed whenever Enron signs a long-term contract to deliver a commodity, like gas -- a $600 million computer system tracks the company's financial exposures -- or when it comes time to evaluate those smart people's performance. "Risk-taking, anytime, is managed centrally," Skilling explained. In less than a decade, lassoing loose and tight into a single strategy, Enron has emerged from its unlikely perch in the utility industry as a model for the new American workplace -- every bit as much as the Silicon Valley start-ups that usually come to mind when the subject is entrepreneurship or innovation. In the process, the company has opened huge new profit centers: by building power plants and pipelines in Asia, Europe, Latin America and the United States; trading natural gas and electricity in wholesale markets at home and overseas, and applying its financial expertise to create hedging instruments for the energy industry and other commodity businesses. Its stock, meanwhile, has sharply outperformed the Standard & Poor's 500 through the `90s -- a time when its old peers in the gas business have badly lagged behind the market. New management approaches abound: Walls have fallen within its 57- story headquarters tower, the better to promote cross-pollinating conversations. Through internships and mentor programs, seasoned executives help even the lowest-ranking new employees find an interest -- and then challenge them to start a new business for the company. Skilling says he does not care how people dress when they come to work, or whether expense accounts are filed on time. Or even if, after an all-out effort, a venture fails -- like Enron's heavily publicized push two years ago to become the nation's leading retail marketer of electricity, as states like California opened the power business to competition. The executive who led that effort is now in charge of spending perhaps eight times as much to sell long-term power contracts to big companies. "If you try new things," Skilling said, "some will work, some won't." What is it like to work in such an environment? To hear Enron employees tell their stories, it's a tightrope walk -- exhilarating, if sometimes scary. Two hours with David W. Cox is as exhausting as a full day with someone else. Nearly 6 feet tall, Cox, 36, is a blur of motion on a 45th-story trading floor, where he oversees a staff of 30 as a vice president. Their business is one that Cox invented: writing swaps contracts that allow big consumers like newspaper publishers to hedge against fluctuations in the price of paper. Enron wrote $4 billion of the contracts in 1998. And Cox, who started the `90s working in the basement as a $5-an-hour graphics clerk, sounds amazed that he is ending the decade heading one of the company's fastest-growing new enterprises. For Cox, the door to entrepreneurship was opened directly by Skilling. Then a newcomer himself to Enron, Skilling, a former consultant at McKinsey & Co., was building the company's wholesale trading of natural gas, and Cox was helping to prepare materials for his presentations. Skilling, he said, was constantly challenging employees to find ways to take advantage of the turmoil that impending deregulation had unleashed in the gas industry. "He made us feel that there was nothing that we could not do," Cox recalled. After three years, he persuaded Skilling to find an outside concern to handle Enron's graphics needs -- and then left to join, and eventually buy, the small company that absorbed the work. About 25 Enron employees went with him. The business grew quickly. Cox was soon also supplying graphics for Conseco, the insurer, and Sprint, the long-distance telephone company, offering long-term contracts for the service at a fixed price that included the cost of paper. In 1995, though, paper prices surged, doubling because of high demand and tight manufacturing capacity. Put on the spot, Cox tried to freeze his paper costs, but was rebuffed by every producer or broker. Sensing an opening, he got in touch with big paper consumers. Historically, those buyers had simply ridden the up-and-down cycles of paper prices: When costs were low, publishers, for example, would build up big supplies, but that piled expensive inventory costs on their books. And when supplies shrank, they often had to absorb quick price increases. Cox's idea was to package financial deals that would guarantee paper users predictable prices -- if not the lowest prices -- for the long term. Publishers would sign long-term contracts with a financial partner. If the price they paid to their suppliers was higher than the contracted price, the partner would make up the difference; if the price was lower, the publisher would pay the difference to its partner in the hedge. The deals would be very much like those Enron was making with users of natural gas and other commodities. Eventually, he convinced the Times Mirror Co. and Media News Group, both publishers of big-city newspapers, that the concept had merit. Next, he called his mentor, Skilling, who quickly embraced the idea as a logical extension of Enron's financial deal-making. He invited Cox to return to Enron to set up the business. The $5-an-hour clerk would become a vice president with a six-figure salary. Over time, paper users have warmed to the concept. The value of the contracts rose twentyfold last year, to $4 billion, representing about 1 percent of the global paper market. Cox expects the contracts' value to quadruple over the next two years. Cox attributes his entrepreneurial instincts to being, literally, a survivor. As a 19-year-old crewman on an oil industry supply boat that broke up in 20 minutes during a storm east of New Bedford, Mass., he learned a crucial lesson. "It was a life-defining moment," Cox said. "I realized that life was so precious" -- and that most anything was within reach if he tried hard enough.

Copyright 1999
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