Michael Gurstein wrote:
>
> -----Original Message-----
> From: [EMAIL PROTECTED]
> [mailto:[EMAIL PROTECTED]]On Behalf Of Steve Brant
> Sent: January 19, 2002 10:42 AM
> To: Triumph of Content List
> Subject: FW: On the Enron Debacle
>
> This is from the discussion list for students of management guru W. Edwards
> Deming...an interesting perspective that basically comes from looking at the
> question "What's the purpose of a business?" (ie. to make money or to
> provide a product of service that customers want?)
A fine snyopsis of the situation.
I have long believed that some of the "purposes" of
capitalist social praxis included primarily
(listed in no particular order; I am sure I have
these bizarre beliefs only because I never took
an Economics course in school...):
* Destroying all competition to become a monopoly.
* Making so much money that one can cease working
altogether and no longer have to even
pretend to produce anything (obviously,
things like golfing with clients and
eating business lunches and dinners are exempted here,
esp. if the capitalist in question
does not like to be around his or her family).
* Producing as little [whatever], and producing it
to a level of quality as low as possible
consistent with making as
much profit as possible. This will often
best be achieved by deceiving customers to think they
are getting more quantity and/or quality
than they in fact are getting (a delusion
that can most efficiently be achieved by buying up companies
that have a reputation for quality and value,
and cutting as many corners as possible, just
short of the point where one can no longer sell the
company to somebody else at a profit, and then
doing just that...).
* (Of course I have not mentioned selling as
dear and buying as cheap as possible, including
paying workers as little as possible, etc. -- which
are facilitated by becoming a monopoly,
busting unions, producing in the 4th world,
etc.)
Anything that does not meet these criteria is not
capitalism but some other kind of human activity
that has done its best to accomodate itself to
a capitalist environment.
It's really a shame that reality sometimes doesn't
buy into this noble vision of "a shining city on a hill"
(to quote Ronald Reagan). Morton Thiokol really should
not have had to be bothered by cold weather on the
very day that President Reagan needed a school teacher
in space for his State of the Union address (but all's
well that ends well, in this case -- Thiokol kept the
contract).... Enron, alas....
\brad mccormick
>
> Steve Brant
> -------------------------------------
> Steven G. Brant, Business Futurist
> Founder and Principal
> Trimtab Management Systems
> 315 West 33rd Street, Suite 11B
> New York, NY 10001
> 212-947-5705; 212-947-5706 (fax)
> [EMAIL PROTECTED] http://www.trimtab.com
>
> "It is because we have at the present moment
> everybody claiming the right of conscience
> without going through any discipline whatsoever
> that there is so much untruth being delivered
> to a bewildered world." - Gandhi
>
> ----------
> From: "Jonathan Siegel" <[EMAIL PROTECTED]>
> Reply-To: <[EMAIL PROTECTED]>
> Date: Thu, 17 Jan 2002 05:18:44 -0500
> To: <[EMAIL PROTECTED]>
> Subject: On the Enron Debacle
> Resent-From: [EMAIL PROTECTED]
> Resent-Date: Sat, 19 Jan 2002 08:56:41 -0500 (EST)
>
> One of the remarkable things about the current Enron bankruptcy is that
> it helps illustrate the extreme limits of what can happen when a
> measurement is substituted for a purpose. The goal of Enron managers was
> to increase the perceived value of their stock price by growing accrued
> book revenues, and they did this, for a time, very well. Their method
> was to turn their small utility company into a de facto trading company,
> functioning as a kind of brokerage while remaining legally a utility.
> Their secret weapon was the fact that while a brokerage is only allowed
> to report its commission, a small percentage of a trade, as its revenue,
> a legal utility is permitted to report the entire selling price of a
> commodity on its top line, and to report the buying price as an expense.
> The consequence was that Enron, while doing far less actual business
> than many brokers, was able to report far higher revenue than any. And
> simply by keeping a network of buying and selling going on,
> continuously churning trades back and forth in cooperation with various
> entities, they were able to report ever increasing amounts of revenue
> quarter after quarter, ending up with a top line that permitted them, on
> the basis of these "revenues," to claim themselves the seventh largest
> company in the United States.
>
> What is astonishing about Enron is that its business model was largely
> open and public for many years. Their auditors reported the basis of
> their revenue claims in every quarterly report. Independently of whether
> or not some of their transactions were illegitimate, the simple fact is
> that it ought to have been a fairly simple matter for an analyst,
> reading their accounting methods, either figure out how to compare their
> real business to an ordinary brokerage, or at least to know what
> questions to ask to be able to make such a comparison. Their business
> was not only much less than their stock price or debt load reflected, it
> was obviously so.
>
> But because Enron had a new accounting method, analysts believed this
> meant it had a new business process. And given the ever-increasing
> reported revenues, the Enron's "new" business model was presumed to be
> unquestioningly effective. Perhaps we, as a society, have become so
> accustomed to associating the act of running a business with the act of
> making money - or rather, the act of booking revenue in accordance with
> the arts of accountancy -- that corporate analysts appear not to have
> had an institutional framework capable of distinguishing between an
> accounting trick and a business process, between a revenue stream and
> the production of value. And this is not the first time for this
> particular failure. For example, the shares of Priceline.com and other
> online travel agencies, who had used a similar accounting gimmick,
> plummeted when they were required to report only their commission as
> revenue, despite the fact that this accounting change meant no
> meaningful difference in their actual business.
>
> Presumably, under the Enron model, the ideal business would be some sort
> of virtual or computer casino that operates at even money connected to
> an equally virtual network of affiliated computer gamblers. Such a
> business would be able to churn money in and out endlessly, and would be
> able to generate an infinite revenue stream with no actual operations,
> assets, products, customers, or profits to inhibit its growth. Enron
> came very close to meeting this ideal. Unfortunately; it had a small
> actual business buried in its operations, which had real stakeholders
> and creditors. This imperfection was in no small part the source of its
> trouble. Perhaps future businesses will avoid this mistake.
>
> I cannot help but suspect that the ideal described in the preceding
> paragraph represents a kind of classic, a pure model, a kind of holy
> grail of American business culture that perhaps represents what American
> business could be if left to its devices and what it appears, given
> current trends, to be questing after and trying to become. Certainly the
> ideal of the virtual business - a business in which the job of senior
> management largely revolves around finance and in which operations, if
> any, are so automated as to take care of themselves - has long been an
> ideal of American management. The advent of the computer and the
> internet has greatly enhanced our ability to achieve this ideal, at
> least temporarily. Whether this holy grail is attainable or whether,
> attained, it can heal us is quite another matter. Enron, after all,
> appears to have drunk quite deeply from the cup, although perhaps one
> could argue that, due to its imperfections, its quest came close but
> ultimately missed the mark.
>
> If our aim is to make money, and "making money" is defined as
> accountants define it, then the chief business of a manager really and
> truly ought to be to devise accounting tricks. Messing oneself with
> products, customers, and operations really and truly is a distraction
> from such a goal; and a smart manager should find a way to avoid being
> distracted. If money is ones goal, it stands to reason that the less
> ones time is taken up with distractions from thinking about money, the
> more successful one will be. Hard as it is to believe sometimes,
> especially after cases like Enron, managers and analysts are not
> dummies. They do what is rational in the circumstances they are faced
> with, however irrational those circumstances may be.
>
> Whether a society, an economy, or even a company can be sustained on
> such a basis is another matter. But there is no question that
> individuals can. Indeed, current accounting rules provide many
> opportunities for clever individuals to make quick money off of other
> people's losses. Enron, sadly, is quite an example of this. I fear our
> society will offer many such opportunities, quite heavy ones, in years
> ahead.
>
> Jonathan Siegel
--
Let your light so shine before men,
that they may see your good works.... (Matt 5:16)
Prove all things; hold fast that which is good. (1 Thes 5:21)
<![%THINK;[SGML+APL]]> Brad McCormick, Ed.D. / [EMAIL PROTECTED]
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