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The dark side of charismatic leadership

Charismatic leadership can move mountains — it’s hard to imagine anything more effective in creating a shared identity and commitment to a higher cause. But little consideration has been given to its potentially devastating dark side. Perhaps nothing serves to illustrate this better than the story of Enron. The dramatic collapse of this one-time famous energy company is probably the best documented case of failed charismatic leadership in recent history.

Enron, flagship of the new economy

In the late 90s Enron was by several measures the most admired company in the US. In few years this one-time bleak regional energy supplier had successfully transformed itself into a global player. The company was seen as one of the leaders of what was known at the time as the new economy, driven by the emergence of the internet, and reinventing the rules of business. Enron was the darling of the financial markets, gracing the covers of Fortune and Forbes Magazine and many others. Its CEO Ken Lay was close with leading politicians, including George W. Bush. Harvard Business School devoted no less than eleven case studies to Enron’s way of doing business.

The emperor wears no clothes

In the intense business climate of the late 90s Enron was seen as the ultimate symbol of the blessings that liberalization and free markets were bringing to the world. Enron’s unbridled urge to innovate the energy business, its optimistic style, apparent bravado and impressive growth trajectory translated into a reputation so strong that Enron and its leaders became close to untouchable. And untouchable is exactly how self-proclaimed “Masters of the (energy) Universe” Ken Lay and his financial genius Jeffrey Skilling seem to have felt. A few years later it was all over. The company went under in the largest bankruptcy the world has ever seen.

Extremely closed and a bit too personal

Long after all the details of Enron’s Ponzi-scheme were cleared up one question would keep puzzling the world. How had Enron been able to deceive so many stakeholders for such a long time: investors, journalists, customers, authorities and regulators, auditors and not least, many of its employees? Enron’s tightly closed communication climate played a decisive role, as is suggested by several of the dozens of studies into its downfall. Marked by a shared fear to speak up, this climate of silence was directly rooted in Enron’s uniform organizational culture, dominated by the totalitarian mythology Enron’s leadership had been building over the years.

Enron as a religious sect

The Economist noted the similarities between Enron and religious sects. Researchers Tourish and Vatcha (1) indeed discovered remarkable similarities to the methods used by notorious groups as the Jonestown-cult (2) in the 70 and the murderous Aum-sect (3) of Japan to bolster ‘internal alignment. The list will seem familiar to communication and organization consultants: charismatic leadership, an inspirational vision for the future, the use of rituals and symbols, a compelling organizational culture and lack of transparency.

Masters of the Universe

Within Enron, the “unique” qualities of the firm’s leadership, especially Lay and Skilling, were emphasized in many ways. “Master of the Universe” Skilling once appeared at a management meeting dressed up as Darth Vader. Skilling also compared himself with Níccolo Machiavelli’s “The Prince”, a book that according to some was regarded as essential reading for ambitious newcomers. Lay and Skilling were consistently portrayed in press statements as revolutionary innovators. Ken Lay seemed to use his flashy lifestyle to underline the rewards waiting for those who achieved greatness.

Messianic vision

Another striking similarity with the modus operandi of sects and religious cults is the totalitarian, all-encompassing vision propagated by Enron’s leadership. Staff were brainwashed with the idea that they were the bearers of a true revolution. Enron taught the world a new way of doing business. Any reservations or nuances were likely to be seen as unwelcome dissent or worse, treason. Only by putting in at least eighty hours a week, true loyalty to this higher purpose could be demonstrated. In return, employees were promised paradise on earth and over-achievers were rewarded with huge bonuses. In this environment, people increasingly began to see themselves as the chosen ones.

Bizarre initiation rites

Rituals constitute an indispensable tool for sects in attracting and integrating newcomers. At Enron the recruitment process clearly seemed to serve such a ritual function. After an initial meeting candidates were subjected in an emotional attrition at the company headquarters in Houston to eight consecutive interview sessions of fifty minutes each (with a ten minute break in between). Those who — once having survived this torment — found themselves on board, were engulfed by an extremely demanding environment. Survival required superhuman perseverance and extreme commitment. Extravagant privileges awaited those who succeeded, including a culture of using company credit cards to pay for encounters with prostitutes.

Extreme social control

A close group of ‘chosen ones’ keeping the ranks closed to a hostile outside world … It’s the ultimate way to exercise social control and almost always the backbone a sect thrives on. Enron’s leadership set the tone for the highly eccentric Enron-culture. Of course there were the usual vague visions, values and slogans, which can be used to explain all kinds of actions and behaviors. More important were the unwritten cultural traits, as expressed by Lay’s and Skilling’s corporate lingo of ‘winners’ and ‘losers’, the macho-speak, the ‘work hard, play hard’ mentality and the blue dress code. In short, the kind of stuff to be found in many ambition-driven cultures. The difference being that at Enron they were taken a little too seriously.

Fear of excommunication

Another method many sects use to forge a close-knit group of followers, is exploiting the fear of being left out. Enron had his own methods to keep employees on track. Those who did not comply were punished swiftly and ruthlessly. The most notorious example is Enron’s’ rank-and yank’ system: employees were evaluated every six months, and then divided into three groups. Those who fell into the lowest category, were told to get their act together before the next appraisal or start looking for another job. Usually however, this meant the beginning of the end for the employee in question. The opaque and arbitrary performance reviews contributed to Enron’s legendary cut-throat culture.

Lack of transparency

Cults often excel in opacity. It’s in the nature of the beast. Enron’s top management misled everyone and everything by systematically keeping information behind and by downright lying. Most employees had no idea how the house of cards that Enron constituted, was actually held together. As most people would, they were confident that their bosses were complying to ‘normal’ accounting, legal and ethical rules. And then there were those beautiful values — respect, integrity, communication and mastery — vigorously propagated by Lay. “Everything”, as Lay often said, “to protect Enron’s reputation”. Tourish and Vatcha concluded that Enron was actually engaged in the trading of illusions. Those illusions were profitability, innovation and integrity.

The role of communication

What role did communication play in the Enron drama? Lay and Skilling were gifted storytellers, verbal magicians who knew how to create myths. A crucial element in Enron’s mythology was to reframe “traditional” accounting rules as obsolete, relics from a bygone era, overtaken by what had come to be known at the time as the new economy.

In the one-way traffic from the top down there was no room for feedback, let alone dissent. Channels for sharing information, horizontally or upward, were absent. The closed communication climate translated into distrust in the company’s leadership and in each other and lively dialogue, let alone collaboration, was hard to come by. In this stifling atmosphere, Enron employees, with a few exceptions, kept their concerns for themselves and when witnessing unethical or illegal conduct they looked in the other direction (4).

From the perspective of leadership communication, as Seeger and Ulmer (5) conclude, the board of Enron failed to uphold three crucial responsibilities. Ethical values and norms were not stressed, no reports were asked on the financial situation and other essential aspects of daily business and nothing was done to promote a climate of openness. Even when the situation had become visibly untenable, Lay and Skilling who had started to believe their own myths, failed to appreciate the seriousness of the situation.

A slipping culture

The Enron debacle shows how endless hammering on a narrow-minded set of values — profit for shareholders and personal gain above all else — may derail a culture. Add the deep human need to believe in something to the fear of being labeled as a heretic or incompetent and sooner or later people lose their identity and their ability to objectively assess a situation. This was what turned Enron’s culture into the conformity-mold that gave Lay and Skilling almost absolute control over what employees were doing and even thinking.

The myth of the rotten apple

The Enron case is far from unique. A series of new mega-frauds has pushed the name Enron back into oblivion. The emission scandal at Volkswagen is only the latest episode of a never-ending soap. Nothing indicates that corporate frauds are the exception to the rule. Yet invariably the frame of the rotten apple is evoked in such cases. And quite successfully because except the occasional case when a culprit — or scapegoat — is held responsible, as in removing the rotten apple, any form of structural intervention in the system itself has yet to be seen, which might impose in some the thought that deliberate resistance might be at play here.

The need for constructive dissent

According to Mintzberg (6) the power of CEOs has grown dramatically in recent decades while the influence of employees has decreased accordingly. An overwhelming amount of research suggests precisely the opposite approach is needed: effective leaders strive for constructive dissent rather than destructive conformism (7). From the evidence, the negative sides of charismatic leadership could well outweigh its benefits.

Damaged confidence

The immediate losses and suffering caused by destructive charismatic leadership are of an unimaginable magnitude, both in a financial-economic and in a social-emotional sense. In the longer term the effects are becoming visible in the sliding confidence of workers in organizations and their leaders. Trust is the foundation of all human relations and a cornerstone of our economy. Confidence in visionary leaders (8) and businesses (9) was dealt a severe blow by the Enron drama. In 2015 as much as 70% of the informed public continues to regard CEOs as an unreliable source of information about a company, according to the Edelman Trust Barometer. As long as the headlines keep surfacing stories of new Enrons, this trust crisis is not likely to heal.

A critical new role for communicators

As long as organizations exist and are led by people, destructive charismatic leadership will continue to emerge. As a society we are well advised to recognize this as a fact of life and to start looking for effective ways to protect individuals and society as a whole against the dark side of charismatic leadership. One way to do that is by making leaders accountable for the quality of the communication climate in their organization. For where openness and trust prevail, the dark side of charismatic leadership will not be able to contaminate the entire culture of an organization.

Communication professionals should come to view monitoring and improving of the organization’s communication climate as one of their core tasks and not hesitate to denounce all that might endanger it. Being a support function communicators of course need the active support of top management, works councils and supervisory boards as well as that of government authorities and regulators to achieve this.

Inevitably communicators need to be willing to take the lead, even when it may result in personal discomfort. For the flip side of that discomfort is a recognition of the importance of the communicator in keeping an organization’s behavior in line with its goals and desired reputation, and the realization that hesitation may lead to corporate ruin.

Further reading

Blocked communication often plays an important role in corporate debacles and not just when it comes to fraud. Around 2007 Nokia was left defenceless in the battle for the smartphone market when top and middle managers did not dare to tell each other the truth about respectively the power of Apple’s iPhone and the (in)ability of Nokia to simultaneously bet on two horses.

Footnotes

1) Tourish & Vatcha (2005), 2)  Layton, D. (1999), 3) Lifton, R. (1999), 4)  Swartz & Watkins (2003); Cruver (2003), 5) Seeger & Ulmer (2003), 6) Mintzberg, H. (2004), 7) Grint, K. (2005), 8) Kendall, L. (2002), Jenkins, R. (2003)

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