The Nov 8th issue of Energy Risk has an interesting commentary by Stella Farrington noting the 10th anniversary of the Enron collapse. Perhaps the most interesting point she makes is the following:
“Almost without exception Enron employees said it was the best place they have ever worked before or since and talked of achieving more there than at any other workplace. Undoubtedly, today’s energy trading environment owes much to the work carried out at Enron.”
Perhaps some people would be inclined to dismiss the comments of these former Enron employees as wistful reminiscences but I agree with them. As someone who has studio carefully what happened not just at Enron but at places like LTCM and others, what one sees in all these cases is technical brilliance combined with visionary risk taking that leads to great success and the feeling that any risk can be conquered with enough mathematics and ingenuity. What brought these firms down was not that this position was wrong, in an of itself, but that a third element — monumental greed disguised as arrogance — was added. It is this third element that created the destruction, not the first two, and it’s important to note that there are many equally brilliant risk takers who are unknown because they understood the limits of not just what is possible but of what defines success.
Enron is not a lesson in how risk taking ultimately ends in tears. It is a lesson that risk taking that succeeds can often corrupt, and that corruption gives birth to arrogance. It’s a lesson to anyone who manages risk for a living: being on the right side of the bet is great but losing a bet once in a while is perhaps the best way to walk away ahead when all is said and done.
To read the full commentary, click here: