Colossal bankruptcy alone doesn't sell newspapers. After all, the Chapter 11 filing by Kmart, one of the country's largest retailers, made headlines for less than a week and the front pages for just a few days.
However, when apparent greed or executive stupidity are part of a corporate meltdown, that makes for a riveting and enduring news story. In fact, this is one scandal that sales executives should watch closely -- and not just for its entertainment value. The Enron mess may have a profound impact on how you manage your teams in the future.
Let's first take a close look at the makings of this scandal. Many of us watched in disbelief as Sherron Watkins, former Enron vice president, told Congress that her old boss, Kenneth Lay, and the Enron board of directors, were "duped" by others. Of course, being called a "dupe" isn't high praise in top business circles. But when it comes to mounting a defense, high-flying executives and board members often must choose among this distasteful trio: incompetence, negligence, or dishonesty.
So far, the American public isn't buying the stupidity defense. A recent Gallup poll shows 65% of Americans believe Enron executives acted illegally. Perhaps we have come to that conclusion because, although Lay apparently didn't have the presence of mind to investigate Watkins' allegations, he seems to have been sufficiently astute to dump millions of dollars worth of stock after her warning about shaky financial deals.
If not for the loss of billions of dollars of workers' and investors' hard-earned money, Enron would simply be a comical spectacle, or some sort of corporate made-for-TV movie, starring some very large executive egos. Heck, every once in a while it's refreshing to see a few big shots squirm. But thousands of people lost their life savings, possibly because of a few executives' greed, which takes the levity out of the situation. Instead, Americans want something done about Enron, and the government probably will do something. But what? And how will the aftermath of the Enron scandal affect you and your business?
We can count on Congress to investigate and its members to mouth sound bites about how things that are already illegal should be even more illegal. (The amount of fussing and fuming might well be in direct proportion to the amount of contributions members accepted from Enron in the first place.) The SEC will recommend changes that will require even more footnotes in already complicated financial statements. The SEC is already seeking broader powers to crack down on executives while dispensing some of the niceties of due process. A few Enron bigwigs might even end up in jail. Class-action lawsuits will be filed and lots of lawyers will make lots of money.
Last but not least, we can expect that the directors of many companies will ask pointed questions about how much coverage their liability insurance polices afford them. Then they might think to ask their company's outside auditors if anything is amiss in their own financial reporting. They will be told no, and they will then go back to sleep, like all good directors. So far, that's not many real changes. But rest assured: Something more fundamental is happening.
The real surprise in the Enron story is not that there might be some crooked executives. That would hardly be news. Every state has country-club prisons filled with just such offenders. It is a bit more surprising, though, that the outside auditors seemed to be willing to play right along with the crooked executives' schemes. But this would not be the first time an outside accountant acted in cahoots with conniving managers to cook the books. What is really surprising is how long they were able to fool the Wall Street analysts whose job it is to sniff out shenanigans like these. At least, this was a surprise to us.
We have met a lot of analysts in our day. These are smart people. They graduated from the best business schools. They make their living being skeptical about companies' prospects. They are not easily duped. Yet many analysts who followed Enron recommended the stock as a "buy" even as the company was collapsing. If these folks can be fooled, anybody can be fooled. And this realization is likely to have the biggest long-range impact.
Investors are quickly realizing they need to be wary of any company that has complicated financials. Largely in response to Enron, Tyco, a huge conglomerate, saw its stock plunge from nearly $60 a share to the low $20s. In their latest annual report, Tyco filled six pages with consolidated information on its financials, then another 44 pages of notations to explain them. It's enough to make your head spin. Until Enron, investors trusted stock analysts to decipher all this mumbo jumbo. Now investors realize that analysts can be just as much in the dark as anybody else.
So, more investors are heeding Warren Buffett's sage advice to buy stock in companies they understand. Simply put, this means investing in companies when it is easy to see where earnings growth is coming from -- in other words, companies whose earnings growth can be explained by their sales growth. Remember that quaint old notion of growing your company by selling more? Well, it's suddenly back in style, with a vengeance.
The market is already rewarding companies that show sustainable top- and bottom-line growth. Your role as a sales manager suddenly got a lot more important, since accounting magic will no longer suffice. Growth will have to come from adding more customers and getting more from your existing sales resources.
Yet many sales forces operate on a sub-optimal basis today, and they don't even realize it. In a recent survey, we asked sales managers to rate their sales forces. Over three-fourths of the managers told us their representatives were in the top 20% of sales forces in the United States. Unless the rules of arithmetic have changed, someone is distorting the facts. Clearly, many managers are fooling themselves about the quality of their sales teams.
When we ask what criteria these managers use to evaluate their sales force, we often get blank expressions. In a post-Enron environment, you can't expect such a response to get you very far. While many Enron executives can invoke their Fifth Amendment right not to incriminate themselves, you must have answers. Every vice president of sales should know exactly how good his or her sales force is and be able to explain in clear terms what the measuring stick is.
More and more organizations are turning to metrics like customer engagement, sales force engagement, and talent to evaluate their sales forces. These metrics link to outcomes such as productivity, profitability, and retention, which all drive top- and bottom-line results.
Effective managers armed with this kind of information can drive their organization to increasing performance levels. And in the current market, those managers will be rewarded handsomely for their efforts.