Chapter 9–Another Crisis When the AES stock price tumbled in 1992 and again in 2001, top management and board members blamed Bakke, and Bakke blamed himself for failing to persuade them that the decentralized, shared-values approach was the right way to run the organization. It had succeeded in discharging AES’s obligations to all stakeholders and to the society that supported the corporation. But thousands of shareholders inside and outside the company blamed Bakke when the AES stock price plummeted from $70 a share in 2000 to a post-Enron low of $5 a share in February 2002. They lost confidence in his leadership and refused to follow him when things got tough. The executive team hired lawyers, consultants, and advisers to protect AES, called for a major reorganization of the company, and moved to centralize decision making. While the recession, the 9/11 terrorist attacks, spectacular financial defaults, and coast-to-coast bad economic news drove down share prices of most companies, regardless of their economic performance, Bakke traces the AES debacle to four structural mistakes: 1) Originally, AES had limited investments in any one market to 10 percent of cash flow. But it later abandoned this ceiling to participate in a wider range of business opportunities. 2) Following a financing philosophy that “debt is cheaper than equity,” AES funded new businesses with debt kept on the parent company’s books, rather than selling more AES shares to investors to raise needed investment capital. 3) Like its competitors, AES speculatively built or purchased power plants, without long-term contracts from customers to buy their energy output. The resulting excess capacity drove down open-market electricity prices. 4) AES so emphasized business development that it lost focus on economic sustainability. Most of AES’s competitors in the energy market operated with top-down management structures, and they too suffered the same kinds of losses and stock price declines as AES. A decentralized, values-driven structure, however, helped AES avoid other serious problems. For example, unlike centralized decision-making companies, AES plant teams didn’t purchase turbines in bulk to achieve per-unit cost savings, so AES didn’t get stuck with huge turbine surpluses when the energy market collapsed. AES did not breach any legal or ethical rules in its financial accounting or in buying and selling electricity. And no executives or board members sold major blocks of AES stock before its price decline. It would have been next to impossible for senior people to engage in this sort of malfeasance because important decisions were discussed at every level of the company. Bakke resigned as CEO of AES in 2002. Retirement from the company gave him time to reflect and write Joy at Work. Since this did not quell Bakke’s passion to create the most fun workplace, he founded Imagine Schools with his wife, Eileen, a lifelong educator. In June 2004, Imagine Schools acquired Chancellor Beacon Academies to form one of the largest charter-school companies in the United States. The company operates about 70 K–12 schools on 40 campuses in nine states and the District of Columbia, serving nearly 20,000 students. Bakke realizes that success as defined in Joy at Work cannot be guaranteed, but he will strive to live out the ethical principles embodied in integrity, justice, and a fun workplace. Epilogue Bakke takes pleasure in affirming success stories on the AES way of doing business. The best means is to celebrate AES people who stayed with the company out of love for its shared values and freedom to make decisions. He writes about Aparecido “Cas” Castellace, an operator at a new AES plant in Brazil, who refused to take a generous severance package. With AES, he said, “I have never loved working as much as I do today. I am good at what I do. I have significant responsibilities, and I have the freedom to make decisions. My health is good, and this is what I want to do. I have decided to stay.” In New York State, two AES plant operators attended an Independent System Operator conference on statewide electricity scheduling. At first, they felt intimidated by people from Enron and other companies who were well versed in electricity trading and dispatch. But it soon became clear that they were the only two people at the conference who knew anything about actually running power plants. By the end of the event, they were at the center of almost every discussion. They returned to work confident in their knowledge about effectively operating the facility and marketing electricity. At another AES facility, the Wall Street Journal covered plant operator Jeff Hatch and maintenance technician Joe Oddo negotiating by phone the best 30-day rate for $10 million worth of Treasury bills. Both were members of an AES team managing a $33 million plant investment fund. Giving investment responsibility to coal handlers, Bakke said, resulted in their matching, and once bettering, the returns of corporate counterparts. The participants enjoyed this and learned so much about the total aspect of the business that they are changed people. If academic research and anecdotal evidence about the AES-style management approach are so positive and convincing, why aren’t more companies doing it? Bakke sees these obstacles: • board members and senior executives still control information, make decisions, marginalize lower-level employees, and certify all government-required documents; • managers and bosses distrust subordinates and keep the decision making for themselves; • leaders’ motives center on financial success, or objectives unrelated to creating a fun workplace, so the organization’s purpose is shallow or selfish, and employees see no worthwhile higher purpose in what they do; • management and labor are adversaries, and employees are treated like children; • mistakes in a decentralized structure are often attributed to the system rather than to human error or outside forces, prompting management’s return to a top-down style. Bakke suggests that we quit searching for the secret to always winning, to profits and stock prices that rise quarter over quarter. Let’s accept that losing is part of life and that we can make mistakes and fall on our faces. Out of these experiences come new learning, growth, hope, and life. He advocates for an unselfish and benevolent concern that allows people to give up power and control, to treat each person with respect and dignity, to serve others, and to inspire people to work with greater purpose. To Bakke, this is love—perfectly consistent with even the most aggressive economic goals and the final and crucial ingredient in a joy-filled workplace. Postscript–Enter Into the Master’s Joy As Bakke grew up in his Christian home, he observed that people seemed to get more credit for contributing to society if they did it within a Christian rather than a secular context—with the exception of homemaking. Bakke always wanted to do something useful for society and felt called to service in the secular arena, but he never believed that work in government or business would be as honorable as church work. Searching for intersections between his desire to contribute, his calling, and his faith, he joined Christian Bible study and discussion groups and began to formulate a values- and principles-based approach to business. “God is not a typical boss,” Bakke writes. God delegated decision making to humans from their introduction in Eden. Adam’s and Eve’s jobs, and those of all humans who followed them, were to act as stewards—that is, keepers of the Earth and all that was created there. God appears pleased by all human work, not preferring one type over another. All kinds of production and management activities appear to honor and please the Creator, particularly if they please the person who does them. Bakke asserts that everyone working, regardless of where, should see his or her work as a sacred responsibility. We are called upon to steward our talents and skills and to use them in stewardship of the planet where we apply them. “Entering into the master’s joy” is a matter of recognizing that linkage. The Creator has delegated the decisions about Earth’s stewardship to us, and we ought to take that responsibility as a sacred trust and as a duty to honor our Creator in all we do.