by Adam Grant
Then he was indicted.
His name was Kenneth Lay, and he is best remembered as a primary villain in the Enron scandal. Enron was an energy, commodities, and securities firm headquartered in Houston. In October 2001, Enron lost $1.2 billion in shareholder equity after reporting third-quarter losses of $618 million, the biggest earnings restatement in U.S. history. In December, Enron went bankrupt, leaving twenty thousand employees jobless, many watching their life savings practically erased by the company’s fall. Investigators found that Enron had deceived investors by reporting false profits and hiding debts of more than $1 billion, manipulated energy and power markets in California and Texas, and won international contracts by giving illegal bribes to foreign governments. Lay was convicted on six counts of conspiracy and fraud.
We can debate about how much Lay truly knew about Enron’s illegal activities, but it’s difficult to deny that he was a taker. Although Lay may have looked like a giver to many observers, he was a faker: a taker in disguise. Lay felt entitled to use Enron’s resources for personal gain. As Bethany McLean and Peter Elkind describe in The Smartest Guys in the Room, Lay took exorbitant loans from the company and had his staff put his sandwiches on silver platters and fine china. A secretary once tried to reserve an Enron plane for an executive to do business, only to learn that the Lay family was currently using three Enron planes for personal travel. From 1997 to 1998, $4.5 million in Enron commissions went to a travel agency owned by Lay’s sister. According to accusations, he sold more than $70 million in stock just before Enron went bankrupt, taking the treasure from a sinking ship. This behavior was foreshadowed in the 1970s when Lay worked at Exxon. A boss wrote a reference recommending Lay highly, but warned that he was “Maybe too ambitious.” Observers now believe that as early as 1987, at Enron Oil, Lay approved and helped to conceal the activities of two traders who set up fake companies and stole $3.8 million while allowing Enron to avoid massive trading losses. When the losses were discovered, Enron Oil had to report an $85 million hit, and Lay denied knowledge and responsibility: “If anyone could say that I knew, let them stand up.” According to McLean and Elkind, one trader started to stand up but was physically restrained by two colleagues.
How did a taker end up becoming so successful? He knew somebody. In fact, he knew a whole lot of somebodies. Ken Lay profited greatly from claiming his company’s financial resources as his own, but much of his success in growing that company came the old-fashioned way: he built a network of influential contacts and leveraged them for his own benefit. Lay was a master networker from the start. In college, he impressed an economics professor named Pinkney Walker and started his ascent on the shoulders of Walker’s connections. Walker helped Lay land an assignment as an economist at the Pentagon, and then a position as a chief assistant in the White House in the Nixon administration.
By the mid-1980s, Lay became the head of Enron after engineering the company’s move to Houston following a merger. As he consolidated his power, he began to hobnob with political power brokers who could support Enron’s interests. He put Pinkney Walker’s brother Charls on Enron’s board and developed a relationship with George H. W. Bush, who was running for president. In 1990, Lay cochaired an important Summit of Industrialized Nations meeting for Bush in Houston, putting on a dazzling show and charming the crowd, which included British prime minister Margaret Thatcher, German chancellor Helmut Kohl, and French president François Mitterrand. After Bush lost his reelection bid to Bill Clinton, Lay wasted no time in reaching out to a friend who was a key aide to the president-elect—the friend had gone to kindergarten with Clinton. Soon, Lay was playing golf with the new president. Several years later, as George W. Bush gained power, Lay used his connections to lobby for energy deregulation and get his supporters in important government positions in Texas and the White House, influencing policies in Enron’s favor. At nearly every stage in his career, Lay was able to dramatically improve his company’s prospects—or his own—by making use of well-placed contacts in his network.
For centuries, we have recognized the importance of networking. According to Brian Uzzi, a management professor at Northwestern University, networks come with three major advantages: private information, diverse skills, and power. By developing a strong network, people can gain invaluable access to knowledge, expertise, and influence. Extensive research demonstrates that people with rich networks achieve higher performance ratings, get promoted faster, and earn more money. And because networks are based on interactions and relationships, they serve as a powerful prism for understanding the impact of reciprocity styles on success. How do people relate to others in their networks, and what do they see as the purpose of networking?
On the one hand, the very notion of networking often has negative connotations. When we meet a new person who expresses enthusiasm about connecting, we frequently wonder whether he’s acting friendly because he’s genuinely interested in a relationship that will benefit both of us, or because he wants something from us. At some point in your life, you’ve probably experienced the frustration of dealing with slick schmoozers who are nice to your face when they want a favor, but end up stabbing you in the back—or simply ignoring you—after they get what they want. This faker style of networking casts the entire enterprise as Machiavellian, a self-serving activity in which people make connections for the sole purpose of advancing their own interests. On the other hand, givers and matchers often see networking as an appealing way to connect with new people and ideas. We meet many people throughout our professional and personal lives, and since we all have different knowledge and resources, it makes sense to turn to these people to exchange help, advice, and introductions. This raises a fundamental question: Can people build up networks that have breadth and depth using different reciprocity styles? Or does one style consistently create a richer network?
In this chapter, I want to examine how givers, takers, and matchers develop fundamentally distinct networks, and why their interactions within these networks have different characters and consequences. You’ll see how givers and takers build and manage their networks differently, and learn about some clues that they leak along the way—including how we could have recognized the takers at Enron four years before the company collapsed. Ultimately, I want to argue that while givers and takers may have equally large networks, givers are able to produce far more lasting value through their networks, and in ways that might not seem obvious.
In 2011, Fortune conducted extensive research to identify the best networker in the United States. The goal was to use online social networks to figure out who had the most connections to America’s most powerful people. The staff compiled a list of the Fortune 500 CEOs, as well as Fortune’s lists of the 50 smartest people in technology, the 50 most powerful women, and the 40 hottest rising stars in business under age forty. Then, they cross-referenced this list of 640 powerful people against LinkedIn’s entire database of more than ninety million members.
The winning networker was connected on LinkedIn to more of Fortune’s 640 movers and shakers than anyone else on earth. The winner had more than 3,000 LinkedIn connections, including Netscape cofounder Marc Andreessen, Twitter cofounder Evan Williams, Flickr cofounder Caterina Fake, Facebook cofounder Dustin Moskovitz, Napster cofounder Sean Parker, and Half.com founder Josh Kopelman—not to mention the former chef of the Grateful Dead. As you’ll see later, this networker extraordinaire is a giver. “It seems counterintuitive, but the more altruistic your attitude, the more benefits you will gain from the relationship,” writes LinkedIn founder Reid Hoffman. “If you set out to help others,” he explains, “you will rapidly reinforce your own reputation and expand your universe of possibilities.” Part of this, I’ll argue, has to do with the way networks themselves have changed and are still evolving. At the heart of my inquiry, though, lies an exploration of how the motives with which we approach networking shape the strength and reach of those networks, as well as the way that energy fl
ows through them.
Spotting the Taker in a Giver’s Clothes
If you’ve ever put your guard up when meeting a new colleague, it’s probably because you thought you picked up on the scent of self-serving motives. When we see a taker coming, we protect ourselves by closing the door to our networks, withholding our trust and help. To avoid getting shut out, many takers become good fakers, acting generously so that they can waltz into our networks disguised as givers or matchers. For the better part of two decades, this worked for Ken Lay, whose favors and charitable contributions enabled people to see him in a positive light, opening the door to new ties and sources of help.
But it can be difficult for takers to keep up the façade in all of their interactions. Ken Lay was charming when mingling with powerful people in Washington, but many of his peers and subordinates saw through him. Looking back, one former Enron employee said, “If you wanted to get Lay to attend a meeting, you needed to invite someone important.” There’s a Dutch phrase that captures this duality beautifully: “kissing up, kicking down.” Although takers tend to be dominant and controlling with subordinates, they’re surprisingly submissive and deferential toward superiors. When takers deal with powerful people, they become convincing fakers. Takers want to be admired by influential superiors, so they go out of their way to charm and flatter. As a result, powerful people tend to form glowing first impressions of takers. A trio of German psychologists found that when strangers first encountered people, the ones they liked most were those “with a sense of entitlement and a tendency to manipulate and exploit others.”
When kissing up, takers are often good fakers. In 1998, when Wall Street analysts visited Enron, Lay recruited seventy employees to pretend to be busy traders, hoping to wow the analysts with the image of a productive energy trading business. Lay led the analysts through the charade, where the employees were asked to bring personal photos to a different floor of the building so it looked like they worked there, and put on a show. They made imaginary phone calls, creating a ruse that they were busy buying and selling energy and gas. This is another sign that Lay was a taker: he was obsessed with making a good impression upward, but worried less about how he was seen by those below him. As Samuel Johnson purportedly wrote, “The true measure of a man is how he treats someone who can do him absolutely no good.”
Takers may rise by kissing up, but they often fall by kicking down. When Lay sought to impress the Wall Street analysts, he did so by exploiting his own employees, asking them to compromise their integrity to construct a façade that would deceive the analysts. Research shows that as people gain power, they feel large and in charge: less constrained and freer to express their natural tendencies. As takers gain power, they pay less attention to how they’re perceived by those below and next to them; they feel entitled to pursue self-serving goals and claim as much value as they can. Over time, treating peers and subordinates poorly jeopardizes their relationships and reputations. After all, most people are matchers: their core values emphasize fairness, equality, and reciprocity. When takers violate these principles, matchers in their networks believe in an eye for an eye, so they want to see justice served.
To illustrate, imagine that you’re participating in a famous study led by Daniel Kahneman, the Nobel Prize–winning psychologist at Princeton. You’re playing what’s known as the ultimatum game, and you sit down across the table from a stranger who has just been given $10. His task is to present you with a proposal about how the money will be divided between the two of you. It’s an ultimatum: you can either accept the proposal as it stands and split the money as proposed, or you can reject it, and both of you will get nothing. You might never see each other again, so he acts like a taker, keeping $8 and offering you only $2. What do you do?
In terms of pure profit, it’s rational for you to accept the offer. After all, $2 is better than nothing. But if you’re like most people, you reject it. You’re willing to sacrifice the money to punish the taker for being unfair, walking away with nothing just to keep him from earning $8. Evidence shows that the vast majority of people in this position reject proposals that are imbalanced to the tune of 80 percent or more for the divider.*
Why do we punish takers for being unfair? It’s not spite. We’re not getting revenge on takers for trying to take advantage of us. It’s about justice. If you’re a matcher, you’ll also punish takers for acting unfairly toward other people. Gretchen Rubin calls matchers the “karma police.” In another study spearheaded by Kahneman, people had a choice between splitting $12 evenly with a taker who had made an unfair proposal in the past or splitting $10 evenly with a matcher who had made a fair proposal in the past. More than 80 percent of the people preferred to split $10 evenly with the matcher, accepting $5 rather than $6 to prevent the taker from getting $6.
In networks, new research shows that when people get burned by takers, they punish them by sharing reputational information. “Gossip represents a widespread, efficient, and low-cost form of punishment,” write the social scientists Matthew Feinberg, Joey Cheng, and Robb Willer. When reputational information suggests that someone has taker tendencies, we can withhold trust and avoid being exploited. Over time, as their reputations spread, takers end up cutting existing ties and burning bridges with potential new ties. When Lay’s taking was revealed, many of his former supporters—including the Bush family—distanced themselves from him. As Wayne Baker, a University of Michigan sociologist and networking expert, explains, “If we create networks with the sole intention of getting something, we won’t succeed. We can’t pursue the benefits of networks; the benefits ensue from investments in meaningful activities and relationships.”
Before we make the leap of investing in relationships, though, we need to be able to recognize takers in our everyday interactions. For many of us, a challenge of networking lies in trying to guess the motives or intentions of a new contact, especially since we’ve seen that takers can be quite adept at posing as givers when there’s a potential return. Is the next person you meet interested in a genuine connection or merely seeking personal gains—and is there a good way to tell the difference?
Luckily, research shows that takers leak clues. Well, more precisely, takers lek clues.
In the animal kingdom, lekking refers to a ritual in which males show off their desirability as mates. When it’s time to breed, they gather in a common place and take their established positions. They put on extravagant displays to impress and court female audiences. Some do mating dances. Some sing alluring songs. Some even do acrobatics. The most striking display of lekking occurs among male peacocks. Each mating season, the males assume their positions and begin parading their plumage. They strut. They spread their feathers. They spin around to flaunt their tails.
In the CEO kingdom, takers do a dance that looks remarkably similar.
In a landmark study, strategy professors Arijit Chatterjee and Donald Hambrick studied more than a hundred CEOs in computer hardware and software companies. They analyzed each company’s annual reports over more than a decade, looking for signs of lekking. What they found would forever change the face of leadership.
It turns out that we could have anticipated the collapse of Enron as early as 1997, without ever meeting Ken Lay or looking at a single number. The warning signs of Enron’s demise are visible in a single image, captured four years before the company unraveled. Take a look at the two pictures of CEOs below, reproduced from their companies’ annual reports. Both men started their lives in poverty, worked in the Nixon administration, founded their own companies, became rich CEOs, and donated substantial sums of money to charity. Can you tell from their faces—or their clothes—which one was a taker?
The man on the left is Jon Huntsman Sr., a giver whom we’ll meet in chapter 6, from his company’s 2006 annual report. The photo on the right depicts Ken Lay. Thousands of experts have analyzed Enron’s financial statements, but they’ve missed an important fact: a pictu
re really is worth a thousand words. Had we looked more carefully at the Enron reports, we might have recognized the telltale signs of takers lekking at the helm.
But these signs aren’t where I expected to find them—they’re not in the faces or attire of the CEOs. In their study of CEOs in the computer industry, Chatterjee and Hambrick had a hunch that takers would see themselves as the suns in their companies’ solar systems. They found several clues of takers lekking at the top. One signal appeared in CEO interviews. Since takers tend to be self-absorbed, they’re more likely to use first-person singular pronouns like I, me, mine, my, and myself—versus first-person plural pronouns like we, us, our, ours, and ourselves. In the computer industry, when talking about the company, on average, 21 percent of CEOs’ first-person pronouns were in the singular. For the extreme takers, 39 percent of their first-person pronouns were in the singular. Of every ten words that the taker CEOs uttered referencing themselves, four were about themselves alone and no one else.