1. How did the structure of Enron impact the human behavior of those who were employed by the company?
The organizational structure of Enron was a calculated one with a clique that was thought as being the “smartest” guiding the rest of the workers. It included Kenneth Lay: Chairman, and Chief executive officer, Jeffrey Skilling: President, Chief operating officer, and CEO (February–August 2001), and Andrew Fastow: Chief financial officer. With the leaders known to be wise and smart, the workers and traders believed in them. They did what was asked of them by the employers. The clique ensured money was not an issue for the workers and subsidies were allocated to them at will. This in itself encouraged the workers to be hardworking and yet
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This structure establishes the power allocated to the leaders, it ensures what leaders say, goes. The leaders in Enron made the decisions and the others were expected to follow the new rules. Another structure employed by the fallen company was Professional Bureaucracy. This was what made Jeff Skilling to acquire his position and the respect he attained. The structure supports the technostructure of a company so that analysts, technicians and the other tech-knowers attain the higher table in the company. Since the company was focused more on the end result, the divisional structure might be also applied. This structure leans towards where employees in the various departments within the organization did what they had to do to deliver on their responsibilities. Divisionalized structure offers economies of scale, resources, and responsiveness while controlling economic risk, but it also creates other tensions. One is that the headquarters and division were battling between each other. It could be one of the weaknesses that was exploited, which lead to a lack of accountability and trust. The result of this action was a manipulation of the books of accounts to impress stakeholders.
3. Chapter 5 lists six characteristics of high-performing teams. Which of those do you believe were present at Enron and which were not? Explain your responses.
For an organization to succeed, the company must elaborate these characteristics as expressed
Before going into an analysis on the organizational culture at Enron, I will first elaborate on the severity of the unethical behavior that existed at Enron. The problem can best be shown in the words of an Enron employee who said “If I’m going to my boss’s office to talk about compensation, and if I step on some guy’s throat and that doubles it, then I’ll stomp on that guy’s throat”(Enron: The Smartest Guys in the Room). This culture of greed and corruption can also be seen through Enron’s mark to market accounting system, in which Enron cashed in on ideas and “future profits” without actually making anything. Furthermore,
Enron started out as a dominant culture. Kenneth Lay and Jeffrey Skilling had a vision of how they wanted the company to be and where they wanted it to go. When Lay put Skilling in charge, he made it his mission to hire the best traders, recruiting them from the best schools and other companies. They gave employees corporate rewards like concierge services and a company gym. As the company grew larger, the culture began to take a turn for the worse. Enron demonstrated a few cultural dimensions such as high risk-taking, outcome orientation, and aggressiveness. Skilling established the Performance Review Committee which was an extremely harsh ranking system. It was
Whenever someone hears the word "Enron" today, they usually think of the transgressions committed by the top-level executives who successfully managed to destroy the company's reputation and achievements.
Enron was a publicly traded energy company formed in 1985 by Kenneth Lay when Internorth acquired Houston Natural Gas; the company, based in Houston Texas, Enron (originally entitled “EnterOn”, but was later subjected to abbreviation), worked specifically in power, natural gas, and paper and even ventured into various non-energy-based fields as they expanded, including: Internet bandwidth, risk management, and weather derivatives. Several years after the founding of the company, Enron hired a man by the name of Jeffrey Skilling, a former chemical and energy consultant, who, upon promotion, created a team of high-level administrative employees who, by using special purpose entities, lackluster reporting of finances, and unethical accounting practices, hid billions of dollars of debt from unsuccessful arrangements and ventures from stock holders and the U.S. Securities and Exchange Commission. Enron executives achieved this scheme by using a controversial accounting method entitled “mark-to-market accounting,” which in essence, assigns value to financial commodities based on their projected market values; mark-to-market accounting is the opposite of cost-based accounting which records the price of a commodity at the purchase price. As a result of this new method, Enron’s worth skyrocketed to over $70 billion at one time, only to collapse miserably several years later—ultimately costing thousands upon thousands of people their jobs, pensions, and retirements. Enron’s employees
Enron made greater use of social control as a means of guiding employee action, however, the company did have limited methods of formal control in place. By using social influence tactics, limiting dissenting opinion, and inflicting a sense of high cohesion among employees, Enron deceived millions into believing the company was more profitable than it actually was. Because Enron’s values and norms were not conducive to a successful, ethical company, the employee’s targets, attitudes, and behaviors led to Enron’s undesirable outcomes. (O’Reilly and Chatman 165) Enron’s downfall can be largely contributed to its norms and values, of which were not strategically appropriate. Enron valued money above all else, which was
Enron’s executives had large expense accounts and were compensated far beyond the competitors within the industry. Kenneth Lay, CEO of Enron, received over $250 million in compensation from the company over his 17 years with the company. Enron’s culture of arrogance resulted in a two year increase in fictitious revenue of nearly $70 billion from 1998 to 2000. Executives’ compensation within Enron’s energy services division was based on a market valuation formula that was influenced by internal estimates which created a pressure to inflate contracts despite having no effect on the generation of cash flow. Skilling introduced a policy in which the employees ranked in the bottom 20% of the company were forced to leave (Mclean, Varchaver, Helyar, Revell, and Sung, 2001). This created a competitive atmosphere internally and, in many cases, caused the workers to ignore potential errors and
Enron is viewed by many as the quintessential corrupt corporate juggernaut. Corporations are nothing more than a collection of people. If a corporation is corrupt than it must be filled with corrupt employs, and led by a front office devoid of moral standards, right? Perhaps this is not entirely true. Certainly an element of corruption was present in the case of Enron, the number of corrupt employees may not have been as encompassing as presumed. When asked to rate their level of honesty, most would respond that they are honest. In actuality, most people are not completely honest, and their level of dishonesty is correlated with their ability to rationalize the dishonesty and preserve their self- image as an honest and admirable person
The first important factor in the Enron case advanced interests on share price. The second factor how the company was liberalized over the past 20 years along with the reduction of legal responsibility of investment banks and accounting firms. The third factor, which is the most important, was the immediate alteration of pay packages given to investment bankers, executives, and accountants (Barreveld, 2002). In this case, the factors mentioned above was a result of the culture implemented by the executive leaders whom were influenced by unethical behaviors they engaged in. One could agree that Enron was definitely reaping the bad seeds that the
2. Enron employees were motivated by vanity and greed. Management used promotions, hefty raises and bonuses to motivate their employees. The focus was placed on meeting financial needs. It was effective in motivating those who were extremely ambitious and did not have concerns for ethical practices but put their focus on earnings and acquiring wealth.
As with much of Enron, their outward appearance did not match what was really going on inside the company. Enron ended up cultivating their own demise for bankruptcy by how they ran their company. This corrupt corporate culture was a place whose employees threw ethical responsibility to the wind if it meant financial gain. At Enron, the employees were motivated by a very “cut-throat” culture. If an employee didn’t perform well enough, they would simply be replaced by someone who could. “The company’s culture had profound effects on the ethics of its employees” (Sims, pg.243). Like a parent to their children, when the executives of a company pursue unethical financial means, it sets a certain tone for their employees and even the market of the company. As mentioned before, Enron had a very “cut-throat” attitude in regards to their employees. This also became one Enron’s main ethical falling points. According to the class text, “employees were rated every six months, with those ranked in the bottom 20 percent forced to leave” (Ferrell, 2017, pg. 287). This system which pits employees against each other rather than having them work together will create a workplace of dishonesty and a recipe of disaster for the company. This coupled with the objective of financial growth, creates a very dim opportunity for any ethical culture. “The entire cultural framework of Enron not only allowed unethical behavior to flourish,
The trading part of Enron’s business was hugely successful, in the beginning. Traders and executives were given huge bonuses and stock options, based on their performance. With this newfound success, the culture at Enron slowly evolved. All new hires that entered Enron were evaluated based on their ability to generate profits. Characteristics like teamwork and loyalty were no longer important. If you were a team player, but didn’t make profits, you were fired. This culture created a dysfunctional and cutthroat atmosphere at Enron.
In this case of Enron the corporate culture played a vital role of its collapse. It was culture of full of moneymaking strategies and greed, in the firm Greed was good and money was God. There was no or very little regards for ethics or the law, they operated as there was no law and ethics in the world (Enron Ethics, 2010). Such culture affected all the employees of the firm from top to down. Organizational culture supported unethical behaviour and practises, corruption, cheating and those were all widespread. Many executives and managers knew that the firm is following illegal and unethical practises, but the executives and the board of directors did not knew how to change this unethical culture, the firm used creative accounting and were making showing misleading profits every day. Reputation management enabled them carry on their illegal and unethical operations. Moreover if the company made huge Revenue in the unethical way then the new individual who joined the firm would also have to practise all those unethical practises to survive in the company. All of the management was filled by greed and ambition, their decisions became seriously imperfect, thus the firm fell back and managers had to pay in the price in the form imprisonment and fines. Greed is the main key factors that brought the Enron “the most innovative company” to downfall. Enron was looking into the ways of
Enron Corporation was an energy company founded in Omaha, Nebraska. The corporation chose Houston, Texas to home its headquarters and staffed about 20,000 people. It was one of the largest natural gas and electricity providers in the United States, and even the world. In the 1990’s, Enron was widely considered a highly innovative, financially booming company, with shares trading at about $90 at their highest points. Little did the public know, the success of the company was a gigantic lie, and possibly the largest example of white-collar crime in the history of business.
Enron collapsed in large part because of the unethical practices of its executives. Egoism (Self interest) was one of the major factors contributed to the failure of Enron. Enron’s executives put their own interests above those of their employees, company and the public, and failed to exercise proper oversight or shoulder responsibility for ethical failings. They allowed themselves to be motivated much more by what would benefit themselves than what would truly benefit the company. Money, greed, arrogance and hubris led company executives to lose focus on working for the good of the company and to act
Enron’s code of ethics was supposed to be based on respect, integrity, communication and excellence…most of the upper management failed on one or all of the codes. Lay and Skilling had little or no integrity based on their approval of the shoddy accounting practices. They had their own corporate culture driven by greed and intimidation. The top management was continuously aggressive in getting its employees to meet the sales objectives irrespective of ethical behavior. This aggressive earnings management style forces employee to try to accomplish goals regardless of the moral and ethical cost.