Essay about Enron's Organizational Culture

Finance and accounting remain the core of the Enron story, but the company's cowboy culture -- and the way top bosses such as Mr. Fastow and former Chief Executive Jeffrey Skilling inspired it -- are also key to understanding what happened in this historic business debacle. Only now is the full scope becoming apparent, amid government probes and a growing willingness by some former and current employees to speak about it.

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,

Jumping right into the summary then. Enron was one of the most successful corporations in America during its prime. Marketing electricity and other commodities, as well as, providing financial and risk management services to other companies were the main types of business that Enron conducted. However, Enron’s successful appearance was found out to be a façade, when it came out that the corporation was making a plethora of unethical business moves. Once the corporation’s actions became public, Enron’s fall from grace quickly followed. (Johnson, 2003)

Enron’s ride is quite a phenomenon: from a regional gas pipeline trader to the largest energy trader in the world, and then back down the hill into bankruptcy and disgrace. As a matter of fact, it took Enron 16 years to go from about $10 billion of assets to $65 billion of assets, and 24 days to go bankruptcy. Enron is also one of the most celebrated business ethics cases in the century. There are so many things that went wrong within the organization, from all personal (prescriptive and psychological approaches), managerial (group norms, reward system, etc.), and organizational (world-class culture) perspectives. This paper will focus on the business ethics issues at Enron that were raised from the documentation Enron: The Smartest Guys

3. (10 pts.) Enron will be an example of a dysfunctional company for many years to come. It was clearly a company riddled with fraud and excess and its conduct drove it into bankruptcy. The text argues that individual behavior was not at the core of Enron’s problems. What were the problems with this corporation from an organizational architecture point of view?

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

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,

As the stock prices were inflated, the liquidity of the company was spread very thin. Through the individual business ventures of these highly educated individuals, Enron took out loans and spread their finances thin. Additionally, there was an intense culture of competition within Enron. Skilling implemented an intense employee evaluation system (PRC 360-degree review) in which employees were judged on the profits of their projects. The bottom 10% of employees according to this evaluation were often fired or demoted. This created a state of individual paranoia at Enron in which individuals, in order to keep their jobs, were forced into using shady accounting practices and not worrying about the future considerations of a deal as long as it turned a short term profit. Because of this intense culture of internal competition, employees at Enron (even the ones who felt they were using unethical practices) were reluctant to speak up. The corporate culture made it hard for ethical objections to be heard or taken seriously. In an employee 's recollection of his experience at Enron it was noted that "saying things like 'This doesn 't make sense ' was unofficially sanctioned …I got the idea that not many people actually knew what was going on, and asking questions would further show this lack of knowledge." Furthermore, Enron 's message about their values was demonstrated through the actions

On the superficial level, the attitudes and motives behind the events and decisions causing eventual downfall seem simple enough: collective and individual greed created in the atmosphere of corporate arrogance. As Enron's reputation in the global environment grew, the internal culture of the organization began to worsen significantly. Skilling, Enron Chief Executive, founded the Performance Review Committee, PRC, which gained the reputation of the harshest employee-ranking system in the whole country. Theoretically, this review system was based on the values of Enron - respect, integrity, communication and excellence (RICE). But at the end of the

Greg Whalley, (former Enron President and Chief Operation Officer) had six to eight conversations last fall with the Treasury’s Department Peter Fisher, including one in which he asked Fisher to call Enron’s lenders as they decided whether to extend credit to the company.

The company Enron was formed in 1985 after two natural gas companies, Houston Natural Gas and InterNorth merged together. Kenneth Lay, former chief executive officer of Houston Natural Gas was named CEO of Enron and a year later, Lay was assigned to the chairman of Enron. A few years later, Enron launched a website to allow customers to buy stock for Enron, making it the largest business site in the world. The growth of Enron was rapid; it was even named seventh largest company on the Fortune 500 list; however things began to fall apart in 2001. (News, 2006). In the third quarter of that same year, Enron posted an enormous loss of over $600 million in four years. This is one of the reasons why one of the top executive resigned even though he had only after six months on the job. Their stock prices fell dramatically. Eventually, Enron filed for bankruptcy protection. This caused many investors to lose money they had invested in the company and employees to lose their jobs and their investments, including their retirement funds. The filing of bankruptcy and the resignation of one of the top executives, also led to an investigation by the U.S. Securities and Exchange Committee, which proved to be one of the biggest scandals in U.S. history. (News, 2006). All former senior executives stood trial for their illegal practices.

     Thomas C. Mawhinney has a different approach to making a good corporate culture. His six ideas are the managers behavior, employee selection, the external culture, establishing a clear corporate mission, keep the mission up front, managers must reflect the desired culture, and employee’s learning must be ongoing, (Mawhinney, 23-74). Mawhinney’s first idea is the manager’s behavior. “Studies indicate that the single greatest influence on the work culture is the manager” (Mawhinney, 28). “The speed of the boss is the speed of the team”, said Chrysler chairman Lee Iacocca.

With Enron, the responsibility and blame started with Enron’s executives, Kenneth Lay, Jeffrey Skilling, and Andrew Fastow. Their goal was to make Enron into the world’s greatest company. To make this goal a reality, they created a company culture that encouraged “rule breaking” and went so far as to “discourage employees from reporting and investigating ethical lapses and questionable business dealings” (Knapp, 2010, p. 14). They insisted the employees use aggressive and illegal

With a brief overview of Enron given, the unethical tactics that took place amongst the leadership in Enron is important for discussion. At the head of all the unethical tactics lay Kenneth Lay, CEO of Enron, who is the most recent and visible cases of alleged CEO failure to act accountable and responsible (Ferrell & Ferrell, 2010). According to Ferrell and Ferrell (2010), no other high-ranking executive has had as much of an impact on the scrutiny of business ethics in America than Ken Lay, making Enron the ultimate example of corporate wrongdoing. Of the employees involved, there were 22 that were indicted or convicted; to show how deep the wrongdoings went, there were 130 unindicted co-conspirators that worked for Ken Lay (Ferrell & Ferrell, 2010). This goes to show the influence, though negative, he had down the line. Culture plays a big part in organizations, and ethical rule bending was a part of the midlevel management corporate culture at Enron (Ferrell & Ferrell, 2010). Enron has been described as having a culture of arrogance,