Enron and Organizational Culture - Essay Example

?Critically analyze the complex nature in which a company's leadership shapes the ethics of its culture. In the wake of gloablization and a dynamic business environment, Organizational culture plays a key role in the way in which any organization shapes up. In simple terms, organizational culture can be described as a pattern based on the collective behavior of the people who are a part of the organization in terms of their thought process, ideas, beliefs, values and perception (Parker, 2000). According to Ravasi and Schults, organizational culture can be described as a collective set of 'mental assumptions' which leads to the description of 'appropriate behavior' in an organization (Ravasi and Schults, 2006). Organizational culture has an impact on the way in which an organization executes is vision and mission and affects the manner in which it deals with customers, employees and other third parties. It also determines some other critical aspects such as the level of involvement of employees in decision making process, innovation, contribution to new ideas as well as expression of opinion. The organizational culture also determines the hierarchy and the commitment that employees have towards to the organization. Organizational culture is often said to be one element that is most challenging to change or alter and hence, the way in which it gets shaped is very important (Cummings et al, 2004). Therefore, the way in which leadership of the organization paves and molds the development of culture is of critical importance. Enron and Organizational culture The Enron scandal which happened in early 2000s is one of the major scandals of corporate history where it came to light that the organizational leadership took advantage of certain loopholes in accounting and hence, did not show their losses and debts in their financial statements. As it was an accounting scam carried out purposely, the leadership Enron received major criticism on account of improper ethics as well as flawed organizational culture. Jeff Skilling (President) and Ken Lay, the CEO had intense focus on making huge profit and this compromised the ethics. To make this huge amount of profit, the employee reward system was changed to such a manner that compensation was totally based on the level of profit that an employee can produce and there were no caps on salaries. This resulted in an extremely competitive environment where dishonesty would be overlooked and profits were the only thing that mattered. The belief that making more money permeated through the organization in such a manner that it became a norm. According to Cruver (2003), it was clear to the employees that the leadership expected 'profit at all costs' from them. In addition, the focus was on short term bottom line which made the employees and traders even more aggressive towards making more money. Therefore, a culture was established where employees were hired and fired based on the profits that they bought to the organization. Enron Leadership and its responsibility in the Scandal As per Schein (1985), leadership is one aspect that causes the creation, reinforcement as well as change in the culture of the organization especially from an ethical perspective. The responsibility of the entire scam and the subsequent crisis lies with the leadership because the way in which the key executive players of the organizations such as Ken Lay and Jeff Skilling reshaped the culture determined this particular outcome. They adopted several strategies to make changes to the culture so that it centers around profit and money. One of the first strategies adopted by them was to shuffle their staff around and hence, giving pink slips to the employees based on performance became an accepted practice. However, as the employees were rewarded with a huge compensation for their performance, they cultivated a set of employees who were high performers, but who chose to ignore tenets of basic ethics. Hence, the entire culture of the organization underwent a transformation within a short period of time. As discussed earlier, the employee benefit system became more profit focused, which again led to an environment of extreme competition, where the employees who came at the bottom of the ranking system were fired (Stephens and Behr, 2002). Also, people who questioned certain aspects were either silenced or fired. It is a given fact that if the leadership of the organization repeatedly focuses only on the profit, then the idea permeates to the employees and they also begin to believe that the level of profit is the value that is of utmost importance and this is exactly what happened with the organizational culture of Enron (Cruver, 2003). Furthermore, in the even when Enron was facing the challenge on how to ensure a consistently high rate of growth, the leadership again defended that profitability was the top driving factor and all other issues were not that important. The adverse consequence was that an environment of 'group think' emerged, where the employees became strong conformists to the policy of making profit in such a way that other aspects did not matter anymore. Later, when the scams got revealed, it also resulted in the whole organization collapsing like a 'pack of cards' (Stephens and Behr, 2002). Therefore, it can be said that the leadership consisting of Ken Lay and Jeff Skilling can be totally held responsible for bringing about a negative culture in the organization, by restricting their focus exclusively on the bottom line and not giving any value to ethics. In addition, the board of directors of the organization was invested in the leadership and since it was not independent, it could not take any steps to either prevent the scam or bring about a transformation to a positive culture. How HRM could have played a role in shaping the organizational culture of Enron The debacle of Enron brings to light, the utmost importance of a good organizational culture which could have been shaped with human resources management. With Enron, the Human Resources department was handled in such a manner that it did not have any significant say among the leadership and hence, an HRM policy to reinforce ethics and values could not be enforced (Swarts and Watkins, 2004). While the organization did have a Code of Ethics, there were no means to implement them. However, if the HR team of the organization had a significant say, it could have bought about a change in organization culture. There were several steps that the HR could undertake to bring about this change. The first one was to make change to the moral climate by providing a long term perspective, rather than a short term financial goal. Therefore, actions such as setting up long term growth goals, implications of their roles from a longer perspective could have taken away the aggressive short term competitive spirit. The Human Resources team also can provide adequate perspective to the leadership by providing insights into how both ethical and legal transgressions can lead to negative consequences not only in terms of organizational culture, but also in terms of future of the organization. To bring about a ethical culture, the entire compensation policy could have been revised by the Human Resources team. It is necessary for any organization to make sure that the rewards policy is executed with disciple. While making an impact on the bottom line of the organization is important, adequate focus also should be given to the manner in which the impact is made. For example, rewarding employees who achieve their targets in an ethical manner is extremely critical. A robust HRM policy which dictates the hiring method could have bought about a sea change in the culture of Enron - as it can result in the retention of employees who are not only hard workers but also ethically compliant, co-operative and team workers. In addition, random firing of employees could also have been avoided with this policy. Citations Cummings, T. & Worley, C. G. (2004). Organization Development and Change, 8th Ed., San Diego: South-Western College Pub. Cruver, B. (2003). Anatomy of Greed: Telling the Unshredded Truth from Inside Enron. New York: Basic Books. Parker, M. (2000) Organizational Culture and Identity, London: Sage. Ravasi, D., Schultz, M. (2006). Responding to organizational identity threats: exploring the role of organizational culture, Academy of Management Journal, 49 (3), 433–458. Stephens, J. and Behr, P. (2002). Enron’s Cul­ture Fed Its Demise: Group­think Pro­moted Fool­hardy Risks. Wash­ing­ton Post – A: 01. Schein, E. (1985). Orga­ni­za­tional Cul­ture and Lead­er­ship. San Francisco: Jossey-Bass Swartz, M and Watkins, S. (March 9, 2004). Power Failure: The Inside Story of the Collapse of Enron. New York: Broadway Business. Read More