Organizational Culture and Ethics - Case Study Example

? Organizational Culture and Ethics Overview Enron initiated its business in 1985 with the amalgamation of two “natural gas pipeline companies” located in Houston. The company witnessed various financial difficulties in this particular year. In 1988, the government deregulation of the electrical power division occurred as a result of which Enron shifted its business structure from “energy delivery” to “energy brokerage.” After this shift, Enron instantly transformed from a “surviving” to “thriving” company. Deregulation facilitated Enron to turn into a “match maker” within the electrical industries by bringing the buyers and sellers in the same market place. Owing to the deregulation, the company began operating in an innovative way. In this newly made innovative and deregulated circumstance, the company embraced and formed a corporate culture which further helped them to operate their business quite smoothly (Scribd Inc., 2012). Critically evaluate this case in the context of the organization’s culture. How were Enron's business ethics and business operations influenced by the organization’s culture? Specifically, what went wrong? The company, i.e. Enron, experienced a sharp decline which ultimately resulted in its collapse. Senior executives of Enron, namely Kenneth Lay, Jeffrey Skilling and Andrew Fastow, were repeatedly found to appear in the cover story of various business magazines. Kenneth Lay was the earliest Chief Executive Officer (CEO) of Enron who was quite well known for introducing an effective innovative structure in Enron, which helped it to survive in the initial years (Scribd Inc., 2012). The visitors entering the head office of the company situated at Smith Street in downtown Houston often were attracted by a striking poster in front of the office. The banner related to the company’s R.I.C.E principle, i.e. Respect, Integrity, Communication and Excellence. It was often believed by the visitors that the principles of the company reflected its corporate culture. However, in reality Enron hardly shared any association with the stated principles. In 1985, Enron was formed by the merger of two natural gas companies situated in Houston. This union was mainly debt-financed, which implies that Enron initiated its corporate life with a large amount of debt. Therefore, from the beginning, Enron was considered as a company which exemplified high risk. Enron operated under high business risks which were mainly encountered from the highly competitive and deregulated natural gas market. Subsequently, the company also witnessed a high financial risk owing to the merger which was persuaded by heavy debt loads (Macmillan, 2005). The business functions of Enron were operated by freshly hired business management graduates from the leading business schools of the United States. These skilled employees promised the company instant earning of profits as well as carried out the business under advanced form of operations. The Performance Review Committee (PRC) developed and sustained Enron’s corporate culture (Scribd Inc., 2012). Enron Corporation was a leading American energy company situated in Houston, Texas. The company operated with 21,000 workers and was one of the largest international providers of natural gas, electricity, pulp & paper along with communication. Enron performed quite well in the market and earned $110.9 million in 2000. The company enjoyed a high value or price for its shares along with gaining an effective position in the market. The various workers and staff of the company were quite satisfied and it was also found that qualified and skilled individuals preferred to work with Enron. Enron earned a higher degree of success which further gave rise to grave issues within the organizational operations. Enron made the decision of transforming their organizational structure by recruiting new employees in the higher positions, who were entitled to make big decisions regarding the company’s business operations, which entailed the chances of directly affecting the organizational culture. The reward scheme within the organization was also altered: only best performers were provided the opportunity to get bonuses as well as stock options (Scribd Inc., 2012). These new schemes and techniques were operated by an internal authority of the company, but the techniques failed to function appropriately because the employees who were assessing and the ones who were being assessed, respectively shared the same position which gave rise to biasness within themselves. The prevailing culture of the company made it intimidating for the workers to do something regarding their job task, which could likely offend the seniors. This formed quite an unbalanced corporate culture which was deemed to be based on fraudulence and finally led Enron to bankruptcy (Macmillan, 2005). The earlier structural pattern of the company was learned to be quite different and based on “constructivism” where the employees worked with enthusiasm and the motive of attaining more. The new corporate design failed to maintain the previous culture as it offered increasing authority to the young and newly recruited managers (Macmillan, 2005). What should have been the role and responsibility of company leadership (the Board of Directors, the CEO Ken Lay and others) in such an issue? In what ways did key executive players (e.g., Lay, Skilling, and Fastow) work to negatively reshape the culture, and with what adverse consequences? Andrew Fastow, Jeff Skilling and Ken Lay were amongst the famous top level executives of Enron. These individuals were considered to be responsible for the failure of the company. Andrew S. Fastow, the former Chief Financial Officer (CFO) of Enron, was found guilty of several money launderings, frauds and conspiracies while serving as a CFO in the company. Fastow was found guilty of a conspiracy which pertained to the working culture of the company. Owing to such a grave conspiracy, he was sentenced to 10 years of imprisonment and was charged with a penalty of $29.8 million (YouTube, n.d.). Jeff Skilling was accused of 35 repeated incidences of fraud such as creating fake statements and securities fraud on company’s financial reporting. Moreover, Ken Lay was accused of 11 repeated crimes of making fraud and deceptive statements of the company. The activities of these executives raised questions and doubts regarding their pursuance and focus on the “Enron Code of Ethics” (R.I.C.E) (You Tube, n.d.). Fastow was also found to be involved in several fraudulent activities which adversely affected the foundational value of the company’s “Code of Ethics.” Fastow was always found to make attempts in terms of hiding the company’s earnings from the stock market (YouTube, n.d.). By taking into consideration the business situation of Enron, it can be stated that it was the responsibility of the CFO to encourage a superior financial management system and procedure within the company. Moreover, the CFO should have analyzed, construed and presented the correct financial information in order to understand the available options which could have been considered to be the solutions of the complex issues regarding the financial operations. Furthermore, the CFO should have effectively focused on measuring as well as managing the business risks through a successful financial risk management framework. The CFO should have made suitable arrangements to ascertain that public money as well as resources were utilized economically, successfully and proficiently in the appropriate manner (Scribd Inc., 2012). Constructing a superior ethical culture is considered to be quite an imperative task which is supposed to be increasingly significant for the company’s board members as well as CEOs. However, this mentioned task is supposed to be quite difficult. The CEO is known to play quite a crucial role for creating a culture in the company which is ethically sound. By taking into deliberation the aspect of business ethics, the CEO needs to play a precise role as well as be bestowed with ample resources (Scribd Inc., 2012). How might Human Resource Management (HRM) have played a central role in setting the "moral compass" at Enron, helping to form and shape the organizational culture - perhaps avoiding the Enron debacle? The moral compass is known to represent a vision of morality, which helps to direct value-based leadership. “Moral compass” is supposed to be the guide which assists in managing such challenges. Moral compass offers the leaders with strong tools to control the complexities regarding the management of the company’s culture and strategic atmosphere by focusing directly on the stakeholders to provide a comprehension of the normative values. Moral compass is considered to be an exceptional aspect in relation to the business ethics in terms of offering a framework for managing the instability of ethical issues arising from the apprehensions among traditional, religious and modern ethics (Thompson, 2009). The major role of the Human Resource Management (HRM) team is to advise the management regarding the ways of strategically managing as well as controlling the employees, staff and operational resources of the company. Basically, HRM comprises the role of managing, recruiting as well as hiring people, organizing employees’ advantages, advising training procedures for the employees and also developing strategies regarding the culture of the company. However, in certain instances HRM needs to undertake the responsibility of maintaining an ethical culture within the company. Therefore, HRM should always keep a check on the unethical aspects happening within the functioning structure of the company. For maintaining a superior culture and reducing conflicts, HRM should make decisions in an ethical way. HRM should frequently screen the entire operational activities of the company, which include financials, marketing, attitude of the employees towards their tasks and communication flow between the management and the lower level of staff. For maintaining an ethical culture, the HRM must develop certain guidelines which need to be pursued by the entire workforce of the company. These guidelines should be developed in an ethical manner in order to control the culture and communication flow (Stokke, 2009). Furthermore, HRM also primarily deals with manpower planning as well as development of activities in relation to the prevailing culture in the company. HRM is also considered to be responsible to ensure fair and ethical treatment of the employees for gaining long-term employee trust and loyalty which deliver a range of different advantages for the employers (Stokke, 2009). In case of Enron, it can be well mentioned that the role of HRM should not have solely concentrated on the aspect of employee development but also required monitoring the activities of the employees closely. The Human Resource Department (HRD) should have restricted the rotation of employees in Enron. Owing to the lack of prolonged presence of the employees, the problems of the company failed to be identified timely. The control of HRM in Enron was learned to be limited to the top management, which again resulted in the failure of tracking the regular activities of the employees. The structure of the company was considered to be multifaceted and an overall management was not ensured by the HRM, which made the company take a considerable time to notice the fraud. Although Enron was known to engage a well structured “code of ethics,” the HRM failed to make certain of its pursuance by all the existing employees. Therefore, it can be well comprehended from the mentioned actualities that the executives of Enron were kept out of the management activities performed by the HRD. A proper management of the HR on all the employees and all levels of the company could have saved it from the debacle or rather collapse (Fisher, Schoenfeldt & Shaw, 2008). References Badaracco, J. L., & Webb, A. P. (1995). Business ethics: A view from the trenches. California Management Review, 37(2), 8–28. Fisher, C. D., Schoenfeldt, L. F., & Shaw, J. B. (2008). Human resource management. India: Dreamtech Press. Macmillan, P. (2005). Enron and world finance: A case study in ethics. Retrieved from http://www.strongwindpress.com/pdfs/TuiJian/Enron%20and%20World%20Finance%20-%20A%20Case%20Study%20in%20Ethics.pdf. Society for Human Resource and Management. (2011). HR and business ethics. Retrieved from http://www.shranh.org/statecouncil/Ethics%20presentation%2003-09%20-%20audience.pdf. Scribd Inc. (2012). Enron ethics – the culture of Enron. Retrieved from http://www.scribd.com/doc/87024122/Enron-Ethics. Stokke, P. (2009). The role of ethics in human resource. Retrieved from http://www.ourhrsite.com/Ethical_Org_P.Stokke-C.pdf. Thompson, L. J. (2009). The moral compass: Leadership for a free world. United States of America: Information Age Publishing. YouTube. (n.d.). Enron the smartest guys in the room. Retrieved from https://www.youtube.com/watch?v=0zMakN-EMLg&feature=player_embedded. Read More