Enron - Business Ethics and Social Responsibility - Case Study Example

Managing people and Organizations Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Instructor Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Table of Contents Table of Contents 2 Introduction 3 Enron Case 4 People’s Behavior 5 The Bystanders Effect 5 The Situation of Ambiguity 6 Leadership and people’s management 7 Employee’s engagement 8 Code of conduct 8 Greed 9 Organization management structure 9 Self centeredness of the leaders 10 Conclusion and recommendations 10 Bibliography 13 Introduction In any given organization, it’s is people who provide leadership and followership. In other words, for the success of any organization, the presence of a competent workforce is paramount for the success of the set goals and objective (Caldwel 2001). It is people who formulate strategies which are aimed at helping the organization be competitive in the ever dynamic business arena. It is hard for to understand the causes of organizational behavior without having a very deep understanding of people of it is them, who drive the entire organization. It is a matter of fact that, organizations can be defined as major social units devised by people to get things done. In many organizations however do not value people and thus take them for granted and mistreat them and in such organizations, accountability or stewardship is not part of their leadership (Caldwell 2004). It is worth noting that, I in any organizational operations, there are high chances that working with people is inevitable. No matter how hard one tries to remain isolated from the other, regardless of the position in the organizational hierarchy, constant involvement of people is inevitable. This therefore entails that, treating people accordingly in the organization is of great importance (Healy & Palepu 2003). This is further attributed to the fact that, unhappy and dissatisfied employees contribute to the down fall of the organization for customers satisfaction is correlated to employee’s satisfaction. To improve profitability and performance, organizations must make sure that the employees are well taken care of and satisfied. Additionally, in managing people, adhering to the factors related to the same is of great importance. For instance consistency, respect, inclusion and honesty are a prerequisite in peoples management (Healy & Palepu 2003). In this case, team members should be treated in a comparative way without any traces of favorites and discrimination. In the team, diverse skills are inevitable, these differences must be treated with repect or rather they should be respected. Inclusion means that, all team members make different views and their views should be considered. Lastly, honesty should be present in whatever is going bad or is faring well in the organization. Enron Case Many companies have been very irresponsible and in the long run causing a lot of harm to the entire organization and even the stakeholders at large. Enron for instance was involved in a scandal tht followed the Security and Exchange Commission’s investigations into its accounting irregularities, whereby they were forced to write down their its earning from 1997 by 2.2 million dollars, having even excluded Chewco and Joint energy Development Investor from its consolidated financial systems (Healy & Palepu 2003). They had even kept a balance amounting to $600 million which was closely linked to these partnerships off the balance sheet, managing to maintain a balance in its credits rating and share price. This was not right at all and Enron senior officials were part of their management (Prentice 2003). This accounting malpractice mislead the shareholders, analyst and creditors and all this was blamed on the CEO Andrew Fastow where he had transactions which earned him more than $30 million in the management fee in addition to his salary. Auditors who had been in the company for more than 16 years should have caught this malpractice but how it went unnoticed has not yet been understood (Locke 2006). These actions was an act of irresponsibility and what caused that behavior and disregard for ethical principle. People’s Behavior Personality traits are the ones which govern people’s behavior. This entails that people act in a similar way when faced by certain situations. While some are shaped by socialization others maybe genetically coded. This is attributed to the fact if a person is honest and even trustworthy in their personal life; there are high chances that they will be the same in their professional life. But it is worth noting that, there are some situational factors that are more likely to cause more relevant those personal dispositions in elaborating more about individual’s actions (Levinthal & Rerup 2006.). For instance, Duncan, who managed the accounts of Enron handled the case, responsibly and tried to uncover the irregularities to the attention of Angersen professional standard board but the management and Enron senior management put an amount of pressure on him to accept the accounting practices, mostly because of the revenue which was generated from the audit and non audit work. The Bystanders Effect During the proceeding, for the case lead to sentencing of Arthur Andersen, many people confessed their awareness of the accounting irregularities but they could not curb the irregularities. This being the case, many employees in this organization were forced by circumstances not to talk of the malpractice until it was very rate to be salvaged. This they did so that they can secure their employment for blowing the whistle would cost their job (Conroy, & Emerson 2006). In other words, they never hand the capacity to intervene to the situation leading to a behavior referred to as the bystander’s effect. This behavior entails that, people have a tendency of not intervening to emergency situation. In the case of Enron, many people knew that there were irregularities that were taking place (Koehn 2005). However, they never intervened, meaning that, they were guided by their behavior by observing other bystanders. In other words, they were aware that they were watching others act irresponsibly, yet they never decided to take any action, by believing that keeping quite is a norm. Additionally, it is a point to note that, when the senior management is aware of a certain situation, the longer the irresponsible practice will continue. This is exonerated by the fact that, Arthur Andersen was quite aware of the accounting irregularities and they reported it to the senior management. However, when the situation was known by many, there was no action to be taken for the whole situation was adopted and deemed acceptable by the organization (Conroy, & Emerson 2006). The Situation of Ambiguity The other situation that arose in the case of Enron is that, many people never were not clear who will solve the problem and thus there was the situation of ambiguity of irresponsible action. Andersen and Duncan may not have been aware of the seriousness of the problem. When there was tangible evidence of the accounting irregularities, Duncan reported the matter of Andersen’s professional Standard Board to reduce the ambiguity but they did not rule out that the practice should be curbed (Henl 2006). This left a big uncertainty for it is the executives who should ensure that the organization is being run considering the legal aspects, but if not addressed according to the aspects employees continued to engage in irresponsible practices without admitting that they are in problems (Conroy, & Emerson 2006). It is believed that, people should behave responsibly in the organization. However, in regard to Enron, those involved in the management of people pressurized others to behave irresponsibly. This being the case, many people behave the way they did not because they were willing to do so but because they had no choice but to obey the authorities. In the other hand, it is worth to note that, people involved in the irresponsible act or just watch experience guilt and anxiety (Hartman 2006.). This feeling may influence their relationship in the workplace or even at home. This in the long run would have made the situation worse and accelerated the whole scenario. Leadership and people’s management People management in Enron was poor. This is an attribution of the fact that, employees were not given any chance to air their ideas in whatever case. The executives who were all aware of the scandal never allowed or even took into account of any issue raised by them. In actual facts, they were threatened with a sack, incase the continued talking of the malpractice that was well known in the company (Harle 2005). This being the case, the employees kept quite until the company collapsed. However, it can be noted that, the company needed to obtain the trust from its employees. In this case, the company developed a reputation of being innovative and hires top professionals and thus they were seen to have high levels of technical competence and with commendable track record. They were also convinced in believing that all the undertakings in the company were in line with their interest and thus there were no suspension and thus they were assured that the top management knew what they were doing (Conroy, & Emerson 2006). They had a lot of trust on the management, to an extent that they never believed that whatever was happening was under control. Employee’s engagement The organizational management of Enron was lacking. A real leader is approachable and interactive. This being the case, they can easily interact with the other employees and be approached by the same employees at al times. However in Enron, this was not the case. Employees had not part in the management and were not allowed to raise any point in regard to the decision making in the organization which if they tried, they risked being sacked. This left the employees feeling neglected and unengaged (Gundlach, Douglas & Martinko 2003). Their opinions were not considered in the decision making strategies and thus theirs was just to perform their duties and nothing more. This in the long run lend to having unsatisfied employees and the most de-motivated workforce. In the long run, this would mean that their performance was totally incapacitated to the diminishing of the entire organization. Code of conduct Additionally, the code of conduct of an organization puts a restraint in the people’s behavior which might be detrimental. This is due to the fact that, this code of conduct is a communication avenue that the management could have used to define the standards of an acceptable business conduct. If it was well defined and adhered to then scandal could have been prevented. This is due to the fact that, the code of conduct sets the pace of the organizational overall control culture, raising awareness of the management commitment to integrity and what is at the employees disposal to help them meet the objectives (Ghoshal 2005). Furthermore, when there are well defined codes of conduct, even those with divergence behaviors are restrained and held accountable of their actions and decisions and thus chances are that they will evade any detrimental action at all costs. Greed Greed was a common factor in the case of Enron. This is amplified by the notion that, they let their short time financial gain prevail over the common sense of good stewardship. Enron shareholder in this case did benefit just as did the executives. Even the investors and customer did benefit from Enron initially. However, greed incapacitated the whole process which was aimed at personal benefits of the self-centered management. They never had basis of showing the facts of how their profits were actually produces and thus it was all tailored to cater for their common interests and not that of all the stakeholders (Giacalone & Thompson 2006). Organization management structure In Enron, there was failure by the management structure. It is a matter of fact that they were not able to control the inevitable progress towards the down fall of the entire organization. More strict rules and regulations and financial controls are one of the management aspects that can be used to prevent a recurrence of the same issue. All those involved in this case were pulled into the same by the incentives involved and therefore they should be restrained from inclining on the issues that are not for the common good of all the stakeholders (Ghoshal 2005). It can be accurately noted that, the Board of Directors had financial ties with the company an therefore failed to ensure that the independence of the company dealing with auditing which in the long run they allowed Andersen tom provide internal audit and consulting services as Enron’s outside auditor (Ghoshal 2005). They did this to cover up all their operations that were destroying the entire company. The management should have strengthened the independence of the audit committee and allow them to give financial management is accounting experts and have the committee oversee the financial statements and most importantly, be given the mandate to fire or hire any outside auditor. Self centeredness of the leaders It is also worth noting that, people in Enron might have behaved the way they did in order to benefit the organization, for secondary benefit or even to benefit them-selves personally. This firm was pressurized by the Wall Street to achieve the earning goals. Even though this was directed to benefiting the organization, it actually benefited some individuals. In other words, the employees went beyond stretching the accounting rule and actually applied them in ways that were compromising the underlying principles (Conroy, & Emerson 2006). If Enron was not paying abnormal salaries, bonuses, monetary grants and advisory fees, this scandal could have been prevented. Conclusion and recommendations Conclusively, Enron was rich in culture which can be said to be strong. However, value of respect, integrity, communication and excellence where not present in that culture. They had values which dictated that “arrogance and ruthlessness have no place here” but through their depictions, it was clear that all these were allowed. This compromise of the set rules and regulations made it easy for the entire management of the company and it employees make illegal deals which caused the down fall of the entire country. The management of Enron as an organization as a whole was questionable; this is due to the fact that, the corrupt practices within the organization were [resent within the external environment which included the auditors, advisors and the regional community. Borrowing much from the dependency theory, the power of one party controls the resources needed by the other. The regulators and advisors were rendered dependent on lucrative contracts and thus this was a failure by the entire organization a management. On the other hand, the contagion mechanism also is to blame, for the scandal experienced in this organization. These are social influences mechanisms which correlate to cognitive, social psychology and network perspectives. In this behaviors the Andy Fastow was experiencing some implicit sanctioning which was a justification of his own behavior with relation to Ken Lay who transferred large amounts of money to a sister company which is a travel agency. Additionally, selective attention was also a common case whereby employee’s collectiveness is experienced by focusing on unique applications of complex accounting rules with using the fundamental accounting principles (Conroy, & Emerson 2006). In this case, employees were to solely focus on their work and were not allowed to ask any questions about the issues bothering them from the ethical point of view. There was fear that governed the entire workforce in the organization. In Enron, this appeared as an emotional that may have been generated due to corrupt practices. Many employees were afraid of Jeff Skilling’s intimidating leadership style to ask any questions that bothered them in any way. This was due to the fact that, protesting would have landed them to punishment. In the management of people in any organization, it is very important for the managers to understand the people’s behavior for they are closely linked to the organizational behavior. This therefore means that, the behavior experienced in the entire organization was as a result of the organizational culture, which was present in the organization (Ghoshal 2005). When managing people, having them motivated is a key issue. This is due to the fact that, having de-motivated people will mean that the work force is not very effective and this in the long run affects the performance of the organization. People in the organization should be treated in the light manner and their needs met by the organization. In this case, the employees where not engaged in the running of the organization and their decisions or ideas were not considered (Ghoshal 2005). This might have made the scandal worse for even if they knew what was happening, they feared getting to the right authorities to report this, with an assumption that they knew what they were doing. 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