Understanding Management Principles, Managerial Activities - Coursework Example

 Understanding Management Principles, Managerial Activities 1. Introduction Contemporary society (the stakeholder) appears to have a significant influence today on the processes of business leadership, in terms of eliciting a series of demands for ethical managerial behaviours to satisfy the needs of the stakeholder community. Far different than business practices from yesteryear, the stakeholder, including the media and the general citizen, can either provide sustenance to the firm’s public corporate image or destroy it through protest or negative media attention. Under such public influence, business leaders must provide the image of fair and honest dealings in virtually every theoretical scenario which touches on corporate social responsibility (CSR). Failure to do so, even if the ends justify the proverbial means, appears to be a foundational element of senior-level executive leadership if the company hopes to remain perceptually ethical in the minds of a wide variety of stakeholders. This report highlights how the case of Enron, the now-defunct organisation which essentially set the example for inferiority in ethical leadership, has affected my understanding of management. In addition, this report proposes a series of practical steps by which I would have addressed the problem which occurred at Enron. 2. A New Definition of Management Referring to the concept of egoism, the self-interest of leadership at Enron was enormously high as various levels of management received considerable financial compensation stemming from their internal and external deception. The company’s sale of its stock and various assets to special-purpose entities (SPEs), substantially inflated its reported revenue and net income whilst understating Enron’s high level of liabilities received through its questionable partnership agreements (Benston & Hargraves, 2002: 105). However, as early as 1999, significant warnings regarding partnerships with external investors, known as the “friends of Enron”, were issued by internal control auditors but were summarily dismissed by self-serving management team looking for fast, personal profitability (Emshwiller, 2002: A.3). Because Enron leadership officials placed the stability of their own personal financial portfolios over the longevity of the company (which obliterated thousands of investor accounts), a significant divide between egoist decision-making and moral servitude toward the stakeholder community was developed. One notable author suggests that constructed schemes involving individual payment and reward, at the leadership level, create “perverse incentives” to engage in unethical behaviours (Carson, 2003: 389). This suggests that self-interest under egoism theories, when measured against the needs of the broader stakeholder community, is not a viable leadership strategy and creates significant conflicts of interest from the top-down. In addition, there appeared to be a significant lack of internal controls at the company, including simple executive oversight into whether cash flow matched the reported accounts; a basic control technique of executive management (Hammett, 2004). Even though it was alleged that senior officials were well-aware of the potential consequences of irresponsible financial reporting, it would appear that Enron officials did not consider alternative methods at building corporate capital or providing self-gain through more ethical behaviours and investor relationships. The largest lesson that I have learned through studying Enron is that highly competitive environments can be compared to a military war zone, in which emerging victorious becomes all-encompassing and assumes a “life or death” expectancy (O’Higgins, 2003: 7). Such competitive industries maintain the potential to create a rather negative organisational culture that is built on exceedingly-high demand for performance and innovative methods to boost both the credit rating of the company and provide better investment opportunities to sustain growth and outperformance of competition. The managers at Enron faced a proverbial cross-roads between making decisions that were considered ethical or continuing to serve their own personal self-interest. Finding a morally-appropriate solution to such ethical dilemmas mandates rational thinking, however rationality requires time-investment, which is not something that leaders have in abundance in competitive environments where split-second decisions are required (Wildermuth & Wildermuth, 2006: 297). All of the aforementioned conflicts which occurred at Enron illustrate that senior-level decision-makers, at some period in corporate governance, must abandon their egoist philosophies and reconsider self-interest decision processes in order to ensure corporate longevity. From the investor perspective, the short-term gains received by unethical partnerships and investment schemes satisfied Enron’s contribution to maximising investor utility. However, these managers implicated in the Enron case appeared to lack the basic aptitudes of strategic decision-making which focus on the long-term outcomes of their corporate focus. Basic failure to recognise whether reported income matched the tangible cash flow of the company (or refusing to acknowledge it) illustrated that Enron leadership firmly believed in the notion that egoist decision-making will provide socially-sound outcomes when the business is able to achieve a better credit rating and growth opportunities. It might be said that the leaders within Enron were significant supporters of the Invisible Hand theory proposed by Adam Smith which essentially suggested that self-interest and corporate gain will have a trickle-down effect on the stakeholder community by providing new investment opportunities or ample employment to the regions where the company operates (Nickels, McHugh & McHugh, 2005). However, such egoist thinking, despite its potential merits and positive outcomes, cannot be the focus of the entire philosophy of management, even if it appears that it can be justified short-term. Not only did these activities appear to lack long-term focus and rationalisation, but the media frenzy initiated at the time of the firm’s bankruptcy filing destroyed any opportunity for these leaders to gain a high-level position at any other company for the rest of their lives. As such, a manager in a highly competitive company must be adaptable to sacrificing their own personal financial goals in favour of strategic focus which ensures stability for both the company and the stakeholder; long-term. 3. Tackling the issue from a personal leadership position The notion of enlightened self-interest might be offered as a defense by Enron executives suggesting that their own self-serving profit objectives created a company equipped to act socially responsible in terms of giving back to the stakeholder community. However, Enron used their publicised focus on CSR as a cloak for their behind-the-scenes unethical decision-making. From a personal leadership perspective, I propose two distinct methods to handle such a scenario if it occurred in a real-life competitive environment. First, Enron provided ample scrutiny for today’s businesses to have a greater open relationship with stakeholders and provide much greater transparency in financial reporting (Mullard, 2004). As leadership must be focused on long-term strategy in terms of measuring consequence with short-term, snap decisions toward profit objectives, I would ensure that adequate internal controls were established and, if necessary, provide management education in regards to the expectations of meeting accounting principles and assessing/comparing financial statements with tangible cash flow. This may entail creating a series of sessions in which senior managers are offered various hypothetical scenarios, are provided with several common financial statements as part of the sessions and would then be asked to create a strategic decision to ensure long-term corporate stability and survival. If the executives elicited responses which were irrelevant or unsuitable, more in-depth training and corporate counselling would be required. I do not believe that the aforementioned scenario is unrealistic, as these high-level leaders are hired primarily to ensure the profitability and growth expectations of investors and company ownership. One can interview candidates and review their alleged high performance and track record with other companies, but ensuring that existing managers are able to extract simple financial figures and maintain the skills to act on them appropriately should be the foundation of successful leadership. Secondly, I would re-examine my internal organisational culture, in relation to various human resources theories, to ensure that the company was both diverse and all-encompassing for internal staff members. Part of corporate social responsibility is ensuring the welfare of internal stakeholders, however Enron maintained a culture where landing a job at the company served to boost the ego and credentials of employees as part of what was referred to as an “intoxicating in-group where being tough, arrogant and intimidating were mandates of landing a position (Trinkaus & Giacalone, 2005: 238-240). This focus on in-group desires and exhibiting loyalty to associates contributed to the demise of the company as nobody really appeared to recognise that their unethical organisational climate was about to contribute to Enron’s demise. Two notable professionals indicate that the people and their principles at the company “aided and implemented the rush to financial growth at all costs which contributed to Enron’s demise” (Petrick & Scherer, 2003: 13). Having mentioned the issue of organisational culture, it is important to recognise the necessity for diversity in all levels of subordinate employees and management. Having this diverse set of values, theoretically, would allow the firm to maintain individuals who may be focused on satisfying in-group values whilst others would be more concerned about the ethical behaviours of their colleagues and more willing to report on it. Business theories often discuss diversity from an age, gender and ethnicity perspective, but diversity of values might have saved Enron from a collectivist mentality that refused to recognise that associate loyalties would inevitably spell the firm’s end. The initiatives for improving staff diversity would involve assigning what I would label as a diversity manager who would act as the responsible party for identifying the differing social and ethical value structures of my employees and then reporting on the findings periodically. Through interviews and appropriate training seminars, ensuring that the company does not promote an in-group mentality and that loyalty to the company’s longevity rather than colleagues should be the primary mission of internal organisational culture. Such a diversity manager would be a reporting entity directly with myself as senior management, ensuring that radical egoist objectives can be identified by diverse staff members and eliminated when I assess that egoist values are beginning to conflict with corporate longevity. Again, such a method would be realistic in any real-world organisation, especially one such as Enron, which maintains a large employee population and the financial assets and resources necessary to sustain a diversity management programme. This manager could also theoretically be assigned to work directly with press releases and various media to assist in publicising the firm’s efforts at ensuring a stable organisational culture built on ethical programming. Because it was previously identified that the stakeholder and media maintain the ability to influence the firm’s public image, I believe that a diversity manager is extremely appropriate for a firm where competitive pressures can lead to irrational or risky business decision-making and affect long-term corporate sustainment. 4. Conclusion It does not appear that Enron leadership made any notable effort at weighing the potential alternatives of their partnership schemes and unrealistic financial reporting, which allowed egoist mentalities to drive the company to ruin. The loyalty and associate network of in-group philosophies created an internal organisational culture built on self-gain and private capital-building policies where rewards for performance came in the form of personal reputation-building and perceptions of a form of nobility for being part of the exclusive corporate environment at Enron. These elements are non-constructive and extremely risky in competitive environments where sound long-term strategy is required to maintain ahead of competition and should be redeveloped if they are perceived as beginning to erode a positive organisational culture. It was learned through this project that a company can actively provide extended benefits to the broader stakeholder community whilst also acting unethically in a method that appears to have been deliberately disguised from the general public. Despite any contributory action to stakeholders in the form of CSR, Enron failed to act on establishing an appropriate set of internal controls and allowed the self-perception of ego-building to work against a positive human resources focus in the company’s culture. These are controllable elements, in my opinion and based on theory, for a senior level-manager and must be assessed and developed to avoid becoming the next Enron-like case study for hungry media looking for their next corporate victim. Bibliography Benston, G.J. & Hartgraves, A.L. (2002). ‘Enron: What happened and what can we learn from it?’ Journal of Accounting and Public Policy. 21(2): 105. Carson, Thomas L. (2003). ‘Self-interest and business ethics: Some lessons of the recent corporate scandals’. Journal of Business Ethics. 43(4): 389. Emshwiller, John R. (2002). ‘Enron Official Gave Warning as Early as ‘99’. Wall Street Journal, 18 Mar 2002: A.3. Hammett, Peter. (2004). ‘Not all frauds are sophisticated’. Financial Times. London, 6 Jan 2004: 18. Mullard, Maurice. (2004). The Politics of Globalisation and Polarisation. Cheltenham, United Kingdom: Edward Elgar Publishing, Inc. O’Higgins, Eleanor. (2003). ‘Post-Enron ethics: Do principles count?’ Accountancy Ireland. 35(3): 7. Nickels, W., McHugh, J. & McHugh, S. (2005). Understanding Business. 7th ed. McGraw Hill Irwin. Petrick, J.A. & Scherer, R.F. (2003). ‘The Enron scandal and the neglect of management integrity capacity’. Mid-American Journal of Business. 18(1): 37-48. Retrieved 12 Jan 2008 from ProQuest database. Trinkaus, J. & Giacalone, J. (2005). ‘The Silence of the Stakeholders’. Journal of Business Ethics. 58: 237-246. Wildermuth, C. & Wildermuth, M. (2006). ‘Beyond rule following: Decoding leadership ethics’. Industrial and Commercial Training. 38(6): 297. Read More