Organization culture

Organization culture

 

An organization is the platform where people from different backgrounds come together and work as a collective unit to achieve the set goals. It consists of people with different specialization and work experiences to achieve set goals. Culture is the attitudes and behaviors that govern the way people interacet (Hemingway et al., 2004). Organizational culture is the beliefs and principles of an organization. This culture has a significant impact on the employees in an organization. Every organization has a distinct culture that differentiates it from others. The success of an organization is dependent on a culture that is nurtured well. Enron Company was an American energy corporation that broke the record of bankruptcy and was demised (Diesner et al., 2005). People believe that the main core reason for its fall was due to questionable accounting practices by its leaders. Mismanagement of risks, exaggerated use of capital resources and utilization of special purpose entities to cover up financial debts are some of the underlying factors for the fall of Enron Company. People also believe that absolute philosophical differences in management existing between the company leaders as the main reason the company collapsed.

According to The S (2012), leadership changes depending on the situations faced by leaders and followers. Personal factors such as: Intelligence, determination, integrity, self-confidence and sociability creates an effective leadership that influences the culture of an organization. These factors bring about the balance between the individual leaders and factors needed to develop a healthy organizational culture. Leaders have the role of building trust among the workers in an organization as a step into strengthening the culture of that organization. Enron’s senior management failed to maintain trust with the employees’ staff members who questioned some of the Enron’s decisions, and practices were ignored (Sims et al., 2003). The leaders cared more about their welfare rather than focusing on the needs of the employees. The officials and the employees were on different decision grounds yet in the same organization and this lead to a split. This tendency created a weak culture in Enron Company.

With reference to the Enron Company management, it depicts that each organization has a culture, and the leadership of these organizations has an impact on the corporate culture. Strong leadership has a high influence on the employees and the general farewell of the firm and its culture.

• Metaphors
• Jeffry Skilling was regarded as “the man with the big idea” of an accounting treatment that is the mark to market that allowed the company to book potential future profit the moment the deal was signed.
• Ken Lay (Enron’s CEO) together with Skilling was regarded as “the smartest guys in the room”. Ken Lay regarded himself as a visionary (The S, 2012).
• Richard Kinder was regarded as Doctor-discipline, who was both people and number oriented. He held meetings in the boardroom every Monday morning. He was much considered with cash flow that he gave each manager a target attached with bonuses if reached.
• Enron’s economy is regarded as a cowboy capitalism, that is the use of false accounting tricks and fake stock tips are a proof that the company’s management was rotten.
• Enron Company is referred by the Fortune journal to have an army of scientists, business people and academics commanded by Skilling.
• Bush referred to the Enron’s management rogues as bad apples acting in the absence of formal management.
• In 2000 Enron’s economy was referred to as star of the new economy with an enviable array of intangible resources.

3. Visitors entering Enron’s head offices on Smith Street in downtown Houston were often struck by the large banners that were emblazoned with Enron’s ‘R.I.C.E.’ principles. That is, respect, integrity, communication, and excellence (Kulik, 2005). A visitor may thus have been fooled into thinking that this RICE acronym, in fact, had some bearing on Enron’s corporate culture. Indeed, such a deception might have been the motivation behind hanging the banners. Because history has proved that such moral sentiments as respect, integrity, communication and excellence in reality had no bearing on Enron’s corporate culture. In an article, the Journal of Accountancy, William Thomas describes Enron as typified by ‘individual and collective greed born in an atmosphere of market euphoria and arrogance’ (2002, p. 41), which proves the nature of Enron’s corporate culture.

Enron Corporation was created in 1985, at the middle of a recession and shortly after the federal deregulation of natural gas in North America. It was founded through the merger of two Natural-gas pipeline companies, one in Houston, and the other in Nebraska. The merger was primarily debt-financed, meaning that Enron started life with a significant level of debt on its books that required interest and principal repayments (Tourish et al., 2005). So, Enron was a company characterized by risk. That is, high business risk that resulted from the highly competitive, the deregulated natural gas market, and high financial risk resulting from the merger that induced heavy debt load.

Kenneth Lay, the first CEO of Enron, knew that his firm would have to be innovative to survive and therefore he hired consultants McKinsey & Co. to assist in developing the company’s business strategy. They gave Enron a business strategy and also Jeffrey Skilling from whom the culture rapidly grew. Skilling joined Enron officially in 1990 to head the newly created Enron

Finance Corp and Shortly afterwards he hired a specialist in financial matters, Andrew Fastow with whom he had much in common with Skilling. That is, they both had expertise in sophisticated financial instruments. And above all they both had an overwhelming drive for short-term wealth creation. Their ‘ethic’ was simple and unambiguous. Enron, guided by Skilling, aggressively hired top MBA graduates from leading US business schools, promising them rapid advancement and rapid wealth (Archambault, 2003). The motive of stock price maximization as the ultimate goal of the corporation was something with which these individuals were very familiar from their classes. The ‘short term stock price appreciation’ ethic was disseminated rapidly through these ranks of new managers in an amazing, sophisticated yet simple manner through the Performance Review Committee (PRC). Enron’s PRC, however, under the guidance of Skilling and Fastow, rapidly became notorious as the harshest employee-ranking system in corporate America.

The PRC created and sustained Enron’s corporate culture. It ruthlessly promulgated the ethic of short-term stock price appreciation at any cost, and in any way possible. Those who contributed to this goal were rewarded handsomely, mostly in stock options, which further motivated the manager to focus on short-term stock price appreciation (Ide, 2002). Whether managers were identifying and undertaking projects that were really profitable, or just superficially profitable, did not matter to PRC, managers who were either unable or unwilling to create profitable ‘deals’; did not last for long. Skilling’s division alone replaced about 15 per cent of its workforce every year. Certainly, there were positive aspects to Enron’s corporate culture. Many managers found Enron to be a very dramatic and stimulating place to work. Enron encouraged and rewarded innovation. It provided employees with excellent leisure and exercise facilities. The ethic that drove the minus side of the ledger far outweighed them. This negative ethic was the overwhelming drive for short-term personal wealth accumulation. Managers were encouraged to pursue this goal with deceit. In forming this corporate culture Enron’s senior executives ignored the fundamental problem that a corporate culture, guided by a corporate ethic, must overcome. Enron’s corporate culture failed to achieve organization sustainability because it lacked any method of contractual enforcement. Enron’s corporate culture gave its managers permission to choose ‘honor trust’ over ‘abuse trust’. Explicit enforcement mechanisms, such as disclosure rules and the auditing of accounts, were treated with contempt (Robbins et al., 2013). Enron’s generous reward structure and unwillingness to tolerate dissent essentially bullied auditors and directors into being accomplices in Enron’s acquisitive excess. Lured by promises of undreamt-of-wealth, many employees aspired to work for Enron and were therefore very reluctant to cross paths with the company.

Most of Enron’s officials as well as employees came from families that were not well of and this prompted them to build a culture to overcome their past and make their lives better (Levine, 2005).Jeffry Skilling came up with a motto, “Do it right, do it now and do it better”. This motto cultivated a culture that was meant to push the limits. To sustain this culture the corporate officials assured the employees and stakeholders that there were no accounting irregularities. In addition, they were kept in the dark about the company’s finances. The leaders set clear cultural values that were communicated to the employees guiding their actions repeatedly. Skilling encouraged the employees to be independent, innovative and aggressive. It was all about an atmosphere of deliberate rule breaking according to (Bartlett and Glinska, 2001). This culture has a positive effect in the short run of a firm. It encourages unchecked ambitions and punishes the underperformers. The company richly rewarded the employees who achieved their objectives. This contrasts the long run of a business using such culture. It pressures the employees to easily overlook the ethics of conduct to achieve a bigger success.

The company received its success from the business press and financial analysts which accelerated the company’s competitive culture. It entered into deceiving partnerships and used questionable accounting methods to maintain its status (Stevens, 2008). The company took an initiative in these partnerships by creating pseudo-partnerships that allowed the company to sell assets and create earnings and keep debts off their balance sheets. Enron Company made its employees feel extremely brilliant to make deals that never failed. They had started recording earnings before they were realized, and this made the culture at Enron quickly erode the ethics of its employees. The company employed outside accountants so that to satisfy the rules of Financial Accounting Standards Board(FASB).  That require 3% of their equity comes from outside investors and this made the company look legally like a partnership. Which was not the case, since; a closer view would have shown that the outside investors like SE Thunderbird LLC were owned by Enron.

The code of ethics served as a cultural control with an aim to prohibit unethical behaviors. These codes stressed four main principles that are, communication, respect, integrity, and excellence (Sims et al., 2003). They also included phrases such as “we treat others as we would like to be treated ourselves”. They were signed by the employees on joining Enron Corporation and annually re-affirmed.

Enron Company’s culture developed from an aggressive environment where its leaders encouraged rule breaking and, therefore, the employees eroded the ethical boundaries.

4. Stanley Milgram carried out a series of obedience experiments. The learners were to study the effects of punishment on learning ability. The teacher was requested to administer electric shocks to the learner if they failed the questions asked (Archambault, 2003). The teacher was also asked to treat silence as incorrect answer and punish the learner with a higher electric shock. He found that 65% of the teachers were willing to punish their learners at very high voltages (450v) and even to death simply because the authority commanded them to (Archambault, 2003). The purpose of the experiment was to see how long an individual can take the order before questioning it. And also study the willingness of participants to obey the authority figure who commanded them to do acts conflicting with their personal conscience. He concluded that ordinary people without any particular hostility can become agents in a terrible destructive process. This study compares directly to the Enron traders on the California electricity crisis. With a goal in mind to pursue profits, Enron traders were consistently told to break the laws. Few of these traders came forward to report this corruption.

5        How does the Enron culture relate to wider society?

• Group influence. This notion is what people use to influence each other when doing things in a group. In Enron Company, the leaders’ manipulated employees by making them earn the company profit in unjust methods. This relates to the modern society especially in politics where the leaders manipulate the public and use them for their personal welfare.
• Personal attributes. This is the character and the behavior of an individual. General view of individual behavior is perceived to be evil in the Enron Company. Things like corruption were rampant in the Enron’s company where evidence would be covered in exchange for other favors like adding shares to an individual’s account. This is very relevant to our corrupt society where truth and justice are bought and human rights suppressed simply because one has the power to do so.
• The easy ways of making money makes people use shortcuts to acquiring it. In Enron’s company, realizing the firm’s objectives and making a profit were the only way to make sure the employee survived business (Diesner et al., 2005). How the individual came to realizing these was not of importance since Skilling emphasized on “profit at all costs”. Even if the profits were acquired via wrong methods, this was not to be considered. The Enron corporate was born in the middle of a recession; this period there was a lot of cash flowing in the financial system and this is what made the company fall due to greed. This tendency compares directly to the modern society where they use unjust ways to earn money and maintain their positions.
• The leadership of the Enron firm was corrupt and took advantage of the unaware stockholders to use the firm’s resources in careless ways for their own good. The administration decisions were final and questioning was not entertained. This autocratic governance paved the way for the corrupt officials to do anything they wanted without interruption. At some point, the firm secretly sold some of its assets and ploughed that money back to firm’s accounts which would reflect an increase in sales made which was false. This has been experienced in the stock market where some stockbrokers make critical decisions without the consent of the shareholders (Sims et al., 2003). And when losses occur the firm may decide on selling the assets of the firm leading to severe losses. The company is declared bankrupt and may dissolve. All this time the shareholder may have been in the dark about the actual performance of the company due to exaggerated accounts.
• Enron’s company consisted of an administration of professionals who were above 40 years and the employees were around their twenties. The majority of the professionals in the management panel lacked interest and ability in managing the industrious young employees (Levine, 2005). Underutilization of an employee’s capacity would be experienced since the company only majored on the ability of the employee to make a profit and realizing the company’s objective rather than the real ability of each worker. In the society, employees face the underemployment where there full capacity of an individual is utilized like in a case where a Ph.D worker is given a similar task with a graduate.
• After the Enron saga, most companies adopted the culture of paying attention to the behavior of the management. This tendency helps to overcome the problems faced by the companies’ management that leads to the failure of the corporates.
• The collapse of Enron also helps the growing companies get cautious on the strategies they lay in the long run of the companies. It encourages analysts and investors to ask old economy questions about these new economy companies.
• In modern societies accounting regulations are altered to prohibit ownership of both auditing and consulting services. Enron was a good example of a bad corporate ethics.

 

Despite that, Enron‘s downfall is a historical event. It’s evident that those actions that were undertaken then are still alive and are still happening. The unethical practices have led to the downfall of other big corporations. Looking at why corporates fail; the revelations is that moral and ethical shortcomings are the primary cause even in modern societies.

 

 

• Why people were slow to resist Enron culture
• Some co-corporate cultures are harmful because they are dysfunctional in terms of relationships in a corporation. They poison the work environment and contribute to employer-employee communication breakdown. Such culture includes: The authoritarian hierarchical culture that says that the boss alone makes all corporate decisions without consulting the employees (Ide, 2002) . No one dares to challenge the boss that is; there is no regard for the well-being of employees. The employees are controlled, manipulated and used like infants. Workers are motivated by fear because they are to do what they are told without questioning. Those who dare to question the administration are fired while those who obey are promoted. This is a case evident in Enron Company where most workers offered no resistance to decisions from the administration.
• The competing conflicting culture. This is where power struggling in between the corporation. Leaders plotting against each other and even employees in different units competing against each other for added advantages that there is no trust and cooperation thus the objectives of the firm cannot be realized. People are hiding valuable information from each other, and there is no regard for the main goal of the company. Everyone is obsessed with their survival and therefore nobody questions the authority.
• The Laissez faire culture which states that leaders who are incompetent and ignorant of their positions in the company. This culture gives each employee a room to do what they want in the company. It also makes ambitious employees to take the opportunities available to benefit themselves (Robbins et al., 2013). Because no one has a clear direction of the company which makes the employees reluctant to ask any question. Since they enjoy the freedom to do what they want.
• Dishonest and corrupt culture. Cheating and bribing is the order of the day. From the management unethical activities what runs the business. This resulted in covering up the truth and the opportunities where the crisis would be revealed to shareholders. Those who would ask questions were paid and in return keep quiet thus encouraging more malpractices.
• Rigid traditional culture. The management offers a position to the change. They discourage workers from suggesting new innovative ideas or even questioning decisions made by the management.

According to the former head of investor relation in Enron, Mark Koenig he believed that he was a hero in engaging in the culture of corruption. He said that he engaged in corrupt activities to keep his job and his value in the company (Levine, 2005). He concluded that he did not have good reasons.  The employees from the humble background; preferred to maintain their positions rather than standing for the truth. Their nature of minding about their welfare would not allow them to challenge the administration and go against the firm’s culture.

7. The biggest flaw in Enron was thoughts that brains and willingness could outdo the working of the system of the company.

This thought includes things like ignoring the debts in their financial accounts. The company anticipated high incomes yet debts were not documented. This lead to high anticipation for profit but the debts would remain a challenge. Enron Company employed industrious workers, but they were limited in their output since teamwork was discouraged by making the workers think about individual welfare (Tourish et al, 2005). Survival for the fittest was the way workers survived in this company.

Skilling was more interested in the reputation of the firm rather than the real profits realized with an aim to get more investors. This attribute contributed to the company’s downfall when the business started to incur losses but the management had to cover this at all costs where they even sold some sales to fake an increase in sales made.

The partnerships with the companies were not so genuine because in reality they also belonged to Enron. Also the company ignored one of the fundamental principles of success in a firm “the ethics of workers.” These were not to be followed and simply there were no rules provided an individual made profit for the firm. These left the individuals to even go against what is morally right in the name of success. A tragic fall was expected in this case

 

FOR YOUR ASSIGNMENTS TO BE DONE AT A CHEAPER PRICE PLACE THIS ORDER OR A SIMILAR ORDER WITH US NOW