Enron Case Study
A company’s leadership and culture influences its business ethics. A company’s culture is known as the organizational culture. It is the actions and beliefs of individuals that work at the company. All the shared values and enforced policies contribute to organizational culture. “The leadership culture appears as an integral part of the organizational culture and it can have a positive or negative influence upon the latter.” (Popa, 2013, p. 179). The organizational culture can go against one’s personal ethics however with toxic leadership in place the lines may blur and situations like the Enron scandal occur. Background
Enron was the product of the merger of two gas pipeline companies in 1985. After the deregulation of energy markets, Enron became more of an energy broker and profited from the differences in the buying and selling prices of the buyers and sellers they brought together (Sims and Brinkmann, 2003). It was after this time that company began to thrive and the culture dramatically changed. During this complex changing environment was Enron leadership’s chance to decide the company’s ethical future. Enron altered their financial sheets by logging profits before they actually happened. Then they hid the debt by putting the debt in their partnership companies. “When the extent of its debt burden came to light, Enron’s credit rating fell and lenders demanded immediate payment in the sum of hundreds of millions of dollars in debt.” (Sims and Brinkmann, 2003, p. 245). Enron’s Leadership
Enron’s “leadership created a culture that pushed the envelope, a culture that encouraged and rewarded risk taking, a culture that was fixated on the bottom line and not the ethical niceties.” (Gini, 2004, p. 11). Their business ethics were that everything was ok to do as long as it made the company money. It was an environment that put the employee’s against each other, had no accountability, and there were only consequences if you did not make a lot of money or questioned the authority. The culture was both internally and externally competitive (Madsen and Vance, 2009). Enron implemented the rank system where “the bottom percentage of employees in perceived performance would be fired.” (Madsen and Vance, 2009, p. 219). This is what went wrong at Enron. Without an ethical base being enforced and practiced, the company pushed all boundaries and that was eventually its own demise. The company had strong leaders but not responsible leaders. Enron’s leadership was effective. They were able to influence the worker’s to put their morals aside to try to get ahead. “Effective leaders need to create and communicate a clear vision of what they stand for, what they value, what they want to achieve, and what they expect from others.” (Gini, 2004, p. 12). Enron’s leaders did just that. They wanted to gain the most money possible and they expected others to do what they could to accomplish that one goal. However, a company needs responsible leaders. It needs the leaders that even when times are hard and the company is not its most profitable will make the right decision for sustainment in the long-term. “Without the backing, encouragement, and support of leadership-the best of intentions and ideas will wither on the vine and not become part of the ethos and culture of the organization.” (Gini, 2004, p. 12). Leader Responsibility
The leaders of Enron should have known that as soon as they thought they had to keep their dealings hidden from the SEC that they were doing something wrong. Even if it was not legally wrong, it was definitely ethically wrong. People look to those above them for guidance and influence on their actions. “One of the leaders’ responsibilities is to create and maintain organizational characteristics that reward and encourage collective effort and this depends very much on the culture of the organization.” (Popa, 2013, p. 181). It was the responsibility of...
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