Organizational Culture & Ethical Digressions: A Case Study of Enron
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Organizational Culture & Ethical Digressions: A Case Study of Enron
The movie “The smartest guys in the room” reveals the unethical practices of Enron Corporation that resulted in the Enron scandal. Enron was an American energy and commodities company formed through a merger of two companies in 1985. It filed for bankruptcy in 2001 because of an accumulation of debt attributable to its accounting fraud. This fraud was motivated by the company’s greed and ambitions to maintain high stocks, which drove the employees to act in fraudulent and unethical ways. The behavior was driven by the top leadership that was willing to allow detrimental business practices for their own economic self-interest. Consequently, this article will investigate Enron’s organizational culture and link it to the ethical digressions that led to the company’s collapse.
Enron’s insistence on profitability resulted in business malpractices. Enron’s business model was centered on the perception of the company’s profitability, which drove all the decisions reached. This model was demonstrated by shifting from energy production to energy trading in the late 90s and early 2000s (Mclean & Elkind, 2005). During this period, Enron acted like a gas bank that bought natural gas from the producers and sold it to the suppliers. The difference made was profit. While the system was not fraudulent, Enron sought to increase the stock prices by falsifying the records to show steady profitability aligned with the requisite projections sought after in Wall Street. The records excluded the losses and debt incurred by Enron (Mclean & Elkind, 2005). This model was replicated when the company began to finance large global energy projects that proved to be unprofitable. One such project was the billion-dollar energy facility in India, which produced electricity that the Indian national government could not afford to pay for. In this case, Enron had been selling predictions on the project’s actual profitability; thus, the loss necessitated falsified records to maintain an image of profitability (Mclean & Elkind, 2005).
The leadership influenced Enron’s organizational culture. Organizational culture refers to the system of beliefs and values shared by a group of people working together. This system impacts how people perform their tasks and how decisions are reached by the decision-makers (Mumley, 2019). Additionally, the system is influenced by the top management, who set the example for other employees. Enron’s top management promoted the above business malpractices to maintain the image of profitability. The president at the height of the fraudulent practices was Jeff Skilling. He promoted an organizational culture that valued only economic gain. This position was demonstrated through his hiring policy that only considered ingenuity (Mclean & Elkind, 2005). Resultantly, the company was flooded with senior staff that lacked a moral compass.
The fraudulent organizational culture resulted in ethical digressions. Even through illegal means such as falsified documents, the search for profitability was a result of the organizational culture. For example, Andy Farstow, the Chief Financial Officer of Enron, was backed by Skilling to create a network or letterbox companies that absorbed Enron’s debt by creating false accounts where Enron supposedly had money (Mclean & Elkind, 2005). Additionally, another ethical digression caused by the overemphasis on profits was the rolling blackouts in California, which were caused by Enron due to its dominance in California’s unregulated electricity market (Mclean & Elkind, 2005). The blackouts were intended to increase stocks’ price despite the detrimental implications on Californians who were being denied essential amenities.
Conclusively, the organizational culture of Enron caused ethical digressions. Enron was solely focused on making profits, which was reflected in all decisions taken by the senior staff. The pursuit of profits resulted in falsified records to hide debt, the creation of false deposit accounts, and even tampering with essential public amenities to drive up the company’s stock prices. These practices are indicative of an organizational culture that puts money over morals. Therefore, Enron engaged in ethical digressions due to the flawed organizational culture.
References
Mclean, A, & Elkind, P. (2005). The smartest guys in the room book summary [Video file].
Mumley, W. E. (2019). Organizational Culture and Ethical Decision-Making During Major Crises. The Journal of Values-Based Leadership, 12(2), 9.