Home > Free Essays > Business > Case Study > Enron Company’s Organisational Culture Problem
Cite this

Enron Company’s Organisational Culture Problem Essay (Critical Writing)


Introduction

The Enron culture is to generate profits at all cost. The Enron officers falsified their financial statements to present a better picture of the company (Robinson 2008). This was the way Enron officers did things within the Enron premises. The profit-priority power culture literally broke the company’s corporate strategy’s ability to control and retain the company’s success condition. Based on the organisation’s underlines and its chronological financial transactions, Enron focused on making as much money as possible, by hook or by crook (Geuras 2005). The focus included violating the corporate social responsibility [greed] (Ghere 2005). The company’s profit-priority power culture caused the company’s downfall (Kotler 2008).

Enron Culture

The managers of Enron use the profit –priority culture to control what their line and staff personnel were thinking, valuing, and believing. Enron implemented the power culture as exemplified by Enron’s Skilling business transactions. Skilling felt that money was the prime mover (driving force and motivator) of the company’s assets, liabilities, stockholders’ equity, revenues, expenses, and profits (Williams 2008).

The culture complemented the company’s rational managerial tools. Enron’s owner, Skilling, emphasized that the Enron strategic business plan is to generate financial gain, by hook or by crook (Still 1988). The tools included the of break even analysis, current ratio, quick ratio, debt to equity ratio, gross profit ratio, net profit ratio, inventory turnover, and receivables turnover on the false financial reports(Rutherford 2008). In this regard, the Enron employees must implement the profit-priority culture or resign from the Enron Company (Morgan 2003).

However, there are subcultures within the major profit-priority culture. The Corporate social responsibility culture runs against the profit-priority culture because fraud is infused into the profit equations (Hughes 1998). To be successful, the company must have diverse themes or values implemented by all Enron line and staff personnel (Hartmann 2001). In the Enron Case, the line and staff adhered to only one culture –profit generation (Griffin 2009). Enron’s downfall is grounded on its fraudulent power culture. The strong leadership of Skilling was grounded on greed and fraud; the fraudulent decisions were based on political struggles and not on logical deduction (Davis 1999).

Success

To be successful, Enron should manage its profit-priority main culture in order to achieve organizational efficiency and effectiveness (Shaw 2008). The Enron culture was initiated by its founder, Skilling. The company hired matching employees that would embrace the fraudulent Enron culture with open arms and implement them to the letter (Helfert 2001). The Enron employees continued the ritual of falsifying financial reports (balance sheet, income statement, and statement of cash flows) in order to fool the interested parties to invest more of their scarce resources in Enron stocks (Richter 2007).

Using the power distance Geert Hofstede culture, the employees were very willing to accept power inequality. They must accept and implement the power of their managers in order to continue working for the Enron Company (Luger 2009). For clarity, setting up the Enron Organisation within India’s territory produces a power culture of more than 75. The average country power culture score lower than 60. Thus, India’ has a high level of discrepancy in terms of financial blessings and the culture of power.

There are many people living in stark poverty in the country. Comparing the same criteria, the United States has a power distance where the majority of the population expect the power to be distributed evenly over the entire population. The nation’s level of inequality is highly recommended by the subordinates and the leaders (managers). Comparing the two countries, the Indian society have learned to live with a society where power is in the hands of a few people as compared to the people living in the United States.

Geert Hofstede believes that each person has a mental program. The program is unconscious. Each individual in different countries or communities have built their wall of cultures. Culture is the collective program or does and don’ts. The program contains values, symbols, rituals, and heroes of each unique group or country (Stellmann, 2010). To reiterate, Enron should infuse the Hofstede culture to enhance Enron management’s profit-priority main culture; the infusion is needed to enhance organizational efficiency and effectiveness.

In terms of Enron’s corporate social responsibility, Enron is not prioritizing the protection of welfare and society (Hollenbeck 2009). Engaging in the protection issue would run against the very grain of Enron’s profit-priority main power culture. The employees were forced to invest in the company. Applying the Modernist Perspective to the case study, Jeffrey Skilling finally resigned from the President and Chief Executive Officer position in Enron. The move was the side effect of Skilling’s fraudulent activities. Skilling applied reasoning and logic advance to jump ship. Mr Skilling realized that he cannot escape from his misdeeds concocted in the past. The remaining directors of the company agreed to sell the company and to recover the estimated amounts of cash stolen.

Consequently, the employee stockholders tried to withdraw their money from the company. They were unsuccessful. Jeffrey Skilling had sold his stocks worth $66,000,000 in the stock market; this occurred one month before the stock market price of the Enron stocks plummeted to bankruptcy levels. On that fateful day, The stock market readjusted the Enron stock market prices to more realistic levels. The stock market prices dropped to unprecedented levels. In response, the remaining officers of Enron cancel all stock transactions to have more time to resolve the issue.

Unfortunately, the power culture of Enron caught the line and staff employees by surprise. The line and staff employees normally innovate, act singularly, and aggressively. The employees had hoped that someone in the management levels would introduce compassion and timely leadership to resolve the issue. In addition, the board of directors did not move fast enough to reverse the continuing decline in the public’s trust in the company’s products. The line and staff employees finally realized that the day of reckoning had arrived.

The normal fraudulent dealings of a handful of frauds are slowly being penalized. The employees, and other interested parties knew that the company lacked the morale fibre to continue its daily business operations. The Enron scandal finally caused the Enron Downfall. The officers had to file for bankruptcy. The line and staff kept remembering the instructions of their former president, Mr. Skilling emphasized that the line and staff must focus on generating profits at what ever expense. The people who were trained to create the false financial statement knew that their dishonesty had been uncovered.

Under the enlightenment principle of the Modernist culture, the affected remaining parties implemented rational approaches to resolve the issue. Everyone can take the management position. However, not all managers are effective leaders. The effective leader does not coerce the subordinates; Mr. Skilling was a coercive leader who thrives to commit fraudulent acts, like President Skills (Kumar 2003)

Enron’s profit-priority main power culture temporarily helped Enron to success. Many current and new investors funnel their hard-earned scarce money resources into the coffers of the Enron treasury in the hope of partaking of the huge dividend distributions. Dividend distributions come from the distribution of the company’s net profits. Dividends are not distributed when a net loss situation crops up. By presenting false financial statements indicating that the company generated huge net profits, the company was able to swindle many current and prospective investors of their scarce money resources (Hollenbeck 2009).

Upon discovery of the fraud, the Enron stocks listed in the stock exchanges plummeted to its realistic value; a bankrupt company. In the end, Enron was forced to close down because the investors hurriedly sold their worthless Enron stocks to regain their initial investments (Maguire 2007). In the long run, the company’s profit-priority culture precipitated to the hard downfall of the Enron Company (Miner 2007).

After the discovery of the fraudulent financial statements, no one would dare place their investments in the Enron organization (Shermerhorn 1997). Consequently, the Enron Company had to close down its doors to its current business endeavors. The public could no longer trust the Enron Company because the officers lied to the current and prospective Enron investors and other interested parties.

Enron implements a post-industrialism management strategy. Enron must devise ways to keep abreast of or even surpass the competition in terms of revenues, market share, and profits in the global competitive market place (Dubrin 2008). The Enron Company complies with one of the post modernism characteristics, rules don’t matter, in order to survive in their saturated global market segment. The Enron Company applies the coercive power to its culturally-diversely employees (Phillips 2008); the company’s employees and officers withhold some vital financial information in order to present a more favorable picture of the company when compared to the presenting the unadulterated financial statement (Feldman 2007).

Rank and Yank System

The profit-priority culture is implemented by its rank and yank system. The company terminates the services of persons failing to make enough sales and net profits (stick management strategy). In addition, the company offers expensive rewards to the Enron employees for generating profits for the company [carrot management](Dickson 2009).

In addition, the USA culture triggered the Enron scandal. The investors were interested to make fast money from investments in one or more stocks, as Enron had advertised. The investors, living in the superpower nation, United States, prioritise dividend distribution in determining which companies are good investment choices (West 2008).

Effect in Other Country’s Culture

The Enron Company will definitely survive its stock market downfall in another country. The Geert Hofstede culture of the other countries acts as a shield to prevent the same downfall. Generally the foreign country’s line and staff personnel do not venture into experimenting with the preparation of false financial statements (Friedrich 2009).

Falsification of public documents is not acceptable to people in other countries (Smith 2007). The other countries implement strict disciplinary actions on line and staff employees joining hands to prepare false financial statements (Niven 2006). The company fails to survive if the company hired more females. The same fraudulent company owners will fire the female employees if they will not tow the line in terms of contributing to the preparation of false financial statements (Stickney 2009).

Different People Samples

If there were a different sample of subordinate people, the company will tread the same bankruptcy path. The same fraudulent company owners will fire the new employees who protest the preparation of the same fraudulent financial statements. On the other hand, the results would have been different if the owners are different people; the crooked persons, like skilling, must be replaced with more ethically upright individuals. Here, the new ethically upright officers will instruct the subordinate employees to avoid preparing false financial statements (Daft 2009).

Each group proudly imposes its own cultural lifestyle. For example, some Chinese persons pray to their own God, Buddha. The Japanese Shinto religion has its own god. One Muslim person does not drink liquor because it is against one’s religious culture. Some Muslim persons can have five wives together in one house without divorce. On the other hand, other religious groups do not allow a second marriage unless the husband or wife divorces or cancels a prior wedding prior to the new wedding. Going back to the Enron case, the employees are forced to either accept the fraudulent Enron practices or to find work in another socially responsible company (Baumueller, 2007).

The above culture-based theories are good employee persuaders. The profit –priority culture is the main culture in all business organizations. A company must generate enough profits. The investors await the distribution of the profits as dividends. A company that does not generate profits cannot distribute dividends to the investors (Cameron 2006). The investors will withdraw their investments from companies that do not distribute dividends to the investors (Yilmaz 2009). However, falsifying the financial statements to present a bigger profit violates corporate social responsibility principles.

On the other hand, prioritizing profit increase over complying with the companies corporate social responsibilities would not be favorable. For example, the company can save money from transporting the company’s waste products to the community dump site by throwing the company’s waste products into the crystal clear river beside the Enron premises. However, throwing the waste products into the nearby waters pollutes the river and kills the fish schools in the river. Thus the results would be different under positive and negative effects of the profit-priority Enron culture (Schein 2010).

The Enron culture is grounded on power. Enron’s culture included not motivating its employees to comply with corporate social responsibility guidelines.

Under the Top –down functionalist management approach, management and the line and staff employees are trusted with their ability to resolve any bottlenecks, or obstacles blocking the accomplishment of Enron management’s profit-based goals and objectives (Baumueller 2007).

Under the classical approach, employees adhere to the policies of persons in authority. Under the human relations approach, line and staff employees place importance on social acceptance and a strong work and fellow worker relationship. Under the systems approach, there must be a strong social and technical integration of human relations. Under the contingency approach, all possible avenues are infused in the company’s power and centralized management culture (Cucullu 2004).

Applying Maslow’s hierarchy of needs to the case, the employees work to earn money. The money is used to fill the basic employee needs. The employees use the money to purchase food to feed their hungry family’s stomachs. The employees comply with the company’s fraudulent instruments in order to buy the clothes on their backs. The employees also use the Enron salaries to build their own homes.

Other employees use the Enron salary to pay for the repair and maintenance of their homes. Basically, the employees work for Enron to fill their need for food, water, and safety. Once these needs are fulfilled, the Enron employees will strive to accomplish the next higher level of needs in the Maslow need pyramid. After accomplishing the basic needs, the Enron employee strives to build a strong interpersonal relationship with fellow Enron employees and other persons outside the Enron premises.

The next level of needs is known as the love and belongingness need, after the employee has accomplished the self-actualisation needs. After fulfilling the second level of needs, the Enron employees will strive to full the third level of needs. The third level of needs Is the self-esteem needs. After complying with the self-esteem need, the Enron employees will strive to reach the last need level of the Maslow need pyramid. The last need level is the self-actualisation need. Here the Enron employees focus on achieving the organisation’s goals and objectives. The Enron employees focus on theorising that people are generally good. Likewise, the Enron employees unashamedly show off their emotions to the listening crowd (Lahey, 2004)

The ability of the head, or supervisor to harness the abilities of the subordinates goes a long way to increasing the Enron company’s revenues and profits. The leaders must diverse leadership styles to connect to the employees. Some employees prefer the carrot management strategy. Here, employees prefer to receive rewards for an excellent job performance. For example an employee who surpasses one’s sales targets will have a commission based on ten percent of the revenues.

On the other hand, some employees prefer the stick management prerogative. Here, management punishes the employees to meet personal and group benchmarks. The failing employee can be suspended, fined, demoted or terminated from Enron’s premises. The leader can use enticing words to persuade the subordinates to increase their job outputs. Other leaders have to lessen their watch on the employees to give them more room to accomplish their job responsibilities on time. The diverse leader is a better leader than someone, like Skilling, who forces the employees to increase their illegal activities for the sake of generating higher company profits (House, 2007).

Conclusion

In a nutshell, the Enron downfall precipitated from the flexible tools Skilling stating money is not that important. In addition, Enron’s strong leadership culture complemented the company’s central power source culture as Skilling firmly held on to the reigns of power. Likewise, the Enron company’s task culture of prioritize the making of money complies with the rules of the profit-generating game precipitated to the company’s closing down.

Under classical theory, the Enron Company complies with the functionalist activities of close control and motivating. Skilling closely controlled and motivated the employees to fraudulently prepare the financial statements distributed to the investors and other interested parties. The case study that the radical company policies equate to the exploitation of the line and staff workers as well as causing financial damage to the current and prospective investors and the other interested parties.

References

Baumueller, M. (2007) Managing Cultural Diversity. London, Lang Press.

Cameron, K. (2006) Diagnosing and Changing Organisational Culture. London, Wiley & Sons.

Cucullu, L. (2004) Expert Modernists, Matricide, and Modern Culture. London, Palgrage Macmillan Press.

Daft, R. (2009) Organisational Theory and Design. London, Cengage Press.

Davis, E. (1999) Fundamentals of Operations Management. London, McGraw-Hill.

Dickson, J. (2009) Skilled Interpersonal Communication. London, Taylor & Francis Press.

Dubrin, A. (2008) Essentials of Management. London, Cengage Press.

Feldman, M. (2007) Crash Course in Accounting and Financial Analysis. London, Wily & Sons.

Friedrich, J. (2009) Business Ethics. London, Cengage Press.

Geuras, D. (2005) Practical Ethics. London, MC Press.

Ghere, R. (2005) Ethics in Public Management. London, Sharpe Press.

Griffin, R. (2009) Organisational Behaviour. London, Cengage Press.

Hartmann, S. (2001) Organisational Behaviour. London, Routledge Press.

Helfert, E. (2001) Financial Analysis. London, McGraw Hill Press.

Hollenbeck, J. (2009) Organisatonal Behaviour. London, Taylor & Francis Press.

House, R. (2007) Culture and Leadership, Across the World. London, Routledge Press.

Hughes, E. (1998) Transforming Your Supply Chain. London, Thompson Press.

Kotler, P. (2008) Corporate Social Responsibility. London, Wiley & Sons.

Kumar, N. (2003) Management Process and Organisational Behaviour. London, Anmol Press

Luger, E. (2009) Hofstede’s Cultural Dimensions. London, Grin Press.

Maguire, M. (2007) Financial Statement Analysis. London, Grin Press.

Miner, J. (2007) Organisational Behaviour. London, Sharpe Press.

Morgan, E. (2003) The Multinational Firm. London, Oxford.

Niven, P. (2006) Balanced Scorecard Step by Step. London, Wiley & Sons.

Phillips, K. (2008) Diversity and Groups. London, Taylor & Francis Press.

Richter, W. (2007) Combatting Corruption, Encouraging Ethics. London, Littlefield Press.

Robinson, R. (2008) International Financial Statement Analysis. London: J Wiley &Sons.

Rutherford, B. (2008) Financial Reporting in the United Kingdom. London, Taylor & Francis.

Schein, E. (2010) Organisational Culture and Leadership. London, Wiley & Sons.

Shaw, J. (2008) Fundamentals of International Business. London, Wessex Press.

Shermerhorn, J.(1997) Organisational Behaviour. London, Wiley & Sons Press.

Smith, R. Business (2007) Process Management and the Balanced Scorecard. London, J Wiley & Sons.

Stellman, S. (2010) The Impact of Cultural Differences. London, Grin Press.

Stickney, C. (2009) Financial Accounting. London, Cengage Press.

Still, E. (1988) Sales Management. London, Prentice Hall.

West, R. (2008) Understanting Interpersonal Communicaton. London: Cengage Press.

Williams, C. (2008) Management. London, Wiley & Sons.

Yilmaz, K. (2009) The Balanced Scorecard. London, Grin Press

This critical writing on Enron Company’s Organisational Culture Problem was written and submitted by your fellow student. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly.

Need a custom Critical Writing sample written from scratch by
professional specifically for you?

Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar

301 certified writers online

GET WRITING HELP
Cite This paper

Select a referencing style:

Reference

IvyPanda. (2020, June 29). Enron Company's Organisational Culture Problem. Retrieved from https://ivypanda.com/essays/enron-companys-organisational-culture-problem/

Work Cited

"Enron Company's Organisational Culture Problem." IvyPanda, 29 June 2020, ivypanda.com/essays/enron-companys-organisational-culture-problem/.

1. IvyPanda. "Enron Company's Organisational Culture Problem." June 29, 2020. https://ivypanda.com/essays/enron-companys-organisational-culture-problem/.


Bibliography


IvyPanda. "Enron Company's Organisational Culture Problem." June 29, 2020. https://ivypanda.com/essays/enron-companys-organisational-culture-problem/.

References

IvyPanda. 2020. "Enron Company's Organisational Culture Problem." June 29, 2020. https://ivypanda.com/essays/enron-companys-organisational-culture-problem/.

References

IvyPanda. (2020) 'Enron Company's Organisational Culture Problem'. 29 June.

More related papers