Corporate Failure: The Enron Case Page 3

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By Rahul Gladwin | December, 2003.

Part 3: Corporate culture: Does it really matter?

C.E.O. Kenneth Lay was unaware of the Enron corporate culture of greed and deception. He trusted his juniors, and fully depended on them. Enron vice president, and whistle-blower Sherron Watkins said that the corporate culture made it difficult to come forward and speak up at the company. Watkins described Enron's corporate culture as aggressive and tinged with fear (Swartz and Watkins, 2003). She had discovered $700 million missing in Enron's finances, and urged Mr. Lay to find out who was responsible. Watkins added that Lay did not understand the seriousness of this situation. He thought that everything was working fine at Enron (Lay, 2002). Additionally, Watkins sent an anonymous letter to Lay, in which she expressed her uncertainties and doubts about the accounting practices taking place at Enron. Colleagues told her that Fastow was outraged when he heard she had secretly written to Lay. "He wanted to have me fired. He wanted to seize my computer," Watkins testified (Swartz and Watkins, 2003). She said she even consulted Enron security personnel, in case Fastow might do something malicious. A spokesman for Fastow declined to comment on this these claims. Furthermore, she also described Jeffrey Skilling as "an intense, hands-on manager" and a "highly intimidating and very smart individual" (Swartz and Watkins, 2003). Ms Watkins said that Skilling and Fastow intimidated a number of people. She asserted, "The saying around Enron was 'heads, Mr. Fastow wins; tails, Enron loses."'

The important question is, why the lack of ethics? What had gone wrong? Why did Enron executives create an atmosphere of intimidation at the company? How could executives at Enron encourage their employees to buy Enron stock, while cashing the stock for themselves? Why didn't they comply with Enron's Code of Ethics? What lessons can we learn from the fall of Enron? The most important argument of this essay is that corporate culture is very important - it can either bring disaster or power to the organization, depending on whether the corporate culture is good or bad. Enron executives created a culture of greed, corruption and deception; eventually, their plans were ruined because of the foreseeable correction by the external market.

The corporate culture at Enron can be described as a dishonest-corrupt culture. In this culture, greed is good and money is everything. People like Fastow intimidate people, who threaten to blow the whistle on them. There is little, or no regard, for ethics or the law. Such attitudes prevailed through the whole company, from the top down to individual workers, and began by weak ethical management by the top official - Kenneth Lay. Bribery, cheating, and fraudulent practices were widespread within the organization, and even spread to affiliated organizations like Arthur Anderson (Lay, 2002). Fraudulent accounting practices and misleading profit reports were common and engineered by senior accountants. Denial, rationalization and reputation management enabled the bad guys to carry on their unethical and often illegal activities, until they were caught red-handed or exposed to the outside market. When management is blinded by greed and ambition, their judgment becomes distorted and their decisions become seriously flawed; as a result, they often cross the line without being aware of it, and Enron serves as a good example. Thus, Kenneth Lay should have been a better molder of corporate culture because corporate culture does matter. Furthermore, Lay should have shaped the culture in such a way that it would stay healthy in spite of turbulent changes in the company. How can a healthy culture be created? Therefore, managers should not only be trained in technical aspects of running a business, but also in less obvious skills as empathy, communication, validation, conflict management, and community building.

Conclusion

It wasn't taken seriously, but Enron did have a sixty-four page Code of Ethics. New Employees were asked to read the code and sign a statement. However, Enron lacked ethical oversight and management. Thus, despite having a code of ethics, it was rendered useless. Therefore, a code of ethics is only useful when people take it seriously. Hence, in addition to having a code of ethics, and making new employees read it, the company should have offered better ethical oversight and people management, thus, saving Enron.

Bibliography

The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron
The Enron story (Newcomen publication)
Power Failure: The Inside Story of the Collapse of Enron
The Fall of Enron: How Could It Have Happened? : Hearing Before the Committee on Governmental Affairs United States Senate One Hundred Seventh Congress, Second Session
Conspiracy of Fools: A True Story
Wall Street: A History: From Its Beginnings to the Fall of Enron

The Enron Case Page 1 The Enron Case Page 2 The Enron Case Page 3

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