What can we learn about culture from the Enron?

The Enron collapse has sent shockwaves all over the financial world and raised serious questions regarding corporate governance: How could America’s seventh largest corporation suddenly descend to bankruptcy? What has contributed to its sudden implosion? Currently, there are more than 10 separate committees investigating possible wrong doings and illegal activities, such as fraud and insider trading.

Available information suggests that Enron made its money with smoke and mirrors. With a set of off-the books, unregulated private partnerships to take on debts, hide losses and kick off inflated revenues, Enron executives were able to keep bond-rating agencies happy. They were able to sustain this shell game through persistent refusal to disclose to analysts, who questioned where the money came from. Arthur Anderson, the auditing firm, turned a blind eye to questionable accounting practices because they did not want to lose the lucrative consulting fees.

However, under mounting pressure, Enron’s eventual disclosure of its overstatement of profits in November 2001 immediately triggered the collapse of the company and its bankruptcy filing on December 2, 2001.

A special panel of Enron’s Board recently issued a 217-page report, condemning Enron’s management for inflated profit reports and failure of controls at every level. According to Eichenwald (2002), “As oversight broke down at Enron, the report states, a culture emerged of self-dealing and self-enrichment at the expenses of shareholders. Accountants and lawyers signed off on flawed and improper decisions every step of the way, the reported concluded.”

Let’s delve into the culture issue further. Enron’s senior management failed to maintain a relationship of openness and trust with employees. Staff members who questioned the wisdom of some of Enron’s decisions and practices were either ignored or silenced. Senior management cared more about self-enrichment than the needs of employees. They showed little regard for meaning and ethics beyond the bottom line. There is an absence of shared vision that transcends moneymaking. Enron’s deficiency in social-spiritual capital proved to be fatal!

Here are some of the toxic corporate cultures because they are dysfunctioning in terms of relationships and adjustment to changing times. They undermine the social/spiritual capital, poison the work climate and contribute to organizational decline.

1. Authoritarian-hierarchical culture. The big boss alone makes all the major decisions behind closed doors. Even when the decisions are harmful to the company, no one dares to challenge the boss. The standard mode of operandum is command and control, with no regard to the well being of employees or the future of the company.

In this kind of culture, employees are to be controlled, manipulated and occasionally pacified like little children. Workers are motivated by fear rather than love for the company or passion for the work. They are expected to do what they are told without questioning. The main criterion for promotion is loyalty to the boss, rather than competence and commitment. As a result, star performers who dare to question some of the administration’s decisions are sidelined or let go, while those who obey the boss blindly and who are willing be hatchet men get the nod for promotion.

2. Competing-conflictive culture. There is always some sort of power struggle going on. Leaders are plotting against each other and stabbing each other on the back. Different units and even different individuals within a unit are undercutting, backstabbing each other to gain some competitive advantage. There is a lack of trust and cooperation. People often hide important information from each other and even sabotage each other’s efforts to ensure that only they will come up on top.

There is no regard for the larger picture and the overall goal of the company. It is everyman for himself. Both management and workers are obsessed with their own survival and self-interests. As a consequence, the organization is fragmented and there is a lot of waste of valuable resources because of duplications and sabotage. Such intense competition within the company creates a climate of divisiveness, conflict and mistrust. A house divided cannot long survive in a highly competitive globe economy.

3. Laissez faire culture. There is a vacuum at the top, either because the leader is incompetent and ignorant, or because he is too preoccupied with his personal affairs to pay much attention to the company. Consequently, there is an absence of directions, standards and expectations. When there is an absence of effective leadership, each department, in fact, each individual does whatever they want. The leadership void will also tempt ambitious individuals to seize power to benefit themselves. Chaos and confusion are the order of the day. No one has a clear sense where the company is going. Often, employees receive conflicting directions and signals. Often, decisions are made in the morning only to be nullified in the afternoon. Given the lack of direction, oversight and accountability all across-the-board, productivity declines. In this kind of culture, the company either disintegrates or becomes an easy target for a hostile takeover.

4. Dishonest-corrupt culture. In this culture, greed is good and money is God. There is little regard for ethics or the law. Such attitudes permeate the whole company from the top down to individual workers. Bribery, cheating, and fraudulent practices are widespread. Creative accounting and misleading profit reports are a matter of routine. Denial, rationalization and reputation management enable them carry on their unethical and often illegal activities until they are caught red-handed or exposed by correcting forces of the market. When management are 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. Enron serves as a good example.

5. Rigid-traditional culture. There is a strong resistance to any kind of change. The leadership clings to out-dated methods and traditions, unwilling to adapt to the changes in the market place. They live in past glory and any change poses a threat to their deeply entrenched values and their sense of security. Workers are discouraged or even reprimanded for suggesting innovative ideas. Their accounting, marketing and delivery systems are no longer competitive with the fast-paced technology-driven market place. Their products and services have not responded to changing market demands. Their mantra is “We have always done things this way.” As a result, the world passes them by and eventually they are left with an empty shell of the former self.

For any corporation to be healthy and productive, it needs to be strong in four core areas: (a) financial capital in terms of investments and profits, (b) technological capital in terms of cutting-edge software and hardware, (c) human capital in terms of knowledge, expertise, and creativity and (d) social-spiritual capital in terms of ethics, relationships, meaning and purpose.

Something that sounds as simple as culture is difficult to implement. However, a good culture creates a positive work climate, which is conducive to productivity and job satisfaction. They contribute to high-performance without explicitly linking reward to performance. And you really want to come to work every single day.

Interesting reads:

http://fortune.com/2012/07/10/how-can-we-prevent-another-enron-or-worse/

https://hbswk.hbs.edu/item/innovation-corrupted-how-managers-can-avoid-another-enron

http://articles.baltimoresun.com/2002-02-10/news/0202100020_1_enron-partnerships-accountants

http://www.drpaulwong.com/lessons-from-the-enron-debacle/

https://www.emeraldinsight.com/doi/abs/10.1108/02580540310794660?journalCode=sd

https://www.fastcompany.com/44881/what-if-youd-worked-enron