Organizational culture is a manner in which people in a company operate unconsciously and consciously in their daily activities (Flamholtz & Randle 2011). Through understanding the organizational culture, an institution can identify with the culture that prevails and supports essential programs within its workforce to accomplish the strategic objectives. Organizational culture comprises the physical structure, symbols, ceremonies, language, and rituals within the business ethics (Madsen and Vance, 2009).
The physical structures promote positive relationships between favorable and effective job performance as attributes of motivation and congenial conditions. The structure encourages security, comfort and safety, and prevailing physical convenience. The symbols are designed to create a culture of efficiency and support among the employees. The ceremonies, language, and rituals are critical in explaining and exploring shared and coordinated actions on roles and channels through which organizational framework functions in exchanging information (Madsen and Vance, 2009).
Enron’s sense of business ethics
The Enron Company has three building blocks of learning: a supportive learning environment, concrete learning processes, and practical leadership that reinforces innovation. The managers are expected to play a significant role in setting up the learning environment for their employees. This culture is meant to create an ideal climate for innovation and communication among the employees. Enron’s teamwork culture spells the rules of engagement, expected behavior, and repercussions for misconduct. These rules appreciate diversity and uphold integrity in judgment as enshrined in its vision and mission statement.
What went wrong?
Enron’s corporate culture had little regulators and system monitors to balance the company’s goals and expected behavior when handling business environment risks. The managers did not find it necessary to monitor the employees and blindly trusted them to handle any risks against the company’s interest. Enron’s bankers, editors, and attorneys conspired to support the fraudulent dealings despite their ethical responsibility of maintaining integrity in the company. They deviated from the main goal of the business. They failed to take into consideration the shareholders’ interests when supporting the decisions and contracts that were proposed by the top management (Ferrell, Fraedrich, and Ferrell 2011).
From an ethical perspective, the top management conspired to inflate the asset values, overstate the reported income and cash flow, and eliminate the liabilities from the financial records. Specifically, the attorneys negotiated dubious investment contracts for the company. These investments incurred losses that were never reported in the books of account of the company (Ferrell, Fraedrich, and Ferrell 2011).
The moral dilemma in the Enron case resulted in a massive loss that had never been experienced in the history of the United States of America at that time. First, shareholders of the company lost about $74 billion due to the falling share prices in four years. Secondly, Enron’s creditors and energy entities incurred hefty losses. Finally, over 20,000 jobs were lost. The employees also suffered losses resulting from the loss in value of the shares because over 50% of the savings were used to purchase the company’s shares. The total market failure that resulted from the Enron scandal amounted to over $100 billion (Madsen and Vance, 2009).
The role and responsibility of company leadership
The managers of the Enron Company were expected to monitor the employees and maintain integrity in the company. Besides, they were expected to the main goal of the business and to take into consideration the shareholders’ interests when supporting the decisions made by any of them. They were also expected to observe business ethics in decision-making and implementing growth and expansion strategies for the Enron Company.
The shortcomings of the management team
Members of the top management of the company were closely involved in the crime. Kenneth Lay, the chairman of the company during that period, permitted other management actions without getting to know the nature of the transactions. The Chief Operating Officer, Jeffrey Skilling, was involved in negotiating dubious investment deals for the company. The Chief Financial officer, Andrew Fastow, had the overall responsibility of ensuring that the books of accounts reflected a true and fair view of the company. He did not disclose losses arising from the company in the financial statements of Enron. The managers did not exercise professional due care in handling the shareholders’ funds (Madsen and Vance, 2009).
The ethical crimes committed by the management of the Enron Company included conspiracy, securities fraud, false statements, and insider trading. Based on the code of ethics, it is clear that the managers breached all the ethical principles. The managers involved in the scandal were competent but did not exercise professional due care and apt professional behavior. Also, the managers did not exercise integrity when preparing the financial statements (Ferrell, Fraedrich, and Ferrell 2011). This means that they lacked integrity and objectivity in running the organization.
HRM role in curbing the Enron scandal
In the Enron Company case, several recommendations can be made to mitigate the possible recurrence of the crime. First, the composition of directors of a company should include independent directors as the majority. The important committees, such as the audit committee and the human resource committee, should have independent directors. A better organized Human Resource Management (HRM) department would have diverted the Enron scandal by managing its ethics.
Ethics denote sets of laws or moral systems that provide a basis for discerning whether an action is correct or erroneous. Therefore, the HRM team in an organization can develop ethical principles that guide other employees when carrying out their duties. The ethical code consists of laid down structures to keep staff in a healthy and stable mind in their duty of serving the interests of an organization through regulatory and ethical communication models (Free, Macintosh, and Stein, 2007). These models define expected behavior, procedural patterns, and response to every deviation.
Moreover, the HRM team would have aligned the Enron’s organizational behavior within four models. These models are the motivation to acquire, bond, comprehend, and defend. Therefore, a proactive behavior control system should function within a structured reward system (Madsen and Vance, 2009). When the system functions within accepted parameters, employees will eventually develop a self-consciousness to deliver quality services and defend the organization as part of a family unit.
The main positive influences of good organizational behavior include motivation, empowerment, and training. Reflectively, these factors should be internalized in an organization to foster a proactive attitude among the staff. Among the motivation enhancing practices include incentives, promotions, rewards, and recognition. The effectiveness of these components depends on vertical, horizontal, and word alignments. Therefore, the feedback management system monitored by the HRM department may influence positive perception among employees. This will eventually determine the effectiveness of such an organization (Flamholtz and Randle, 2011).
The aspect of planning is important to demystify poor performance as part of employee redundancy. Reflectively, proper use of a competency review system of the HRM department is directly proportional to employee performance since the magnitude of success depends on social interaction skills. Therefore, organizational effectiveness should be the cornerstone for modeling acceptable behavior between the management and staff (Ferrell, Fraedrich and Ferrell, 2011). However, the policies adopted should be aligned to the basic building blocks of the performance and scope of the organization. These policies should incorporate the employee-employer relationship model, performance review, and organizational social culture.
Human process-based intervention strategies are presented as directed at improving the general state of relationships between individuals and within and among groups in an organization. To attain this, a sensitive form of training organized by the HRM department is carried out to ensure that both management and employee teams remain flexible to their counterparts’ basic needs. An emotion testing program is introduced to test employees’ emotional position towards each other, after which a counseling session is held to ensure that employees care about their counterparts’ social needs (Meisinger, 2012).
The main driving point in these particular approaches is that the good state of relation, information transfer, and collaboration are essential in fostering good environments for the flourishing of an organization. Thus, the Enron scandal would have been avoided if it had a better organized HRM department, which has the role of monitoring the managers’ activities and other employees in a company.
References
Ferrell, O., Fraedrich, J., & Ferrell, L. (2011). Business ethics: ethical decision making and cases (9th ed.). New York, NY: Cengage Learning.
Flamholtz, E., & Randle, Y. (2011). Corporate culture: the ultimate strategic asset. Stanford, UK: Stanford business Books.
Free, C., Macintosh, N., & Stein, M. (2007). Management Controls: The organizational fraud triangle of leadership, culture, and control in Enron. Ivey Business Journal. Retrieved from ProQuest.
Meisinger, S. R. (2012). Examining organizational ethics. Human Resource Executive. Web.
Madsen, S., & Vance, C. (2009). Unlearned lessons from the past: an insider’s view of Enron’s downfall. Corporate Governance, 9 (2), 216-227.