Abstract
This paper aims to understand ‘tone at the top’ and integrate it with leadership management. It explains how leaders in the organization, in this case, CEOs, Board of Directors, and other senior members, can solve organizational problems using culture and values. The impacts of tone at the top on leadership behavior are explained. Two companies have been used as case studies to analyze the effects of tone at the top on a leader’s moral compass.
Purpose
This qualitative study aims to compare the effects of tone at the top in two organizations: Enron’s organization and Barings Bank. The research seeks to comprehend the impact of tone at the top on leaders’ moral compass. The study focuses on how to develop features such as culture and values. Reflecting on the two organizational case studies, the study finds several ways to apply tone at the top to solve culture and value problems.
Tone at the top states that leaders should be exemplary in ethics because they influence organizational success. They should lead as examples by showing integrity, being honest, and upholding corporate culture correctly. Much research has been done in the past to determine if tone at the top is a correct indicator of authentic leadership. Mainly, analysis occurs by referring to letters signed by CEO to the shareholders. CEOs are believed to contribute to those letters’ contents, so they should be keen when signing. Leaders should not only lead by word of mouth but by actions.
Methodology
To accomplish this qualitative study, information about Barings Bank was obtained from different books, as well as information about Enron’s company. The study focused on the behavior of Enron’s employee Jeffrey Skilling who was a former CEO. In Barings bank, the study examined Nick Leeson’s conduct when he was the bank’s general manager. The impact of tone at the top on the leader’s moral compass was finally found and discussed from the case studies. The different ways of solving culture and values problems using tone at the top were finally evaluated.
Findings
From the study, Barings Bank collapsed due to the poor leadership of CEO Nick Leeson. The bank collapsed after Leeson poorly invested money from the bank in Singapore. Edward’s questions on the bank’s failure matches this study on authentic leadership. Some of the questions asked by Edward are the following; “how is it possible that one man was able to cripple a financial giant? What was the role of senior management in this situation, and did they contribute to the demise? How effective were the internal control systems, and were the Singapore operations managed effectively?”
From the several reports on research about the bank collapsing, the occurrences revolve around poor leadership. Most of the reports did not clearly explain how the loss occurred, leading to its failure. Several reports did not answer Edward’s questions on the bank’s management from CEO to other staff members. Bank of England report tried to investigate and explain what occurrences led to the loss in Barings Bank.
Bank of England report explained that Nick Leeson had been experiencing loss over time, but he never revealed this in his documents. Over the years, Leeson used fake accounting to hide his progress in company finances. He gave false reports to the head office on the statements he had been making. The poor leadership in the bank constituted the collapse of Barings Bank. There was no clear division of duties among the top officials in the bank. From the Barings Bank’s scenario, poor leadership is depicted right from the top. The top leadership gave many responsibilities to Nick Leeson: holding two offices, power to sign cheques, and the authority to inspect bank’s relationship.
Some of the fraudulent activities that Skilling’s leadership engaged in were the application of pseudo accounts in trading and purpose vehicles that helped the company “put the debt off its balance sheet.” The management used Enron’s culture of rewards to create a plan for compensation and bonuses to lure employees into illegal activities that benefit the leaders. Skilling’s leadership also used a culture of employing highly qualified candidates and giving fast promotions to the best performers. The employees who poorly performed were demoted and even laid off.
Enron’s energy company failed because of using culture and ethics poorly under Killings leadership. The management manipulated Enron’s culture for their benefit. Employees experienced a harsh environment of engaging in fraudulent activities, which might be against their beliefs. The scandal at Enron is evidence that the actions of leaders at the top affect a company’s success.
Originality
This study is original in exploring how tone at the top affects a leader’s moral compass. It adds to existing research that many researchers have done on how tone at the top can apply to solve culture and value problems. The top management should set the right tone not by lips but by actions to positively affect a company’s performance. This study focuses on two companies that exist with failure as a result of poor management.
Research Implications
From the findings above, its true tone at the top affects an organization’s success. The Barings bank implies that integrity is vital and should be demonstrated right from the top leadership by actions. Lack of integrity by Baring Banks’s former CEO led to the collapsing of the bank. The lack of integrity is demonstrated right from the top leadership. The top administration ignored the internal audit attempt to raise concerns about the CEO’s excessive power and holding of many offices. This mismanagement flows down to the closing of the bank.
Enron’s company scandal implies that the top management’s cultural ethics determine the company’s performance and success. Culture in an organization is essential, be it individual corporate or organizational culture. Correct cultural ethics flow down to the employees from the top for success. Enron’s company would not have collapsed if proper cultural ethics and values were applied from the top management
Practical Implications
The results of this study are reliable for practical implications in the world today. If the tone at the top is correctly applied in a company, success is guaranteed. If the CEOs, Board of directors, and the senior management of a company or an organization can use integrity, then there will be no loophole for failure and closure; correct ethics and cultural values by the leaders are a sure guarantee of a company’s growth and success.
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