Enron Ethics and Leadership Failures

Ethics and Leadership Failures: The Enron Case Gibney's 2005 documentary film Enron: The Smartest Guys in the Room reveals some of the main ethical weaknesses in an unbridled neoliberal capitalist market system. Barely addressing environmental and social justice issues, the filmmakers instead choose to focus on organizational culture, leadership, and ethical decision making within the corporation. The film illustrates the core concepts of business ethics and shows how executives shape company values and behaviors.

Disturbingly, the Enron case also shows how unethical corporate behavior is linked with unethical behavior in government. Summarize in one paragraph how you would explain Enron's ethical meltdown Enron's ethical meltdown is a result of two interrelated issues: unethical individuals making unethical decisions, and an organizational culture that enables unethical decisions to proliferate. The unethical decisions and behaviors mainly have to do with stock market manipulation and the falsifying of information related to the actual performance of the firm.

By fooling the market into believing that Enron was making money, it attracted increased shareholder revenues and proceeded to bull its way through the system unnoticed by regulators. The organizational culture at Enron was actually oriented towards manipulating the market almost as if it were the company mission -- the culture was also strictly oriented towards performance because the bottom 15% of employees would be fired every year.

So it was more than competitive, and the human resources systems did not build in anything that would prevent unethical behavior to meet targets. There are therefore two separate issues related to Enron's culture: first the orientation of its executives towards falsifying information and the second in the organization's hyper-competitive atmosphere. That atmosphere has more to do with human resources and labor issues than about the white collar crimes committed by Enron executives. Both of these issues combined to create an ethical meltdown. 2.

How would you characterize Enron's culture and what role, and in what way, do you think culture played in the ethical issues at Enron? Enron's culture problems began the top of the company, where pumping up the earnings was the only thing that mattered -- it was the de facto way to boost earnings. If the earnings were not reflective of reality in terms of how much revenue Enron actually brought in, that fact wasn't as important as the faAade of good earnings.

Skilling played a key role in this cultural orientation because he insisted on mark-to-market accounting, which showed that the company was oriented more towards the illusion of high profits, even if those profits did not yet exist and senior executives condoned and participated in the fraud, as the documentary shows. Being devoid of ethics allowed for a few short-term gains but resulted in the colossal ethical failures at Enron and an exposure of widespread corruption in the capitalist market system.

In Chapters 3 and 4 of Management, Bateman, Snell & Konopaske (2016) discuss organizational environment and culture and how these elements affect all aspects of the company's operations from senior management decisions to the behaviors of subordinates. The authors refer to the "macroenvironment," which influences the culture through laws and regulations that restrain organizations and their behaviors (Bateman, Snell & Konopaske (2016, p. 44).

In the Enron case, the macroenvironment and pesky things like law means little if those laws and regulations are irregularly enforced, for example, or if it is easy for executives to get away with white collar crimes as it was for Enron. The filmmakers do imply some degree of governmental collusion if not outright cover-ups to promote an unethical type of organizational culture in both the private and public sectors. Likewise, laws and regulations mean little when there are loopholes and other means by which executives can circumvent the law.

An organization's culture is much more than a reflection of the macroenvironment, though. As Bateman, Snell & Konopaske (2016) show, an organization's culture is about the "internal environment" of the organization (p. 60). Using the Enron example, it is easy to see how the internal environment of the company was highly toxic and conducive to failure rather than success. First there is the basic human resources issue of culling the lowest performers in a brutal fashion.

Related to that is the expectation that all personnel will conform to Enron's company goals, values, mission and the ensuing behaviors -- all of which are designed to defraud the market. Operating as a hierarchal organization, Enron made it so that the senior executives and only a small group of highly salaried, privileged salespeople in the middle tier of management were fully aware of the extent of fraud and unethical behavior. Those at the lowest rungs of the organization would not have been ethically complicit.

As Bateman, Snell & Konopaske (2016) point out, company leaders and managers shape organizational behavior, not those at the bottom (p. 77). Therefore, only the senior executives can be held responsible for generating and even promoting an unethical climate in the organization. Warning signs included their overall lack of concern, even gloating about the ethical infractions, their lack of any procedures to mitigate the problems, and the emphasis on financial outcomes of decisions over ethics, period. Enron's case can be best understood using a ethical framework.

The five ethical perspectives that shape decision making in the corporate environment include universalism, egoism, utilitarianism, relativism, and virtue ethics (Bateman, Snell & Konopaske, 2016, p. 70). Universalism refers to universal ethical standards, which are inflexible and which apply in any and all situations equally. Situational or contextual variables are not relevant from a universalist ethical framework. Obviously no attempt was made to follow universal ethical goals in the Enron case. Ethical egoism was an issue in the Enron case, though.

The senior executives do what is in their own best interest, and any party.