Organizational Behavior and the Enron

Organizational Behavior and the Enron Collapse

The first major corporate collapse resulting from organizational leadership and mismanagement throughout the company was the 2001 Enron implosion. In retrospect, the Enron case demonstrates the manner in which charismatic leadership style, dysfunctional organizational culture, totalitarian rule, and one-dimensional employee evaluations based on performance measures can destroy an organization from within. The study of Enron reveals shortcomings of exclusive reliance on certain styles of leadership and organizational management based on cult-like aspects of social psychology within the vocational realm.

Leadership Issues

Generally, neither the charismatic leadership style nor the transformational leadership style is considered particularly appropriate for financial services firms because, by nature, those types of organizations rely on highly skilled professionals and do not have high turnover (or change of occupation) rates among their staff (Bass, 1997). Charismatic leadership is considered much more appropriate in connection with lower skilled occupations where high turnover (and change of occupation) rates among employees is much more common, such as in retail sales and promotions. That is mainly because the working environment that corresponds to charismatic leadership tends to be much more emotionally draining and challenging for employees to endure for longer periods of employment. Therefore, organizations that are principally dependent on highly-skilled career-oriented employees much more commonly feature transactional leadership styles (Bass, 1997; Tourish, 2005).

Equally important is the issue of the narcissistic personalities of Enron President Jeffrey Skilling and its Chief Executive Officer, Ken Lay (Tourish, 2005). Skilling and Lay cultivated a climate based on their totalitarian authority, one-dimensional focus, unreceptive attitude toward even objective, reasoned, constructive criticism, blind loyalty, punitive management policies, and a cult-like atmosphere that is toxic to modern business organizations and governments (Tourish, 2005; Zimbardo, 2007).

Specifically, Enron corporate culture preached excessive adoration of Skilling and Lay; its managers rewarded performance based on a very narrow range of measures; management ruled by fear; and a cult-like indoctrination process which experts in cult behavior refer to as the "initiation" phase of cult membership (Tourish, 2005). In Enron's case, this manifested itself in its initial interviewing process for new prospective hires through its grueling full day-long interviewing procedures that usually included as many as eight successive hour-long interviews with different interviewers.

By the end of that ordeal, applicants had already invested so much time and emotional energy in the company that, combined with indoctrination about the company's expertise in hiring only the most "special" talent, made an employment offer tremendously rewarding for anybody not turned off to the company because of the process. In effect, the Enron interview process pre-selected individuals who were most likely to fulfill their assigned roles without questioning authority or the many transgressions and violations of their normal vocational expectations (Tourish, 2005).

Management and Organizational Structure Issues

Once hired, new Enron employees were immediately subjected to what psychologists refer to as the "indoctrination" and "conversion" phases of absorption into the cult-like atmosphere in the company (Tourish, 2005). They were rewarded excessively for high performance and punished excessively for poor performance. The management style fostered a tremendously competitive environment among employees through a "rank or yank" policy in which all employees were evaluated every six months and categorized into three performance ranges of whom everybody in the lowest ranking was subject to termination unless performance improved satisfactorily in the subsequent evaluation period

As in the case of cults, the Enron initiation phase was followed immediately by the indoctrination and conversion phase during which employees were simultaneously rewarded with excessive luxuries and also subjected to the intense pressure to surrender their psychological independence, conform to corporate values, and also to a highly competitive work environment. More specifically, the organizational culture at Enron continually promoted the notion that all of its employees were the best and most talented in the world. Yet, they were also subjected to a punitive culture in which a "rank or yank" performance evaluation system ranked all employees twice each year into three categories, the lowest of which coincided with imminent dismissal without a dramatic performance turnaround by the next evaluation (Tourish. 2005). In addition to creating an excessively stressful environment, this management approach directly resulted in the minimization of any concern over ethical business practices. It severely discouraged any critical expression and gave employees every incentive to do whatever they could to maximize their apparent worth to the organization through the profits they generated (Olson, 2007).

Conclusion