This paper analyzes organizational culture through the lens of the Enron scandal, exploring how leadership values and corporate ethics shape workplace environments. Using Edgar Schein's framework for understanding organizational culture, the author compares healthy military squadron cultures with Enron's toxic "win at all costs" environment. The paper examines how CEO Jeff Skilling's competitive ethos, high-turnover hiring practices, and reward systems bred unethical behavior, and argues that Human Resource Management failed to establish ethical guardrails. The paper concludes that early HR intervention and ethical leadership modeling could have prevented Enron's collapse and offers lessons for building cultures based on shared values and accountability.
There are good companies to work for, and there are ones that are not. Even within the Air Force, I have worked in squadrons where the organizational climate was positive, people had a sense of purpose, and felt they contributed to the overall success of the organization. However, I have also been in squadrons where tension was created between two sections because leadership favored one over the other, solely because one section aligned more closely with their way of thinking than the other.
The same dynamics occur in the civilian world. Within organizations, leadership can favor certain people over others, creating an environment of hostility and unhealthy competition—especially when that behavior is encouraged from the top. I believe this is what happened at Enron, and why they experienced an epic downfall that has become the textbook example of how not to run an organization.
According to Edgar H. Schein's 1984 article "Coming to a New Awareness of Organizational Culture," organizational culture is defined as the pattern of basic assumptions that a given group has invented, discovered, or developed in learning to cope with its problems of external adaptation and internal integration, and that have worked well enough to be considered valid, and therefore to be taught to new members as the correct way to perceive, think, and feel in relation to those problems (p. 3). In practical terms, this means that organizational culture is the shared beliefs about how an organization will feel, act, educate, and develop everyone—both seasoned employees and newcomers.
The difference in organizational culture is visible even in the military from squadron to squadron. In a Security Forces Squadron, the culture emphasizes strict adherence to standards, tough discipline, and an alpha-dog atmosphere. This makes sense given that security forces personnel are the defenders of an installation; they serve as police officers who deal with crime and must be prepared for serious situations. They are hard on themselves and each other but also take care of one another. When you enter a security forces squadron, you feel a high sense of pride in what they do, but you also know not to cross them.
By contrast, a Force Support Squadron has a distinctly different organizational culture. That environment is more customer-oriented, softer-spoken, and less stern than security forces. There is still pride and adherence to standards, but the atmosphere is less tense because of the type of customers they serve. Both squadrons have vision and mission statements that guide where they want to be and how they will get there. These statements are translated down to each flight and section so that everyone understands how they fit into the overall picture. The statements serve as guides on how to act and interact with each other while accomplishing the mission. Leadership buys in by having the commander model and exemplify the squadron's values.
What happened to Enron's sense of business ethics and organizational culture? The answer is straightforward: New President and CEO Jeff Skilling had a "win at all costs" attitude and made no attempt to hide it. In fact, he encouraged that same behavior throughout the organization among all employees.
The problems began with a power struggle at the top. When Sam Segnar became chairman of Internorth Inc. after Willis Straus retired, and Kenneth Lay was chairman of Houston Natural Gas, a clash was inevitable when the two companies merged. Sam cared more about status, so Ken suggested they combine the board of directors—Internorth had eight members and HNG had six. Since Sam was not well liked, Ken only needed to find two board directors who disliked Sam to sway the vote. In just two months, Ken became chairman of the newly formed Enron (Madsen & Vance, 2009, p. 216–217).
Kenneth Lay's vision was to make money and make it fast. That attitude permeated the entire organization. Throughout the 2009 article by Susan Madsen and Charles Vance, "Unlearned Lessons from the Past: An Insider's View of Enron's Downfall," this "profit at all costs" mindset is highlighted repeatedly. Additionally, if you were not committed to that vision and team, you were out. This put employees on constant edge and created a "cut-throat" environment that persisted all the way to the company's collapse (p. 219).
Reward systems were designed so that anyone could earn money well above average salaries, creating a highly competitive atmosphere. Many employees would earn millions and then leave the company, resulting in a very high turnover rate. This was by design—Enron was constantly bringing in new talent rather than developing existing employees.
Another critical issue was that Enron operated under a "baseball team culture" where they would hire 200–500 MBA graduates from top business schools, offer quick promotions, but give them no time to learn industry details (Stein, 2007). It was like the New York Yankees trying to win championships by buying big-name players rather than developing talent. Enron was already teaching these new recruits that greed and competitiveness would get them further than learning the fundamentals. Instead of developing people, Enron simply hired whatever resources were needed at that moment. In essence, Enron cultivated a culture where the question was: "Who can you step on to get ahead?" There was no focus on developing people, just hiring them. And if you did not buy into this culture, you would be terminated because you were not a good fit for the company.
What is remarkable is that everyone saw the ethical problems but said nothing because they were afraid, greedy, lacked integrity, and lacked honesty. All of these factors combined led to the largest corporate downfall in history.
The roles and responsibilities of Enron's leadership should have been to ethically operate a company that reflected the highest standards. They should have modeled and exemplified this behavior. Everyone in an organization should feel that they contribute to overall success and that working together is how they will achieve it.
In the Air Force Senior Non-Commissioned Officer Academy, we teach an Ethical Leadership lesson that includes Dr. Toner's Six Tests of ethical behavior:
Instead of asking themselves even one of these questions, Kenneth Lay, Jeff Skilling, and many others running Enron valued only fast money-making and bred a culture of internal competition. They eliminated any opposition, even though that opposition was intended to improve the company. They instilled fear throughout the organization so that if anyone had concerns, they kept silent rather than risk termination.
I believe that the lack of Human Resource Management involvement is one of the primary reasons why Enron's "moral compass" pointed so far south. Human Resource Management's role is to ensure everyone is treated equally and fairly, ensuring employee development and equal opportunity for advancement. These functions were entirely absent at Enron.
Ian Warnick covered best how companies today can guard themselves against unethical behavior. First, they should reflect on their own experiences as individuals, groups, and organizations. Second, they should listen to naysayers—people who provide honest feedback that may not be what leadership wants to hear. Take that feedback seriously and use it to improve. Third, all individuals should look beyond themselves and provide service to others, maintaining an attitude of helpfulness and concern for others' well-being (p. 226). HR managers should ensure these three ideals are followed throughout an organization.
"Key takeaways and lessons for preventing future scandals"
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