Leadership and Culture Influence in Business Ethics

Organizational culture is the collective way by which employees interact at the workplace. It encompasses life experiences, values, and beliefs that bind employees within the firm. According to Argyris (2010), organizational culture is the way employees in an organization behave and the meaning that people attach to their behaviors and life experiences. There are essential aspects of culture that firms have to consider in their management processes within an organization. The evaluative element involves social anticipations, prospects, and principles that companies follow in their daily operations. Material artifacts involve the symbols that act as organization identifiers. Lastly, the social interaction element involves the means of communication within a firm. For instance, the language of communication and the communication methods within an organization constitute social interaction as an element of organizational culture.

Culture brings people together. The concept of corporate culture drives employees in an organization towards achieving a common goal hence making them develop a sense of unified responsibility. As an initiator of unity, culture helps in developing consensus among employees and the management. For example, organizations can conduct training for their employees to inculcate the corporate culture in employees. In this aspect, all stakeholders within the organization strive to work towards achieving centralized goals. The whole concept of culture within an organization brings out the image of a firm that the management would like to project. It remains the role of the HR executive to design ethical organizational behaviors so that employees can be able to reinforce the whole system in unison (Meisinger, 2012). It becomes difficult to reshape an organizational culture where unethical practices are manifested at the topic as compared to one, which manifests from the bottom. HR should also foster a good working relationship and ethical culture within the organization.

Enron believed that failure is not an option and went ahead to engage in risky ventures. Enron’s for­mer President and Chief Exec­u­tive Offi­cer (CEO) Jeff Skilling was at the forefront of evaluating employees and firing poor and incompetent ones. He had set high expectations for the company and even encouraged employees to leave their comfort zones to register high profits from dangerous activities (Graarrg, 2010). This approach made Enron look like an excellent corporation in the face of citizens since it highly got involved in corporate social responsibilities. The top management had made employees work towards putting Enron at the top of the trading market using any means available. Enron adopted the culture of rewarding clever employees and managers. When market deregulation took effect, Enron started to experiment with a new playing field by exploring it to the utmost. Skilling encouraged employees to carry out independent innovations and went on to back the process by the motto of “Do it right, do it now and do it bet­ter” (Enron Ethics – The Culture of Enron, 2010).

The culture encouraged massive innovations, which went unchecked. The management was responsible for designing an organizational culture that supported unethical practices within the corporation. The entire staff of Enron developed attitudes and beliefs that could easily defy ethical practices. Employees involved themselves in fraudulent activities as a way of maximizing profits within the shortest time possible. With the full support of the HR executives, dishonesty became the sole way of achieving Enron’s goals. In this aspect, they viewed dishonesty as a normal and necessary way of meeting the corporation’s objectives. The culture that infiltrated in the corporation made it difficult for employees to report any unlawful activity to external auditors. Ken Lay and Jeff Skilling made employees believe that their priority should be to obtain high profits irrespective of the means. Unethical practices became the norms within Enron, while those who attempted to act on the contrary were seen to be enemies. Employees developed the motive of owning Enron’s business operations. The management and employees became greedy, arrogant, and developed pride in the way they handled business activities. Many employees were extremely involved in complicated schemes to put Enron at the top of the trading market.

Additionally, the perceived fear of losing jobs became a key incentive such that many employees kept engaging in the deviant practices at Enron. They also feared public humiliation amid the continuous losses that the greatest corporation continued to report. Since Enron had been a market leader, its staff felt that, with the taste of power, they should continue commanding respect from their competitors (Sims & Brinkmann, 2003). The authority and the need for continuous recognition made employees engage in unethical practices to earn a pie at Enron. The culture of incentives furthered the Enron scandal as the management was overlooking the levels of ethical conduct. After examining the entire organizational culture, motives, beliefs, and incentives, employees began to engage in widespread organizational deviances. The whole scandal was designed and encouraged by the people at the top. In this aspect, it became difficult for employees to disobey the demands of the management. Another factor that fuelled the Enron scandal is the continued financial reports and business analysts that did not disclose the true position of the company by then.

The business community kept rewarding Enron for its cleverness and high innovative capabilities. The executives felt that they should maintain the same competitive culture. The company had experienced high growth in the late 1990s, and the management had to keep the same growth pattern. When it became evident among investors that the company was not performing well, credit auditor Arthur Andersen who conducted the auditing, was forced to downgrade the credit ratings. Arthur Andersen had been providing consulting services to the company, and due to the interest he had in the company, he kept the company’s debt off the balance sheet so that analysts and investors could not notice the scandal. The process amounts to a conflict of interest since the auditor will not reveal the negative aspects of the firm. This led to wrong reporting on the health and credit worthiness of Enron. A group culture that developed within Enron led to the collapse of the once-powerful corporation (Madsen & Vance, 2009).

The company’s board of directors’ role was to guard the affairs of investors and employees, and in the process, monitor the operations of Enron as from the time they had been approved to analyze the company trend. In the United States, directors consider the role of monitoring employees as out of their obligations. In a clear view, the directors ought to have represented shareholders by monitoring the daily operations of the firm. Skilling, Lay, and Fastow could have maintained the business strategy of profit-making but not use all means to meet the goals. They could have encouraged innovative ideas that were within the company’s initial culture of transparency. Also, the CEO ought to have monitored the entire innovation activities to ensure that they produce positive results. Fastow was to ensure Enron’s code of conduct was upheld to avoid instances of conflict of interest that the company realized in presenting its credit-worthiness. The executive players at Enron paved the way for what resulted in the eventual collapse of the corporation.

For example, Skilling and Lay allowed employees to use any means that could enable the corporation to gain a competitive advantage over its competitors. Moreover, the executives neither monitored nor evaluated the innovations that employees had come up with to propel the company forward. Their belief in profit-making irrespective of the means, brought a culture of engaging in fraudulent activities as a way of maximizing profits. Fastow, on his part, removed Enron’s code of conduct that had assisted in preventing conflicts of interest. When the company created “spe­cial pur­pose vehi­cles” (SPVs), it started exaggerating its earnings using the gains on the SPVs (Madsen & Vance, 2009). The culture that originated from the executives made employees believe that they are the best in the market, and none of their deals can fail. It also made internal financial auditors report premature profits to the public as a way of attracting more investors, but that was not the exact position of the company. The strong belief among the executives that everything would work successfully forced employees to use all tactics to ensure that the corporation meets the targets. Therefore, they encouraged the breaking of rules to achieve their over-ambitious demands. So rooted was the culture of Enron that all departments had to engage in unethical practices to salvage the image of the company. The result of all the above practices led to the freezing of the company’s shares, dropping of stock prices, and restating of earnings. Unmistakably, the Enron leadership eroded the company to nothing amidst their huge demands.

Human Resource Management (HRM) can instill in the employees’ morale practices through many approaches. For instance, HR can train employees on the benefits of the business to society and their future expectations on economic sustainability (Free, Macintosh, & Stein, 2007). When employees develop this idea of being responsible to society, they will learn to engage in ethical practices. Visionary and value-led employees will rarely engage in practices that are not beneficial to all stakeholders. Moreover, such employees will be free to report any malpractice within the firm. HR should always encourage employees to report unethical acts in the organization. HR can also educate the CEO and other executives that the company does not belong to them. Therefore, they should accept information from outside sources to run the company effectively. In this way, the HR department will be able to discuss the immoral practices that have made other companies get into crisis. The HR will enlighten the CEO and employees on how a lack of a sense of holism has made other managers run companies with a lot of self-interest and greed (Free et al., 2007). Most CEOs target short-term gains such as profit maximization and self-interests while overlooking the long-term goals. HR has the mandate to transform the minds of these people to ensure that they engage in ethical practices that will not only be beneficial to them but also to society.

References

Argyris, C. (2010). Organizational traps: leadership, culture, organizational design. Oxford: Oxford University Press.

Enron Ethics – The Culture of Enron. (2010). Business School. Web.

Free, C., Macintosh, N., & Stein, M. (2007). Management Controls: The Organizational Fraud Triangle of Leadership, Culture, and Control in Enron. Ivey Business Journal Online, 8, 216-227.

Graarrg, Y. (2010). Enron’s Story of Corporate Crime: Organizational Culture, Beliefs, Motives, and Incentives. Yahoo Voices. 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.

Meisinger, S. R. (2012). Examining Organizational Ethics. Human Resource Executive Online. Web.

Sims, R., & Brinkmann, J. (2003). Enron ethics. Journal of Business Ethics, 45(3), 243-256.