How did the corporate culture of Enron contribute to its bankruptcy?
Enron’s corporate culture stood out as a fundamental aspect supporting the stability of the business. Although Enron began as a simple organization with a very different culture, it developed and adopted an aggressive and arrogant corporate culture. The company was established in 1985 after the merging of InterNorth Corporation and the Houston Natural Gas to operate as a single entity (Kobrak, 2009). The appointed chairman for the new entity was Willis Straus. The employees cherished and supported their chairman, Straus. Straus found pleasure in interacting with the employees who loved him greatly. The mutual relationship between the employer and the employees formed a strong culture for Enron. However, things changed after the retirement of Straus. The famous chairman was succeeded by Sam Segnar who was a total opposite of Straus’ attributes. Segnar was an arrogant leader who ruled by a dictatorship, hence hated by all employees (Ferrell, Fraedrich & Ferrell, 2016). The poor leadership of Segnar had adverse impacts on the performance and stability of the Enron Company. Consequently, Enron lost its strong corporate culture.
In amalgamation, the chairman of the company being acquired usually steps down from leadership. However, things were different in the case of Enron. After InterNorth Corporation and the Houston Natural Gas merged, the directors of both companies joined to form a new board (Madsen & Vance, 2009). The new board of directors was chaired by Kenneth Lay whose leadership was highly disputed. When Jeff Skilling joined Enron as the new chairman, the company underwent significant reforms. Skilling introduced a performance review for all employees that targeted to force the poor performers out of the job. According to Ferrell, Fraedrich & Ferrell (2016), this technique of retrenching a certain percentage of employees is called “rank and yank system.” The rank and yank system is based on employee performance rather than values and visions. It promotes the atmosphere of competition to ensure a productive culture of the corporate. Lay focused on vision and values, thus pushed employees to uphold excellence, integrity and respect. Nevertheless, the employees did not practice ethical performance. The managers rewarded innovative employees but punished the weak ones, an indicator of a poor corporate culture.
In what ways did Enron’s bankers, auditors, and attorneys contribute to Enron’s demise?
Different players contributed to the fall of Enron. Among the key players include attorneys, auditors and bankers of the company. Enron’s auditor, Anderson LLP, played a significant role in ensuring that the financial reports were accurate (Madsen & Vance, 2009). The financial reports were used by investors for evaluating the company’s financial future. The auditor faced a conflict of interest because he managed accounts of over 100 employees since Enron was a major business partner. Enron Company lost approximately $618 million during the reign of Anderson as the auditor general (Kobrak, 2009). At one time, the auditor certified false records as revealed when his lawyer ordered for shredding of all the company’s documentation. Another reason for Enron’s financial decline is because the company paid its accounting firm large consulting fees.
The bankers also stand to be blamed for Enron’s financial fall. The bankers supported financial deceit by allowing unclear accounting. They supported the fraudsters in abetting and aiding Enron instead of remaining faithful to the company. They influenced and even replaced a research analyst after his work was disappointing to Enron directors. The lawyers also contributed to the fall of Enron (Ferrell, Fraedrich & Ferrell, 2016). The lawyers dismissed the findings of the research analyst concerning the fraud in Enron’s operations. Besides, they refused to sign off some of the deals made by Enron, hence restricting the company’s progress. For example, Vinson and Elkin’s firm settled the payment of $30 million to Enron under unethical means. Instead of ensuring ethical operations, Enron’s attorneys failed to perform their duty and allowed corrupt transactions that deprived the Enron’s financial position.
What role did the company’s Chief Financial Officer play in creating the problems that led to Enron’s financial problems?
The top executives of Enron were the key players that supported the establishment of a destructive business culture (Ferrell, Fraedrich & Ferrell, 2016). More specifically, the chief financial officer to the company was the key contributor to the financial challenges that faced Enron. The management-incentive system of operations weakened the financial stability of Enron. Under this system, the organization was aimed at rewarding innovations but ignoring the unproductive side. Enron’s top directors were awarded high salaries, bonuses and other rewards, although the company was not making relative profits to support this (Kobrak, 2009). There were differences in the rewarding of executives, leading to unethical practices in efforts to stabilize the matter. The directors that were not rewarded sought for means of revenging by utilizing the possible loopholes in the stock option plan to see an unclear inflow of profits. This artificial shifting up of prices led to inflation that disturbed the financial stability of Enron.
Enron’s executives failed to uphold the effective values of corporate governance. Ironically, the company’s directors remained silent as the erroneous and deceitful transactions occurred. They were not concerned with protecting the company from the risk of collapsing. After the executives were brought to book, they admitted their faults and failures to protect the company (Madsen & Vance, 2009). They disclosed that they had approved some transactions to happen even before evaluating the impacts on a company’s performance. Enron had become a den of thieves whereby every director wanted to benefit from the company’s finances. The chief financial officer had failed to ensure a balance between cash inflows and cash outflows of Enron. He did not balance between the salaries and other rewards given to the directors versus the profit margins of the company. The entire board of directors did not fraudulent operations within the company, hence leading to Enron’s failure. Political forces also contributed to the financial fall of Enron (Press, 2002). The government officials failed to act strictly on their line of duty by allowing unethical activities within Enron.
A poor organization’s culture would define the ineffective performance of the organization. The state of leadership and the mindset of employees would yield the company’s culture. Enron had a poor business culture as a result of ineffective leadership. The top directors and other leaders the main contributive factors towards the financial decline of Enron. The bankers, auditors and attorneys of the company allowed for unethical business practices to spoil Enron’s performance. Some political leaders also appeared in the list of personnel supporting ethical practices that led to the financial decline of Enron.
Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2016). Business Ethics: Ethical Decision Making and Cases. In O. C. Ferrell, J. Fraedrich, & L. Ferrell, Business Ethics: Ethical Decision Making and Cases (p. 75). Bosten: Cengage Learning.
Kobrak, C. (2009). Innovation Corrupted: The Origins and Legacy of Enron’s Collapse. Business History Review; Boston, 173-177.
Madsen, S., & Vance, C. (2009). Unlearned lessons from the past: an insider’s view of Enron’s downfall. Corporate Governance; Bradford, 216-227.
Press, B. (2002, January 16). Bill Press: Who’s to blame for Enron? Retrieved from CNN.com / Inside Politics: http://edition.cnn.com/2002/ALLPOLITICS/01/16/column.billpress/index.html
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