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Interpersonal, Group and Collective Behavior Dynamics Essay

Enron is a company that is faced with financial instability but continues to run on dubious dealings including misrepresenting their true financial position (Cohan, 2002). This is done to save the public image of the company hence avoiding the risk of losing investors. American International Group (AIG) is also in a serious financial crisis following cases of mismanagement (FRB, 2009). We shall make a comparison of the group dynamics and internal politics within these two companies. The companies exhibited an element of information blockage.

This is holding back adverse news from the public until the last possible moment. This is usually a deliberate act with the aim of maintaining a good public image. It is however followed by lawsuits, hate mails or even death threats from unhappy investors. In Enron’s case, the senior executives withheld any information about financial crisis from the public until it collapsed (Cohan, 2002). AIG maintained a ‘business as usual’ image in the public despite its liquidity issues (FRB, 2009).

Motivation to lie or deliberately concealing the truth in an organization was evident in the two companies. The corporate officers do not disclose the truth especially when this truth may put the company into bankruptcy or cost them their jobs. In the case of Enron the lies were inform of hard data, lying about accounting results and a stream of earnings (Williamson, 1970). Questionable accounting practices were meant to hide huge losses that the company suffered. AIG had its share of deliberate lies when it valued its A-A and sub prime property at 1.

7; twice the value used by Lehman. The issue of the board’s oversight function and the business judgment rule is also fairly evident in the two companies he board of directors act as if they are entitled to rely on the honesty and integrity of their subordinates until something wrong happens (Crag & Rebecca, 1996) . The directors of Enron were totally unaware of the severity of the company’s financial crisis until its collapse. A directors were too ignorant of the liquidity problem to the extend of planning for a lavish retreat for themselves.

The subordinate managers have persuasive interest in concealing the bad news. This is meant to avoid or delay personal embarrassment and other associated risks such as the likelihood of a price drop in its shares. In Enron, individual executives who decided to hide the dubious partnership feared erosion of status (Cohan, 2002). They felt that they needed to protect both their self and external image. The same case was evident in AIG, where the subordinate managers saw the need for over costing their assets to redeem their image.

Overconfidence and optimism is displayed in the two companies by the senior executives especially in press releases. Overconfidence creates a strong image for any company in the eyes of the public. Executives who are overconfident and optimistic are considered to be successful managers. This is because they are able to persuade and influence people even in the face of a crisis. The executives in Enron and AIG were also in the bid of making a name for themselves. Senior executives assured employees would continuously rise even in the event of financial instability in Enron.

The chief executive officer in AIG assured investors that they would still get their bonuses even as the company was being bailed out (FRB, 2009). Corporate ‘culture’ cannot be ruled out in the management of the two companies. This refers to the norms of the company which are well known to the management and the subordinate employees. They supersede other business or ethical laws in case of a conflict. Cynism as a corporate culture fosters the breaking of rules as a means to succeed. Ethical rules are under enforced with the focus being to maximize profits.

The Enron and AIG were caught up in this culture when they faced a financial crisis. They misrepresented their debts and assets respectively in the company’s sheet so as to reflect high profits and attract investors (Cohan, 2002). All this is done in total disregard for accounting ethics. Myopic information within the organization is also prevalent in the two companies. This might be due to our limited cognitive capabilities but more so because the executives are too busy to deal with abundant data. They prefer sifting this data and extracting only what is relevant.

They may also be lacking the skill to analyze and understand the data as was the case of Enron’s former chairman Mr. Kenneth Lay. The directors in AIG and Enron, focused on information that confirmed their prior attitudes of leading institutions in the market. They disregarded any disconfirming information of possible collapse or liquidity issues. This is normally referred to as cognitive dissonance. It is usually difficult to change these beliefs as one is seen as a threat to the company’s status quo. Ms. Watkins, an employee in Enron became such a threat by warning a senior manager of a possible collapse (Cohan, 2002).

A chief executive officer’s proposal in AIG was ignored on the same basis (FRB, 2009). Intimidation of subordinate employees by the senior employees is prevalent in Enron but not in AIG. In Enron, investigations against Mr. Andrew a former chief financial officer and other senior officers who were involved in fraud cases did not happen since no one was confident enough to confront them (Cohan, 2002). In AIG the accounting scandal is thoroughly investigated and no one is spared including a former chairman of the board.

REFERENCES: Federal Reserve Bank. (2009). History and development of AIG. Retrieved May 26,2009, from http://www. federalbank. orf/history/development. pdf Herbert, A. S. (1955). A behavioral model of rational choice. John, A. C. (2002). ”I didn’t know” and “I was only doing my job”. Has corporate governance careened out of control? A case study of Enron’s information myopia. Journal of Business Ethics, 40 (3),275-299. Paul Z. & Janet A. (1997). The social influence of confidence in group decision making.


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