Organizational culture can be defined as the system of attitudes, beliefs and values that are collectively expressed in support of organizational structure. Organizational culture is a pattern of shared basic assumptions that dictate the behavior of individuals within an organization. Culture determines which practices are appropriate and which are not, effectively developing standards, guidelines, and expectations for individuals within an organization. Although they work hand in hand, there is a definite distinction in the beliefs and the values that make up organizational culture. The beliefs of an organization are assumptions of the way things are, while values are an assumption about the way things should be. By that definition, beliefs constitute the day-to-day actions of a company (how things are run and why they are run that way), while values project those beliefs on future considerations (what is important to the organization and how those things should be maintained).
Organizational culture is key in the success or failure of organizations, as is evident in contemporary society. Although organizations differ in strength of culture and those with strong, positive cultures tend to be the most efficient and productive, strong cultures can also become negative and powerfully influence an organization in a negative way. Such is the case with the Enron Corporation, a once massive energy company that suffered arguably the most horrific financial collapse in American history. The Enron failure began with the development of a flawed corporate (organizational) culture, and was fulfilled by the constant reinforcement of that culture. From the top down, Enron’s corporate culture damned the company’s successes and ensured it for eventual collapse.
It must by noted that while the collapse of the Enron Corporation was dynamic and was the result of many specific venture failures and market pressures, this paper has a specific focus on determining how the corporate culture of Enron contributed to it’s failure. Although the specific financial shortcomings are not fully addressed in this paper, the corporate culture dictated the intentions of these shortcomings and therefore can be held responsible. Additionally, with a focus on concision, this paper will deal with the corporate culture of Enron after its growth into a major power in the international financial market.
Enron’s corporate culture was built upon values of “risk taking, individual creativity, and aggressive growth”. While all of these values can be positive, Enron failed to balance them with values necessary for success in the energy industry – customer service, integrity, and long-term growth. According to the dimensions defined earlier in this paper, Enron valued short-term growth, creative individualism, and an overarching “take over the world” mentality towards its industry. Additionally and most detrimental to the corporate culture at Enron was it’s vision and corporate priorities. Starting with the vision of Jeff Skilling, Enron’s chief operating officer, Enron valued “asset-light” strategy in which the top priority was put on Enron’s publicly traded stock prices and not on investments in traditional, power generating ventures.
The value on the stock price of the company was the top value in Enron’s corporate culture, over integrity, honesty, and customer satisfaction. This is the point in which the positive values that Enron made integral in their culture became liabilities. Certain arrogance was developed from the top down at Enron and a belief that individual short-term profits in order to boost stock prices became the company’s top priority. It was part of the culture at Enron that success should be achieved no matter what the cost and that the ends of a business venture can justify the means.
While this culture became stronger within the corporation, Enron’s top management gave young, bright employees freedom to pursue the company’s overarching profit goals and only questioned them if their profit targets were not hit. If employees did not conduct their work ethically but did hit their mark, management seemed to look the other way. As the stock prices were inflated, the liquidity of the company was spread very thin. Through the individual business ventures of these highly educated individuals, Enron took out loans and spread their finances thin. Additionally, there was an intense culture of competition within Enron. Skilling implemented an intense employee evaluation system (PRC 360-degree review) in which employees were judged on the profits of their projects.
The bottom 10% of employees according to this evaluation were often fired or demoted. This created a state of individual paranoia at Enron in which individuals, in order to keep their jobs, were forced into using shady accounting practices and not worrying about the future considerations of a deal as long as it turned a short term profit. Because of this intense culture of internal competition, employees at Enron (even the ones who felt they were using unethical practices) were reluctant to speak up. The corporate culture made it hard for ethical objections to be heard or taken seriously. In an employee’s recollection of his experience at Enron it was noted that “saying things like ‘This doesn’t make sense’ was unofficially sanctioned …I got the idea that not many people actually knew what was going on, and asking questions would further show this lack of knowledge.”
Furthermore, Enron’s message about their values was demonstrated through the actions of its leaders. CFO Andrew Fastow’s shady financial practices and CEO Kenneth Lay’s deceptive tactics with shareholders exemplified a win-at-all-cost mentality and self-serving attitude. Senior management’s attempt to deceive investors and hide debt cultivated mistrust among executives and employees whose pensions were stock heavy. This flawed corporate culture was put to the test when the unethical practices could no longer cover up the debt and financial bleeding the company was experiencing in some of its ventures. When faced with market pressures, the company relied on its values and tried to further deceive investors, right until the very collapse of the company.
The Enron case is a clear example of how organizational culture can negatively affect a company. The attention that is paid to careful development of organizational culture can be the saving grace of a struggling company or the source of corruption in a greedy one. Enron failed to create a successful corporate culture from the start – there was nothing in it’s set of beliefs and values that accounted for customer service, business ethics, or integrity. It was in fact Enron’s failure to develop the right corporate culture that led to it’s collapse.
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