Enron, ethics and organizational culture

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Case: Enron, Ethics, and Organizational Culture

Case

On

Enron, Ethics and Organizational Culture

Date Of Submission:

02.09.2014

September 2, 2014

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SUBMITTED TO

Md. Arafater Rahman BhuiyanAssistant Professor and ChairmanDepartment of Human Resource ManagementBangladesh University of Business & Technology (BUBT)

SUBMITTED BY

GROUP NAME: Senior

NAME ID INTAKEFarid Uddin Bhuiyan 10112101082 24th

Tousif Abdullah Autul

10112101059 24th

Shajia Afrin 10112101072 24th

Md Ziauddin Zilani 10112101025 24th

Md. Tusar Mazumder

10112101002 24th

Md. Sala Uddin 10112101100 24th

Tahfimul Islam 10112101065 23rd

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Table Of Contents

No. Page1. Company Overview

I. VisionII. ValuesIII. Principles of Human Rights

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4

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2. Case 6-73. Question & Answer 8-9

4. Findings 10

5. Recommendation 10

6. Conclusion 11

Company Overview

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Enron Corporation (former New York Stock Exchange ticker symbol ENE) was an American energy, commodities, and Services Company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 20,000 staff and was one of the world's major electricity, natural gas, communications, and pulp and paper companies, with claimed revenues of nearly $111 billion during 2000.Fortune named Enron "America's Most Innovative Company" for six consecutive years.

At the end of 2001, it was revealed that its reported financial condition was sustained substantially by an institutionalized, systematic, and creatively planned accounting fraud, known since as the Enron scandal. Enron has since become a well-known example of willful corporate fraud and corruption. The scandal also brought into questions the accounting practices and activities of many corporations in the United States and was a factor in the creation of the Sarbanes–Oxley Act of 2002. The scandal also affected the greater business world by causing the dissolution of the Arthur Andersen accounting company.

Enron filed for bankruptcy protection in the Southern District of New York during late 2001 and selected Weil, Gotshal & Manges as its bankruptcy counsel. It ended its bankruptcy during November 2004, pursuant to a court-approved plan of reorganization, after one of the most complex bankruptcy cases in U.S. history. A new board of directors changed the name of Enron to Enron Creditors Recovery Corp., and emphasized reorganizing and liquidating certain operations and assets of the pre-bankruptcy Enron. On September 7, 2006, Enron sold Prisma Energy International Inc., its last remaining business, to Ashmore Energy International Ltd. (now AEI).

Vision

Enron's vision is to become the world's leading energy company—creating innovative and efficient energy solutions for growing economies and a better environment worldwide.

Values

Respect: We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment. Ruthlessness, callousness and arrogance don't belong here.

Integrity: We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; when we say we cannot or will not do something, then we won't do it.

Communication: We have an obligation to communicate. Here, we take the time to talk with one another…and to listen. We believe that information is meant to move and that information moves people.

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Excellence: We are satisfied with nothing less than the very best in everything we do. We will continue to raise the bar for everyone. The great fun here will be for all of us to discover just how good we can really be.

Principles of Human Rights

Enron stands on the foundation of its Vision and Values. Every employee is educated about the company's Vision and Values and is expected to conduct business with other employees, partners, contractors, suppliers, vendors and customers keeping in mind respect, integrity, communication and excellence. Everything we do evolve from Enron's Vision and Values statements.

At Enron, we treat others as we expect to be treated ourselves. We believe in respect for the rights of all individuals and are committed to promoting an environment characterized by dignity and mutual respect for employees, customers, contractors, suppliers, partners, community members and representatives of all levels of Government.

We do not and will not tolerate mistreatment or human rights abuses of any kind by our employees or contractors.

We believe in treating all employees fairly, regardless of gender, race, color, language, religion, age, ethnic background, political or other opinion, national origin, or physical limitation.

We are dedicated to conducting business according to all applicable local and international laws and regulations, including but not limited to, the U.S. Foreign Corrupt Practices Act, and with the highest professional and ethical standards.

We are committed to operating safely and conducting business worldwide in compliance with all applicable environmental, health, and safety laws and regulations and strive to improve the lives of the people in the regions in which we operate. These laws, regulations, and standards are designed to safeguard the environment, human health, wildlife, and natural resources. Our commitment to observe them faithfully is an integral part of our business and of our values.

We believe that playing an active role in every community in which we operate fosters a long-term partnership with the people with whom we come into daily contact. Strengthening the communities where our employees live and work is a priority. We focus community relations activities on several areas, with particular emphasis on education, the environment, and promoting healthy families. We believe that our employees and the employees of our contractors working

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in our facilities are entitled to safe and healthy working conditions.

Case Enron, Ethics and Organizational Culture

For many people, a company called Enron Corp. still ranks as one of history’s classic example of ethics run amok. During the 1900s and early 2000s, Enron was in the business of whole-sale natural gas and electricity. Rather than actually owning the gas or electric, Enron made its money as the intermediary (wholesaler) between suppliers and customers. Without getting into all the details, the nature of Enron’s business, and the fact that Enron didn’t actually own the assets, meant that its accounting procedures were unusual. For example, the profit statements and balance sheets listing the firm’s assets and liabilities were unusually difficult to understand.

It turn out that the lack of accounting transparency enabled the company’s managers to make Enron’s financial performance look much better than it actually was. Outside experts began questioning Enron’s financial statements in 2001. In fairly short order, Enron collapsed, and courts convicted several of its top executives of things like manipulating Enron’s reported assets and profitability. Many investors (including former Enron employees) lost all or most of their investments in Enron.

It’s probably always easier to understand ethical break-downs like this in retrospect, rather than to predict they are going to happen. However, in Enron’s case the breakdown is perhaps more perplexing than usual. As one writer recently said, “Enron had all the elements usually found in comprehensive ethics and compliance programs: a code of ethics, a reporting system, as well as a training video on vision and values led by [the company’s top executives]

Experts subsequently put forth many explanations for how a company that was apparently so ethical on its face could actually have been making so many bad ethical decisions without other managers (and the board of directors ) noticing. The explanations ranged from a “deliberate concealment of information by officers “to more psychological explanations such as employees not wanting to contradict their bosses) and the “surprising role of irrationality is decision-making.”

But perhaps the most persuasive explanation of how an apparently ethical company could go so wrong concerns organizational culture. The reasoning here is that it’s not the rules but what employees feel they should do that determines ethical behavior. For example (speaking in general, not specifically about Enron).The executive director of the Ethics officer Association put it this way:

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We’re a legalistic society, and We’ve created a lot of laws. We assume that if you just knew what those laws meant that you would behave properly. Well, guess what? You can’t write enough laws to tell us what to do at all times every day of the week in every part of the world. We’ve got to develop the critical thinking and critical reasoning skills of our people because must of the ethical issues that we deal with are in the ethical gray areas. Virtually every regulatory body in the last year has come out with language that has said in addition to law compliance, businesses are also going to be accountable to ethics standards and a corporate culture that embraces them.”

How can one tell or measure when a company has an “ethical culture”? Key attributes of a healthy ethical culture include:

Employees feel a sense of responsibility and accountability for their actions and for their actions and the actions of others. Employees freely raise issues and concerns without fear of retaliation.Managers model the behaviors they demand of others.Managers communicate the importance of integrity when making difficult decisions.

Questions

1. Based on what you read in this chapter, summarize in one page or less how you would explain Enron’s ethical meltdown.

2. It is said that when one securities analyst tried to confront Enron’s CEO about the firm’s unusual accounting statements, the CEO publicly used vulgar language to describe the analyst, and that Enron employees subsequently thought doing so was humorous. If true, what does that say about Enron’s ethical culture?

3. This case and chapter both had something to say about how organizational culture influences ethical behavior. What role do you think culture played at Enron? Give five specific examples of things Enron’s CEO could have done to create a healthy ethical culture.

Question & Answer

Q:-1 Based on what you read in this chapter, summarize in one page or less how you would explain Enron’s ethical meltdown.

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Solution:

Enron Their business of whole selling of natural gas and electricity done by Enron during the year of 1990s and early 2000s was quite well. The nature of Enron business was to make money as an intermediary between suppliers and customers, without getting into all the details. They maintain unusual accounting procedure, which show that they have no asset of their own. Through they have some financial statement, but they are unusual and difficult to understand. For this reason the financial performance looks better than the reality.

In 2001 enquiry was set up by order of the count when Enron was collapsing. As a result of manipulation of top executive a large number of investors lost their investment in Enron. From the case study of Enron it can be predicted that ethical break down is happen.

Enron had morals, reporting system, financial matter and also training video on vision and values. This looks apparently so ethical on its face but it has no such use. Experts said that it happened because the lack of communication between the employers and employees and also for making decisions individually.

The employees do not obey their boss and they do whatever they want. They do not follow any rules and regulation and they have no organizational ethnicity.

Experts are also concerned that the following key attributes a healthy ethical culture:

1. Employees feel a sense of responsibility and accountability for their actions and for the actions of others.

2. Employees freely raise issues and concerns without fear of retaliation.3. Managers model the behaviors they demand of others.4. Managers communicate the importance of integrity when making difficult

decisions.

So finally it can be said that if Enron had the above things present in them then this whole ethical melt down would have never happened.

Q:-2 It is said that when one securities analyst tried to confront Enron’s CEO about the firm’s unusual accounting statements, the CEO publicly used vulgar language to describe the analyst, and that Enron employees subsequently thought doing so was humorous. If true, what does that say about Enron’s ethical culture?

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Solution:

If this is true then we must say that it’s a shame for all, the Enron org and its employees. Because no one is doing what is right and when someone is doing it in the right way he is not getting the acceptance he deserved which is a total ethical break down for Enron in a negative way.

Q:-3 This case and chapter both had something to say about how organizational culture influences ethical behavior. What role do you think culture played at Enron? Give five specific examples of things Enron’s CEO could have done to create a healthy ethical culture.

Solution:

Enron followed a very unethical and irresponsible culture throughout the organization especially in the financial statement and decision making factors, which made them sufferers in the end. So, the following five things could have made it a healthy ethical culture for Enron if The CEO could have applied them in the right place at the right time. They are:

Maintain accountability for all of them who are working for the Enron. Keep every financial statement updated and keep them in a proper way. Give all the employees the scope they need to express themselves and their

ideas. Choose the best innovative ideas and give reward for encouragement. Take decisions in a communicative way by discussing it with other employees

but not individually. Give each employee the respect he/she deserves because it will make them

loyal towards the org.

Findings

In Enron dishonesty is found Enron’s employees have lack of self respect

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The people working in Enron are irresponsible Most employees of Enron akin to avoid their duties Lack of morality is found in Enron

Recommendation

Maintain accountability for all of them who are working for the Enron. Keep every financial statement updated and keep them in a proper way. Give all the employees the scope they need to express themselves and their

ideas. Choose the best innovative ideas and give reward for encouragement. Take decisions in a communicative way by discussing it with other employees

but not individually. Give each employee the respect he/she deserves because it will make them

loyal towards the organization.

Conclusion

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In conclusion, one can see that a variety of perspectives can be applied to the Enron scandal. Policy perspectives such as punctuated equilibrium and Edelman’s symbolic politics and constructing of the political spectacle help to frame the issue politically and symbolically. Viewpoints such as mixed deontology and universal ethical egoism help to understand how the culture of narcissism at Enron developed from an ethical framework. Trait and transformational theories help us to make sense of what went wrong at Enron from a leadership perspective. Historical, economic, and political conditions aid in making sense of the situational factors contributing to the rise and fall of Enron. In the end, there is no one answer why Enron became the largest bankruptcy in the United States history. Perhaps, that is part of the reason why people continue to find the story so fascinating.

Enron, ethics and organizational culture

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