Dear Mr. President,
The information you have received and will continue to collect from organizations like the FBI and SEC will explain how the fall of Enron occurred and who was responsible. As consultants in the field of Organizational Behavior, we are providing you with a unique analysis of the failure of this multinational organization and presenting some recommendations to prevent reoccurrence.
Leadership “I am Enron”
CEO Jeff Skilling and, to a lesser degree, President Ken Lay were charismatic leaders. They presented extreme confidence in their activities and were very excited about the vision they articulated for Enron: profit for all employees who contributed to the “best ...view middle of the document...
As Jeff Skilling once said “I am Enron.”1,3
“A Tough Culture”
The Culture that existed at Enron can be described as Darwinian; a “survival of the fittest” attitude with a “kill or be killed” mentality was pervasive on the trading floor.10 Lay, Skilling, and Fastow established a value of profit above all, created a vision to “be the best company” with an implementation strategy of driving profits through accounting practices allowed at the time and legal loopholes in the markets in which they operated. These aggressive behaviors were reinforced through high compensation. Extreme rewards were given to the employee’s who embraced those ideals and persecution awaited those who objected to it. The dreaded Performance Review Committee (PRC) fostered a climate of fear as it exercised coercive power in the form of the threat of termination for those that did not perform within the established norms of behavior (~15% per year). The result was that no one would express dissenting views because they did not want to be evaluated poorly if they offended someone who was later on the review committee. Attainment of short term goals was the focus. Explicit leadership, quantitative evaluation by the PRC, and the limited concern for people are all in line with the Ouchi Framework of “typical” US firms.1,2,3
The Fall and lessons learned
The transformative innovative system that was created was not sustainable. Once mark to market accounting was in place, the non-existent profits just could not be let go, the rewards were too great. There was no substance to support the growth.10 Executives believed that as long the law was being followed, they were doing nothing wrong. This kind of sanctimonious moralization only continued until the lies were too large to be hidden any longer. Groupthink among members of the in-group crippled otherwise smart people with the perception of invulnerability and belief in their own morality. These behaviors brought down the company. A lack of oversight and ethical fortitude plagued not only Enron but Arthur Andersen, Tyco, WorldCom, and more recently AIG, Lehman Brothers and Toyota. In the case of Tyco, a lack of board oversight and unethical decision making by the most powerful leaders in the company created an arena for fraud and deception much like Enron. Lehman Brothers, however was victimized by a culture of excessive compensation for extraordinary risk-taking through investments, similar to Enron’s in its leader-centric culture. With appropriate regulatory and legal changes, perhaps deception and unproven tactics would not have been so easily hidden or rewarded.4,6,7
While ethics and morality...