Critically evaluate this case in the context of the organization’s culture. How were Enron's...

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Critically evaluate this case in the context of the organization’s culture. How were Enron's business ethics and business operations influenced by the organization’s culture? Specifically, what went wrong?

The culture was the main problem.
The early leadership of the company was good. But by 1999 or so, a group of younger, brasher execs took over.
Specifics:
Paid in stock options. This meant that execs had an interest in short term growth
Lots of turnover – no employee had the ability to find anything out because they were not in one position for long.
LOTS of internal competition – it was as if you figured out a way to make short term profits and used this to please the execs.
Developed lots of “satellite” companies and funds to hide risk and loss (we dealt with that in the other answer)
Manipulate the stock price – hype the company, lie about earnings, ride the boom of the 1990s. It was all short term. No stress on long term growth.
They controlled the market, and hence, they were to an extent, insulated from criticism.
Investors loved it while it lasted, since they got lots of quick capital gains. No one asked about the bubble effect. No one asked questions at all.

What should have been the role and responsibility of company leadership (the Board of Directors, the CEO Ken Lay and others) in such an issue? In what ways did key executive players (e.g., Lay, Skilling, and Fastow) work to negatively reshape the culture, and with what adverse consequences?

The Board (as we already discussed) was invested in management. This is, to an extent, a part of the culture. The board should be independent. Enron 's was not. Again the same issue comes up – so long as the economy was good, the stock bubble was sustainable. The slightest trace of a downturn, the fraud of the company could not be hid for long.
The main issue – the value of the stock had no relation to the health of the company. It is like the firm's public persona forced the stock higher and higher, while earnings were (in reality) weak.
Since stock was concentrated in the top execs, they had an immediate interest in short term earnings.
We dealt with this at length in the earlier answer.

How might Human Resource Management (HRM) have played a central role in setting the "moral compass" at Enron, helping to form and shape the organizational culture - perhaps avoiding the Enron debacle?

This is a huge deal. What we said in the previous answer (summaries of the papers) was that the work force was fluid. Hence, HR had the job – not of employee development – but in keeping the revolving door going.
This means:

employees did not stay for long. Hence, no one really had an interest in how the firm was running. So long as the checks cleared, life was good.
There was a lot of rotation in the firm itself. Hence, again, no one was in long enough to detect the problem.
Control was concentrated at the top (to an extent, it is the result of this revolving door policy).
The structure of Enron was so complex and fluid, that it took a long time for the fraud (that we discussed earlier) to be detected. Again, while the economy was good, it was tough to detect. But stock bubbles were bursting all over the pace by the early 2000s, so Enron's disconnect between actual performance and the stock price could not last.
Remember – Enron had a well developed code of ethics. Trouble was, no one wanted to follow it. The power of the short term profit overcame all of these. In the first essay you included in the other assignment, it mentioned how execs would rationalize their behavior. In an ethical sense, they were able to use their reason to make sense out of the fraud. Since they were all profiting handsomely, no one wanted to rock the boat.
I think, judging by the first and second paper in the other assignment, HR was out of the exec loop. It is as if there were two companies: the top, and the rest. The top concentrated all power and earnings, and kept everyone else at arms length. When you had Arthur Anderson, Inc., on the payroll, it is easy to convince the world that you are on the level.

For this Case essay, you are expected to do some additional research in the library (use at least 4 additional scholarly sources).
What I want you to do now is take the insights (and quotes) from the scholarly sources and connect them to the outline answer above.

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David · Accepted Answer

Enron Case                                                                                                                              1
Enron Case 
Course Name 
Name of Student 
Name of University
Enron Case                                                                                                                              2
Critically evaluate this case in the context of the organization’s culture. How were 
Enron's business ethics and business operations influenced by the organization’s culture? 
Specifically, what went wrong? 
Enron came into existence after the merger of Houston Natural Gas and InterNorth in the 
year 1985 by Kenneth L. Lay. From its inception the company has believed in innovation in the 
energy sector. The company initially focused on natural gas and electricity, later it diversified in 
retail energy as well as bandwidth products. Enron had four different business segments i.e. 
Whole sale Services, Energy services, Broad band services and transportation services. With its 
success the company expanded its reach globally as well as in other markets. With its approach 
as a market innovator it became 7
th
 largest company of United Sates.  
With its diversified portfolio, the company has focused tremendously on portraying 
excellent financials to the investors and stakeholders. Kenneth Lay and Jeffery skilling has 
always focused on enhancing the operating results of the company as they wanted to become one 
of the greatest company of the world. Enron was suffering from losses but, with faulty 
accounting practices the company was depicting high profits to the shareholders. The collapse of 
the Enron was triggered on 5
th
 March 2001, when a press article stating „Is Enron overpriced?‟ 
was released asking that How does it makes money? Why does company make it so difficult to 
look behind the scenes? The share prices of Enron at that time were 21 times more than their 
competitors. Enron agreed that the prices of Enron were 50% overvalued, this lead to drop of 
Enron‟s stock at level of 450 from $126. In august, Jeferry Skilling resigned from the company, 
after her resignation she had sent a letter to Lay One of the major issues that led to the collapse 
of Enron was Raptor transactions and the Condor vehicles. The Condor deal which had 
recognized the flow of $800 million which was promised to be capitalized in Enron stock, did 
Enron Case                                                                                                                              3
not existed as there was negative cash flow from operating activities and Raptor deal was signed 
in 2000 through which the company enjoyed the very high stock prices. Under the Raptor case, 
Enron was capitalized with LJM equity which was stated at risk, the majority of capitalization 
for Raptor entities was done through Enron N/P, restricted stock and stock rights. There was 
about $500 million that was generated from the offset of equity derivatives from the underlying 
securities. With decrease in the stock prices of Enron, the value of Raptor decreased and credits 
was pushed in. with this, he third party i.e. Raptor lost $500 million as its equity transactions 
were associated with that of Enron. There was no equity and debt holder of the same who could 
bear the loss as Enron had supported the income statement gain by contribution of their own 
shares. There were no equity transactions recorded and there was a veil of secrecy around LJM 
and Raptor. One of the basic question that was brought into picture was „The related party entity 
has lost $500 million in its equity transactions with Enron.  
Organizational culture played a crucial role in the demise of the Enron. Leadership and 
organizational culture are the most important part of an organization which helps in improving 
the efficiency and productivity of the organization. Organizational culture is the study of the 
psychology, attitudes, beliefs, values of an employee working in the organization. It encompasses 
personal as well as cultural value into consideration. Organizational culture is composed of three 
layers i.e. material culture which includes the characteristics of products, technology and 
equipment used in the organization, it basically represents the style of enterprise manager. 
Material layer is called the foundation layer of the organization. System layer which includes 
different code of conduct and regulations on which is there in the mind of the employees, it 
works as the key of the organization. The last layer of the organization is the spiritual culture 
Enron Case                                                                                                                              4
which is the core of the organizational culture which includes the philosophy, strategy, value 
orientation, emotion of the employees. 
Considering the case of Enron, organizational culture was one of the main aspects which 
led to the demise of Enron. The leadership of the company was not good, the company was took 
over by yongsters who focused on increasing the profits of the company by adopting different 
means which was incorrect. The organizational culture of the company was weak which can be 
depicted by the underlines specifications. 
After the Enron scandal, one of the debates was conducted around the ethical behavior of 
executives. Although there are a number of factors that influence ethical behavior, none were 
powerful enough to change the ethical behavior. As stated by Weeks & Nantel, the only factor 
that could change the ethical behavior is a properly devised distributed, promoted and enforced 
code of ethics, updated on a regular basis, which can act as a catalyst in an organization to 
comply to ethical standards (Weeks & Nantel, 1992).  
All the employees in the organization behaved unethically and unethical behavior was 
followed in the organization which greatly affected the culture of the company. 
The failure of Enron can largely be attributed to its corporate culture as managers‟ 
incentives were flawed.

Critically evaluate this case in the context of the organization’s culture. How were Enron's business ethics and business operations influenced by the organization’s culture? Specifically, what went...

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