Enron Case Study

Dear Mr. President: Enron's collapse is a story about greed, power and ethics. Much has been written about who, what, how, and why Enron fell and the impact on the world's financial health. Our goal in this analysis is to look into Enron through the lens of Organizational Behavior (OB). OB provides a great vantage point for exploring, understanding and improving ethics, given a wide variety of influences effecting ethical and unethical behavior in organizations. We will (1) Explore what happened to create a culture of greed, as well as the leadership who exemplified the culture, (2) Identify ties between Enron and current world economic conditions, (3) Provide insight into building ethical cultures and leaders; and, (4) Offer lessons learned from Enron.

Enron through an OB lens: Leaders shape culture through their actions and behavior. Organizational culture is based on three fundamental layers: observable artifacts, espoused values and basic assumptions. For the purpose of this analysis, our focus is on the concepts of Values. Espoused values are defined as values and norms explicitly stated as preferred by the organization. Enacted values are values and norms exhibited through daily observations. Publically Enron was heralded as one of the most innovative companies valuing integrity, respect, and ethical behavior. Privately Enron's leadership, specifically CEO's Lay, Skilling and CFO Fastow, willfully institutionalized a systematic culture of greed, pride, extreme risk and arrogance that encouraged unethical behaviors at all levels in the organization. Enacted values from top leaders demonstrated and bred a "keep making us millions" culture. They created a Market/Utilitarian culture with a thrust to compete with end results focused on creating wealth. OB holds that Utilitarianism is the notion that the moral worth of an action is determined solely by its contribution to overall utility: that is, its contribution to happiness or pleasure as summed among all people (the greater good) . Additionally, leaders were complicit by creating accounting practices designed to hide debt in shell companies, then lying about results to investors and employees. Enron's leaders are the embodiment of Lord Acton's expression "Absolute power corrupts absolutely." In Linda Kellerman's book, Bad Leadership: What It Is, How It Happens, Why It Happens, she cites seven types of bad leaders: Incompetent, Rigid, Intemperate, Callous, Corrupt, Insular and Evil. Skilling, Fastow and Lay, fit into most of the characteristics of bad leaders. They were sharks and self-serving predators. They lied, cheated, and manipulated Enron's culture to one of intimidation and aggression, coupled with an insatiable drive for power and money. They used influence and persuasion to change policies and form coercive coalitions with Arthur Andersen and Meryl Lynch to get what they wanted. "Groupthink" was alive and well at Enron as employees and investors were drawn into Enron's mystic. Leaders created the illusion of optimism, rewards gained by taking risks, and a belief that encouraged the group to behave unethical and ignore moral and legal implications. Those living in the culture were willing to look the other way and allow unethical behavior to thrive.

Enron's contribution to the world economic crisis: Insanity has often been defined as "doing the same thing over and over again and expecting a different result". This simple yet powerful cliché, often attributed to Einstein, Ben Franklin and Chinese proverbs, sums up the similarities between Enron and the current economic conditions. In this section we turn our focus on the house of cards Enron built and the impact on the world's economy. Three themes demonstrate how seemingly unrelated catastrophes collide creating a tipping point for the world's economy: Manipulation of Expectations; Short Term thinking; and Politics. Manipulation of Expectations: Cindy Kay Olson, a former Enron HR VP, stated that the housing crisis could have been avoided if some had acted with integrity. Insiders knew about unethical practices and behaviour, but did not speak up. Ironically, it was Cindy who publically encouraged employees to buy more Enron stock. Institutional