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Enron ethics and organizational culture at the end of chapter 8
Analysis of organizational culture
Analysis of organizational culture
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Analyse the corporate culture at Enron, Arthur Andersen and Lehman Brothers and discuss any similarities / differences, and the link between corporate culture, greed and fraud. Provide specific examples to justify your answer.
In essence, for the three companies considered, as a corporate culture…”Greed is good”. The original virtues of Enron, Arthur Andersen and Lehman Brothers were all, over time, replaced by those three simple words…”Greed is Good”, and the damage that motto caused on Wall Street and across the globe was, is, and will probably be again, phenomenal.
Deregulation of the financial services industry provided the key to unlocking the gates to a corrupt corporate world filled with greed and disastrous levels of fraud. Enron
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They also lobbied with other banks to increase the level of ‘acceptable’ loan to capital leverage limits, enabling them to put investor’s funds more at risk whilst greedily accepting their profits and bonuses (Clark, 2010).
Richard Fuld and the other senior management executives at Lehman Brothers displayed similar traits to the executives at Enron, being high risk takers – with other people’s money, gamblers, charisma which inspired almost ‘cult like’ followings by staff and an attitude that they were right. However they did not promote a corporate culture as espoused in their company’s Code of Conduct, but displayed unethical behaviours that filtered down from the top to the bottom of the
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Matthew Lee, the Lehman ‘whistle-blower and a former senior vice-president in Lehman’s finance division, experienced these unethical behaviours first hand when he was fired after submitting his letter outlining his six major concerns about the corporate culture and company’s business dealings. Even the Sarbanes-Oxley Act (2002), which states publicly traded companies are to have an audit committee that will look at employee concerns and will not retaliate, failed to protect him (Clark, 2010).
Enron
‘Enron was developed in 1985 to value respect, integrity, communication and excellence’ (Martin, 2013). Not long afterwards, a corporate culture of ‘we know more than you and therefore you should do as we do’ exemplified the behaviour of Enron’s senior executives and permeated throughout all levels of the company. An environment ‘driven by intimidation and arrogance from company leaders’ suggests former employee and ‘whistle-blower’, Sherron Watkins, ‘They were swindlers’ (Martin, 2013).
Ken Lay, Enron CEO, supported deregulation in a quest for opportunities to raise money for their business ventures and was well acquainted with several US presidents. Again, self-regulation providing the opportunity to embark on creative accounting practices that put profit above
The CFO, Andrew Fastow, systematically falsified there earnings by moving company losses off book and only reporting earnings, which led to Enron’s bankruptcy. Any safeguards or mechanisms that were in place to catch unethical behavior were thrown out the window when the corporate culture became a situation where every person was looking out for their own best interests. There were a select few employees that tried to get in front of the unethical accounting practices, but they were pushed aside and silenced. The corporate culture at Enron became a place where if an employee would not make unethical decisions then they would be terminated and the next person that would make those unethical decisions would replace them. Enron executives had no conscience or they would have cared for the people they ended up hurting. At one time, Enron probably was a growing company that had potential to make a difference, but because their lack of social responsibility and their excessive greed the company became known for the negative affects it had on society rather than the potential positive ones it could have had. Enron’s coercive power created fear amongst the employees, which created a corporate culture that drove everyone to make unethical decisions and eventually led to the downfall and bankruptcy of
While this is a type of corporate culture, it plays a significant enough role in corporate crime that I’m going to touch on it individually. The goal of most every company is to make a profit, but when corporate profit is put above all else, it can easily lead to corporate crime. The phrases ‘profit over people’ and ‘money over morality’ come to mind here, especially when thinking about Enron. One example of Enron putting company profits above all else occurred during the California Energy Crisis. Enron traders learned that by manually shutting down power plants they could create artificial power shortages during California’s already occurring energy crisis. This would send energy prices sky rocketing. These traders would then bet on the price of energy rising, which it did, making them around 2 billion dollars. While those at Enron were fixated on the drive for profit, they were unconcerned with the consequences these outages had such as people getting stuck in elevators, fatal car crashes due to traffic light malfunctions, and deadly
The Enron Corporation was committed to pushing the legal limit as far as possible. Many individuals only seeking to promote their own well-being over any legal or ethical boundaries did this. This was not only isolated with the Enron Corporation, as Arthur Andersen the outside accounting firm and Vinson & Elkins Enron’s law firm were also participants. The key players that led to the collapse of Enron was the founder Kenneth Lay, his successor
Enron was the world 's biggest and richest company in the late nineteen-nineties. It 's net value reached 70 billion dollars over the course of a decade and crashed and burned in a single year of savage media coverage and brutal criminal investigations. It 's important to understand how individual arrogance, the corporate recklessness, and U.S. greed collaboratively cost the biggest economic scandal of its kind. Enron was founded in nineteen eighty-five by Kenneth Lay as a natural gas company in the Pacific Northwest. Around that time the energy markets of the US were being deregulated, that is transitioning from government control to free-market. Lay hired visionary Jeffrey Skilling. Under his leadership, the company moved to Houston, Texas
Enron was the model for rapid growth in the 1990’s but part of the culture and ethics of Enron was disturbing. Falsified documents, cutthroat competitiveness among employees and accounting schemes that hid the truth of the company’s indebtedness were just a few examples of the lack of business ethics within the organization. Perhaps a more virtuous management team could have saved Enron from collapse.
Many organizations have been destroyed or heavily damaged financially and took a hit in terms of reputation, for example, Enron. The word Ethics is derived from a Greek word called Ethos, meaning “The character or values particular to a specific person, people, culture or movement” (The American Heritage Dictionary, 2007, p. 295). Ethics has always played and will continue to play a huge role within the corporate world. Ethics is one of the important topics that are debated at lengths without reaching a conclusion, since there isn’t a right or wrong answer. It’s basically depends on how each individual perceives a particular situation. Over the past few years we have seen very poor unethical business practices by companies like Enron, which has affected many stakeholders. Poor unethical practices affect the society in many ways; employees lose their job, investors lose their money, and the country’s economy gets affected. This leads to people start losing confidence in the economy and the organizations that are being run by the so-called “educated” top executives that had one goal in their minds, personal gain. When Enron entered the scene in the mid-1980s, it was little more than a stodgy energy distribution system. Ten years later, it was a multi-billion dollar corporation, considered the poster child of the “new economy” for its willingness to use technology and the Internet in managing energy. Fifteen years later, the company is filing for bankruptcy on the heels of a massive financial collapse, likely the largest in corporate America’s history. As this paper is being written, the scope of Enron collapse is still being researched, poked and prodded. It will take years to determine what, exactly; the impact of the demise of this energy giant will be both on the industry and the
The three main crooks Chairman Ken Lay, CEO Jeff Skilling, and CFO Andrew Fastow, are as off the rack as they come. Fastow was skimming from Enron by ripping off the con artists who showed him how to steal, by hiding Enron debt in dummy corporations, and getting rich off of it. Opportunity theory is ever present because since this scam was done once without penalty, it was done plenty of more times with ease. Skilling however, was the typical amoral nerd, with delusions of grandeur, who wanted to mess around with others because he was ridiculed as a kid, implementing an absurd rank and yank policy that led to employees grading each other, with the lowest graded people being fired. Structural humiliation played a direct role in shaping Skilling's thoughts and future actions. This did not mean the worst employees were fired, only the least popular, or those who were not afraid to tell the truth. Thus, the corrupt culture of Enron was born. At one point, in an inter...
middle of paper ... ... They had complete disregard for ethical standards that they should have looked towards when making their decisions. They allowed greed, and notoriety, to take over their basic perceptions of what is right, and what is wrong. So in conclusion, I have provided my analysis of ethical behavior that surrounded the financial events of Bernie Madoff, and the events that surrounded Enron.
Investors and the media once considered Enron to be the company of the future. The company had detailed code of ethics and powerful front men like Kenneth Lay, who is the son of a Baptist minister and whose own son was studying to enter the ministry (Flynt 1). Unfortunately the Enron board waived the company’s own ethic code requirements to allow the company’s Chief Financial Officer to serve as a general partner for the partnership that Enron was using as a conduit for much of its business. They also allowed discrepancies of millions of dollars. It was not until whistleblower Sherron S. Watkins stepped forward that the deceit began to unravel. Enron finally declared bankruptcy on December 2, 2001, leaving employees with out jobs or money.
If true, what does that say about Enron’s ethical culture? “Signals that mold a company’s organizational culture include characteristics values, traditions, and behaviors a company’s employees share.” (Dessler. Pg. 466) Enron was once known for having very high ethical standards in which it prided itself on and displayed to the world. However, with irresponsible executives and personal greed the environment rapidly transformed like an infectious disease. For example, “bad barrels” correlation, companies that promote an “everyone for himself” atmosphere are more likely to suffer unethical decisions.” (Dessler, pg.464) Enron Company values became full of corruption, deceit, and inattentive financial transactions. Once Enron was exposed for the accounting fraud scandal of their financial statements. There no longer preserved any ethical conduct or values within the organizational culture. All of this could be a combination of self-greed from top leadership, and company pressure to make Enron look like a sustainable
Unethical accounting practices involving Enron date back to 1987. Enron’s use of creative accounting involved moving profits from one period to another to manipulate earnings. Anderson, Enron’s auditor, investigated and reported these unusual transactions to Enron’s audit committee, but failed to discuss the illegality of the acts (Girioux, 2008). Enron decided the act was immaterial and Anderson went along with their decision. At this point, the auditor’s should have reevaluated their risk assessment of Enron’s internal controls in light of how this matter was handled and the risks Enron was willing to take The history of unethical accounting practic...
“When a company called Enron… ascends to the number seven spot on the Fortune 500 and then collapses in weeks into a smoking ruin, its stock worth pennies, its CEO, a confidante of presidents, more or less evaporated, there must be lessons in there somewhere.” - Daniel Henninger.
In Enron, it was dictatorial and revenue-based to new ideas. Leaders not only fostered a wrong sense of security for employees, paying high wages to keep workers dependent on the system via golden handcuffs, but also may allows employees did unethical behaviors. This repressive and illegal corporate would eventually make company lost creditability, or else, make company
The Enron Corporation was an American energy company that provided natural gas, electricity, and communications to its customers both wholesale and retail globally and in the northwestern United States (Ferrell, et al, 2013). Top executives, prestigious law firms, trusted accounting firms, the largest banks in the finance industry, the board of directors, and other high powered people, all played a part in the biggest most popular scandal that shook the faith of the American people in big business and the stock market with the demise of one of the top Fortune 500 companies that made billions of dollars through illegal and unethical gains (Ferrell, et al, 2013). Many shareholders, employees, and investors lost their entire life savings, investments,
When an ethical dilemma arises within an organization, it is difficult to separate right and wrong with what is best for the majority. Sometimes the answer is not a simple “yes” or “no.” In 2002, Enron Corporation shows us just that. By 2002, the sixth-largest corporation in America filed for Chapter 11 bankruptcy. The case of the Enron scandal is one of the best examples of corporate greed and fraud in America.