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Organizational culture consists of values and assumptions shared within an organization. It defines what is important and unimportant in the company of doing things in a right way. An organizational culture can potentially influence ethical conduct. An organization's culture should be consistent with society ethical values, and the culture should not be so strong that it undermines individual freedom. There are three distinct levels in organization culture - shared value, shared assumptions and artifacts. Shared values guide decisions and behaviors' of the employees and management. Artifacts are the visible elements such as rituals, stories, language and physical structure. Shared assumptions are the unconscious belief or theories in use on which people rely to guide their perceptions and behaviors.
The four categories of artifacts are organizational stories and legends, rituals and ceremonies, organizational language and finally physical structures and symbols. An organizational stories are very powerful indeed it's creates emotions to listeners and greatest impact when the corporate describe the real people. The rituals and ceremonies are usually the one they do daily as a routine task. Going for lunch break at the same hour or having birthday bash every month. An Organizational language is about how an employee's speaks in their working environment-aggressive, humble, or polite. Physical structures and symbols is a physically structures of a company. It's also represents the company size, shape, location and the age of the building.
A strong corporate culture increases a company's success by three important functions, the functions are control system, social glue and sense making. Control system is the ways that the organization is controlled. These include financial systems, quality systems, and rewards given to an employee. Culture works like a social bonding or glue that helps in holding the organization together. Sense-making refer as the structures in which an individual's knowledge is retained and organized. Corporate cultures will make easier for the employees to understand what expected from them.
The majority of corporate mergers and acquisition fails due to corporate leaders pay more attentions to other matters mainly on financial and marketing. They should take these four strategies into consideration before merging different corporate cultures - assimilation, deculturation, integration and separation. Assimilation merger happens when the acquired company adapts the culture of acquiring since the culture of acquiring is better and effective compare to their existing culture. Deculturation mergers happen when employees resist the organizational change. Integration merger is to combine or create a new culture. The purpose of this integration culture is to provide a better and strong culture since the existing culture is weak and ineffective. Separation merger is to remain a minimal of cultures from both side of company maybe due to geographical or unrelated industries.
Enron scandal was known as the biggest audit failure in the United States. The management manipulating the financial statement and showing a high profit while Enron running into billions of debts. The organizational cultural environment surrounding Enron's management control systems, and the influence of a powerful-risk taking culture on Enron's controls. Under the management of Jeff Skilling the organizational culture were an extreme performance-oriented culture, enhancements in technological capabilities and an increasingly expectant investor forum. Jeff Skilling emphasizes on creative risk taking, innovation, entrepreneurship and aggressive organization. The patterns of recruitment of staff by Skilling are MBAs graduates from the prestigious universities who could perform as aggressive, extrovert, IT experts and investment bankers. Employees whom could not perform or meets the target will be immediately terminate them or they will volunteer resign due to the high pressure from the management. Those who succeed will be rewarded with high bonus, stock options or paycheck.
Skilling was practicing culture of arrogance, extreme decentralization, fierce internal competition and an attitude that the company could do anything. Enron was forever changing on the way of working and reorganizing until it's so hard for the employees to catch up what exactly the management wants from them. Enron's corporate environment encourages creative, experimentation and hardworking people but if it's only that produces profit for the company. The employees were scared to express their opinions or question potentially illegal business practices as the managers used the system to reward blind loyalty. Most employees favored unethical, extreme competitive actions derived from observing the behavior of those favored in the organization. Enron management did not practices the value of integrity, the only thing they know is to make profit. In August 2001, Jeff Skilling tendered his resignation as a CEO and soon sold blocks of shares valued more than $33million. Kenneth Lay who held the position of Chairman immediate lyre-assumed the job of CEO and assured the stunned market watchers that there would be no change in the performance or outlook of the company but, the stock prices started declining.
Enron complex financial statement raised a lot of queries and its impacted Enron from vary direction. Enron business has a moral obligation to provide its stakeholders that is bankers, customers, or employees. Enron's bankruptcy has ill-treated several parties including banks, stockholders, employees, customers, suppliers and communities. The first impact was on employees of Enron. When Enron went bankrupt and Arthur Andersen accounting firm went out of business in 2002, employees were displaced and significantly affected. Enron's financial difficulties has cost thousands of employees lose their jobs, unemployed and facing retirements with zero investment. Many employees had their entire pensions invested in Enron stock. While the employees were unable to sell their stock, other executives were quickly selling off many of their shares. The lives and savings of thousands employees were destroyed. As the result of Enron scandal, investors and stockholders lost millions of dollars because they were manipulated about the firm's financial performance reality through questionable accounting practices, and all of the shareholders lost the money that they had invested in the corporation after it went bankrupt.
Shareholders lost nearly in billions when Enron's stock price, which hit a high of before the scandal and drops dramatically after the scandal. Investors those who were hurt can never be made totally whole once again after the terrible experiences of Enron. Enron also affected the communities in several important ways. If anything positive can be said about the Enron scandal, it is that the scandal itself heightened awareness of the importance of integrity in Accounting and business in general, and led to the creation of new safeguards to make sure that something like this would not happen again, or at least not to the full extent of the Enron damage. Due to this Enron scandal Sarbanes-Oxley Act of 2002(SOX) were created. SOX increased the independence of the outside auditors who review the accuracy of corporate financial statements, and increased the oversight role of boards of directors. The Enron scandal also harmed other stakeholders. Enron top managers pressured Arthur Andersen to certify maximum-risk questionable accounting practices to retain their consulting business. Due to the high pressure from the Enron, Arthur Andersen won huge contracts in the short run however lost their professional credibility and client support. Some investment banks such as Citigroup, J.P. Morgan, and Merrill Lynch made over million in fees from deals that helped Enron. Citigroup and JP Morgan Chase in particular appeared to have significant amounts to lose with Enron's fall.
The actions taken by Enron is that they held auctions to sell assets including art, photographs, logo signs, and its pipelines to pay their creditors and also the former employees that lost their pensions. Apart from that American Institute of Certified Public Accountants (AICPA) engaged them and came up with a new format on how to perform using their tool and identifying the audit related party transaction. Apart from that, AICPA has introduced peer review. All the public listed especially a big size like Enron need to have more than one auditor. E.g.: when Price Water House Cooper audit Shell, KPMG as the peer of PWC will glance through PWC works and auditing to enhance the confidence of the public.
Looking at the Enron scandal from our point of view most of the problems faced by Enron derive from the immoral and unethical actions taken by the board of directors and management in their attempt to achieve personal profits and gains. The main root cause is from the greediness of the management and unprofessional and biases by external auditors. Need to strengthen requirements for director independence at publicly traded companies, including by requiring a majority of the outside and inside directors to be free of material financial ties to the company other than through director compensation. The directors should only allowed to purchase few shares from the company, by doing do they will not be greedy to increase the company profit bluntly. There should be regulatory for external auditor independence by prohibiting the company's external auditor from simultaneously providing the company with internal auditing or consulting services and from auditing its own work for the company. Meanwhile the internal should be more effective and efficient in tracking the issue and problems earlier. Also, peer review should be conducted.