The Company Culture Of Enron Management Essay

Just as the destiny of individuals is determined by personal character, the destiny of an organization is determined by the character of its leadership. And when individuals are derailed because of a lack of character, the organization will also be harmed” (Josephson, 1999).

The merger of two Houston-based pipeline companies in 1985 led to the creation of Enron. It started as an energy delivery company, but the deregulation a few years later helped it change its focus and become an energy matchmaker or energy broker. The company started matching the buyers and sellers of energy and utilised creative trading methods to generate profits. So in a short span of time, Enron corporations fortunes changed from just a surviving company and it become a thriving company- a symbol of successful American corporation.

1.2 The Company Culture

The deregulation in 1988 led to a dramatic change in the corporation. Enron had become the symbol of dynamism and aggression. The culture at Enron was to encourage creativity amongst the employees. It embraced a culture that rewarded cleverness. The employees were motivated to explore innovative approach to their work. The limits were pushed for performance on the individual employee level to sustain the astonishing growth levels that the corporation was experiencing. It was slowly moving towards a culture that admired unchecked ambition. In the pursuit, Enron led a culture which believed in stretching the performance until the limits of ethical conduct were overlooked. We will also see ahead how the leadership at Enron affected a change in the culture of the corporation. If corporate leaders encourage rule-breaking and foster an intimidating, aggressive environment, it is not surprising that the ethical boundaries at Enron eroded away to nothing. Schein (1985) has focused on leadership as the critical component of the organization’s culture because leaders can create, reinforce, or change the organization’s culture. This applies not the least to an organization’s ethical climate (Sims, 2000; Trevinoet al., 2000; Sims and Brinkmann, 2002).According to Schein (1985) there are five primary mechanisms that a leader can use to influence an organization’s culture: attention, reaction to crises, role modelling, allocation of rewards, and criteria for selection and dismissal. Schein’s assumption is that these five criteria reinforce and encourage behavioural and cultural norms within an organization. So to summarise the culture at the company as depicted in the movie which was influenced by the following factors.

Leadership Behaviour (reference?)

Espoused values and visions

Communicating the vision for the organisation through stated strategic long-term objectives in the vision statement/annual general meeting statement.

Role modelling and attention

There were multiple instances of Management-Employee seminars. There were also Enron Gas services solution days, where the management would use motivational speech to inspire employees.

Reaction to crisis

Initially in the nascent stages of the accounting misdemeanours the management devised way to avert crisis with efficient use of Public relation to make the event look insignificant.

Programs , structures

Criteria for rewards and personnel decision

Enron’s remuneration system rewarded individuals who adopted Enron’s aggressive, individualistic culture and were based on short-term profits and financial measures.

Symbols , rituals and stories

The enron management way of celebrating success- organising weekend adventure trips.

Jeff Skilling mantra- ‘Do it right, do it now , and do it better’

1.3 The External Environment

Enron had become an energy trading giant in the US market and it was expanding in more sectors and international markets. The surprise with the company’s growth was not its ingenuity of doing business but the speed at which it was expanding. But with a careful balance of public relation and good CSR skill, Enron had succeeded in developing a niche amongst the American corporate houses, the American media and the masses. It was a symbol of corporate excellence teamed with an ambitious zeal to succeed at all cost. Enron’s spectacular success was receiving positive reviews from the press and the financial analyst community which was incremental in adding fuel to the company’s competitive culture.

So the movie very succinctly describes the leadership at Enron which encouraged a culture that was morally flexible leading to ethical degeneration in the name of ambition.

Leadership at Enron

The pillars of Enron were the top management team which always believed in exuberant performance. They were driven in their pursuit of delivering on the bottom-line numbers at all cost. This attitude was percolated to the complete organisational structure at Enron by dividing the company in either the high performing employees or the so- called low-performers. The employees who were a part of the upper-crust were handsomely remunerated. This led to a negatively infected passion amongst the employees to break the performance bench-mark in the organisation to happily afloat.

The reflection of the leadership style in the movie is –

Indirect leadership

It is evident from the movie that there was a heavy influence of the top management on the culture of the organisation which cascaded down to all the employees of the company, but indirectly. A form of indirect leadership involves leader influence over the organization culture, which is defined as the shared beliefs and values of members (Scheinn, 1992- trice & Beyer, 1991). Leaders may attempt either to strengthen existing cultural beliefs and values or to change them. There are many ways to influence culture, and they may involve direct influences (communication, a compelling vision or leading by example) or other forms of indirect influence, such as changing the organization structure or reward system.

Transactional leadership

It refers to the leadership style wherein the leader exchanges rewards of economic or financial value with the follower. These rewards are based on the premise that the leader recognises the parameters and the levels of performance which justify reasonably the task and also clarifies the conditions under which the rewards are available for justification. The goal is to enter a mutually beneficial exchange, but not necessarily to develop a enduring relationship. Although a leadership act transpires, it is not one that binds the leader and follower together in a mutual and continuing pursuit of a higher purpose.

But in the movie it is also seen that leaders were in a constant pursuit to convince their followers about their genuine interest of promoting the welfare of the stakeholders, which was not the case in reality. Yet they were successful in blinding the stakeholders (employees) with their leadership position and skills. So here we see an overlap of transactional as well as transformational leadership traits as the leaders at Enron were successful in their motive.

Effective transformational leaders may exhibit transactional behaviors, but their leadership style also includes one or more of the following characteristics: idealized vision, inspirational motivation, intellectual stimulation, and individualized consideration (Bass, 1985; Bass & Avolio, 1994). These characteristics are assumed to transform followers and motivate them to do more than initially expected. This transformation presumably occurs through raising the followers’ awareness of the signi¬cance of designated outcomes, getting followers to transcend their self-interests for the good of the organization, or augmenting followers’ needs on Maslow’s (1954) hierarchy of needs (Bass, 1985). Although leaders’ and followers’ purposes may begin as separate but related, they eventually become fused into a linkage of power bases that provide support for both members of the relationship.

Leadership is about making choices (Kouzes and Posner, 2003). Choice is a binary action that divides options into two sets, the desired and the undesired ones, according to a higher principle or value (Rawls, 1999). Mostovicz (2008) posits that the way people choose is a reflection of their worldview. This discovery can be approached in 2 ways

(1) By the need for achievement (the Lambda worldview); or

(2) By the need for affiliation (the Theta worldview).

Both the world views have a unique set of characteristics. The Lambda are self- motivated and highly driven to attain individaulistic goals whereas the Theta are more society welfare oriented. The Lamba have a narrow prespective towards the society as such whereas the Theta have a much broader view. The unique characteristics of both the worldviews along with leadership approach is as mentioned below.

Theta

Lambda

Motivation/reason

Socially oriented

Personally oriented

Goal

Seeking unity and certainty

Seeking challenge and creation

Behaviour

Communion

Agency

Benefit

Building respect

Looking for personal freedom

Leadership principle

Authenticity = truthfulness

Authenticity =genuineness

Inclination

Toward choice

Toward contrast

Perception of truth

As an objective

As a set of rules

Transformation of a

leader

A leader is born. Qualities are subconscious

A leader is developed

consciously

So the reflection in the movie about the leadership at Enron is more on the Lambda worldview. The attitude induced by the top management through the company made the organisation develop a Lambda view which led to the massive breakdown of the ethical machinery.

The Leader

Jeff Skilling- the man with the ideas. He was the kind of a person who had big vision of things. One of his favourite books was the ‘Selfish Gene’, which was a description about the human nature being steered only by greed and competition in the service of passing on the genes. He wanted to alter the way in which Energy was being traded. He succeeded in initiating a market for natural gas wherein it started being traded as stocks. He converted energy into a financial instrument and this led to Enron becoming the largest energy trader in North America.

Kenneth Lay was a visionary and he liked people who shared this attribute. Jeff Skilling fit in the picture perfectly. He was aggressive, intelligent and possessed exemplary leadership qualities which was incremental in creating a culture of aggression and incentivised competition in the organisation.

Under his leadership the organisation transformed from a small energy market player to the biggest energy trading company in North America with a rapidly expanding global operations network. The company was being driven by the aggressive and individualistic attitude which was strongly ingrained in the system by Jeff Skilling and the policies of the management team for attaining short term profit. These were successful in achieving the results in hindsight but were seriously damaging the ethical balance in the system.

According to the ‘Big Five’ model (Hogan, Curphy & Hogan, 1994, Page 61), Jeff Skilling exhibited the ‘Surgency’ personality type which had specific traits of Extroversion, High Energy/activity level and a Need for power.

Charisma was the most important aspect of his personality. He believed in gaining power and self glorification, caring very little for his followers, the ideals or values. This is usually seen in the case of negative charismatic’s. He used his charisma, to influence people in a way which made them awe-stricken, wanted his acceptance and hence they could not criticise him or his actions. This not just has an influence on the followers, but has an effect on the leader as well. The leader in such cases become not only over-confident but also delusional of their infallibility. To describe further we utilise the following table to understand the charismatic leadership and its effect on the organisation.

The leader has total and absolute authority.

Leaders build their eminence and maintain their grip on their followers throught a well-articulated ,emotive communication of their vision.

The leader cultivates a compelling and captivating self image

Immense faith invested in the leader

Heavy emphasis on the charismatic attributes of leadership.

The CEO had immense and unchallenged authority.

Events such as the annual management conference, where leaders promoted themselves in a thearitical manner.

Intense faith exhibited by emploess in Lay and Skilling and a declining confidence in the quality of their perceptions

Charismatic Leadership

A totalistic vision, leading to a higher sense of purpose and achievement.

Employees assured they were transforming how business was conducted in the world.

An intense transcendent ideology.

A high degree of personal commitment by followers, to the goals of their leaders.

The replacement of the followers existing belief system with a sense of being involved in a meaningful or revolutionary change.

A compelling vision and intellectual stimulation

Intense recruitement rituals, designed to engage employees in a process of affliation.

The transformation of attitudes, behaviour.

Constant messages that those hired were part of a special elite and were the brightest and the best in the world

Indoctrination rituals that alternate between stressful and exhilarating.

A process of conversion enacted

Continuous indoctrination ,to reinforce initials sense of affiliation

Individual consideration

Perceived dissenters marginalised

Financial data falsified

Cultivation of obscure jargon, familiar only to people within the organisation

Punitive internal regime.

Promotion of a Common Culture

Punitive internal environment: dissent demonised

Unidirectional communication

Negative information suppressed and positive information maximised.

Total conformity from followers

Power and Influence-

Amongst the different types of powers Skilling had both at his disposal. He made use of his position power due to his position in Enron and also the personal power.

In terms of position power it appears that applied the reward power which meant that his followers complied in order to obtain rewards and also legitimate powers where in the followers complied as they believed that he had the right to make the request due to his position.

Also, we could see the use of his personal powers to a great extent where in his vast knowledge about the subject enabled his followers to comply. The followers also admired him and aspired to be like him due to his charismatic personality which also gave him the referent power which helped him gain loyalty and commitment.

In order to influence his followers in supporting him he did use rational persuasion to show them the logical side of his argument based on factual evidence. The followers at some time did realise that Skilling was being unethical in his practices and in spite of this realisation still continued to support him. To explain the influence Skilling had on his followers we can make use of the 3 well known experiments-Milgram’s experiment, Solomon Asch’s conformity and Zimbardo prison experiment. Milgram’s experiment tells us how people conform to an authority figure. The agentic state theory explains this further by stating that “the person comes to view himself as an instrument in carrying out another persons wishes and therefore no longer sees himself responsible for his actions.”

Similarly the other 2 experiments highlight the human behaviour in terms of role conformity and social conformity where in people have a tendency to come under the pressure of social acceptability and conforming to everything they feel they need to in order to be a part of the group.

Leader-Member Exchange

Enron was a company of ‘believers’. In a survey in 1997, employees who were surveyed for a feedback faced tremendous faith in the leadership of Kenneth Lay and Jeff Skilling. It has been discussed in this analysis that the company had an indirect leadership style, whereby influence of the top management percolated to all the employees in the company through the use of multiple communication strategies (Enron Gas services day) when the top management discussed the future strategy of the company, the importance of employee contribution, commending excellent employee performance etc. So the employees became blind believers in the methodology adopted by the leadership at the organisation and started working with the ‘win at all cost’ attitude which led to the slow erosion of the ethical fabric. Also the reward system that was created in the organisation, reflected the expectation of the management. The companies reward system only appraised employees who performed consistently with little regard to ethical conduct. Overall,

Enron’s reward system rewarded individuals who embraced Enron’s aggressive, individualistic

culture and were based on short-term profits and financial measures.

Leadership development at Enron

Leadership calls for total commitment to the perpetual process of purpose seeking.

While leaders are usually concerned with their legacies, their commitment to purpose

has to go far deeper. This total commitment implies that, in reality, leaders seek

“either my way or nothing”. However, this commitment is intrinsic; it calls for the

leader to mobilise himself, body and soul, but in no way does it imply extrinsically that what is not “my way” is wrong.

Ideal leaders do not exist in practice. Thus, we can relate to leadership as a progressive development only. Since humans cannot be fully conscious of our emotions, a posteriori, we cannot fully mobilise them in order to understand and attain our life goals and purpose. Because our purpose remains opaque at best, it follows that leaders will act unethically even when they do so unwillingly or unconsciously. The only way for leaders to improve their ethical position is to interact with others in society to help them reveal their hidden agenda over time. The particular worldview, in turn, shapes these agendas, either Theta or Lambda, that a person embodies in his search for greater self-awareness and contextualisation with his external environment.

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