Organizational Culture and Ethics, Enron Case Study
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Transcript of Organizational Culture and Ethics, Enron Case Study
ETHICS AND ORGANIZATIONAL
CULTURE
PA 6620Brynne VanHettinga
National Business Ethics Survey2003-2005
• Ethics Training—Up 14%• Formal Ethics and Compliance
Programs—Up 19%
• > 50% report misconduct• Only 55% willing to report
misconduct
Need both Programs and Culture
• Compliance orientation—formal rules, policies, monitoring and enforcement
• Values orientation—education, shared values and symbolic management
Organizational Self-Interest• Offenses against the organization
• Interpersonal offenses
• Offenses against the community
• Altruistic Deviance
Ethics from the Top Down• Managers and Executives must be seen
as moral persons
• Do moral persons naturally rise to positions of power?
• Controlling leaders may be productive, but ethical issues unlikely to be examined
Ethics from the Top DownSocial Identity Theory
• Creates a highly cohesive, uniform and consensual group
• Aggravates hierarchical imbalance of power
• Executives personally identify more with the organization and have more optimistic opinion of ethical culture
Ethics from the Top DownCommunication
• Information, especially negative information, is deliberately withheld or distorted as it moves up the hierarchy
• Disciplinary issues are handled as private personnel matters and not published to rank-and-file
Ethics from the Bottom Up• Employee screening has limited
effectiveness• Organizational dynamics have more
impacts on unethical behavior than individual antisocial personality traits
• Study by Verkerk et al. showed some promise for participative democracy systems
WHISTLEBLOWERS
• Patchwork of legal protections frequently ineffective
• Whistleblower is required to first give employer notice of problem and opportunity to correct
• Whistleblowers pay high price financially, personally and emotionally
Organization and SocietyPublic Affairs Function
• Proactive → Legislative lobbying and campaign contributions → Media press releases
• Reactive→Adjusting internal processes to accommodate new regulations→ Media damage control
Organization and SocietyThe Cheating Culture
• “Winner-take-all” rewards• Decreasing social cohesiveness • Glorification of rich & famous lifestyles• Dismantling of regulatory safeguards• Emphasis on bottom line• Competitiveness and social Darwinism• “Trickle-down” corruption
The Cheating Culture, David Callahan, 2004
CASE STUDYCASE STUDY
KENNETH LAY• ENRON Chairman and
CEO, from 1986 until his resignation on January 23, 2002
• Ph.D. in Economics, Univ. of Houston
• Active in Republican politics--Bush Pioneer
• Many of Houston elites still consider him honorable
JEFFREY SKILLING• Was chief production
director of WLXT Ch. 60 at age 16.
• Harvard MBA• Hired by Ken Lay in
1990 and was briefly CEO Feb-Aug 2001
• Suffered nervous breakdown in NY in April 2004
ANDREW FASTOW• MBA Northwestern Univ.• Developed “creative”
financing practices while at Continental Illinois, which failed during S&L crisis
• Hired by Skilling in 1990• Complex network of
offshore limited partnerships allowed assets and debts to be maintained “off balance sheet”
Andrew Fastow’s motto was, “I’ll fund all your deals.” These were distributed at an internal Enron
meeting. Employees who closed big deals were generously rewarded. Employees who did not close
deals were gone.
SHERRON WATKINS• Master of Accounting and
CPA; former auditor at Arthur Anderson
• Joined Enron in 1993 and left in Nov. 2002 as Vice President of Corporate Development
• Author of series of memos in Oct/Nov 2001 which formed basis for indictments and convictions
ENRONThe good, the bad, the ambiguous
• Hired “the best and the brightest” Hubris?• Employees who produced were rewarded • Had aspects of a formal ethics program• Contributed to local community• Fun and exciting place to work, with lavish
facilities and employee functions• Culture of innovation—did not want to hear
“no” or “it can’t be done” • Incestuous relationships with regulators,
auditors and Wall street
ENRON STOCK PRICE 1993-2002P
rice
In U
S D
olla
rs
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Practical Ethics
• Critical examination of reward systems
• Effective communication both from top down and from bottom up
• “Safe” channels for whistleblowers
Limitations of Ethics Programs
• Need for outside accountability• Impact of cultural values on
organization• Impact of corporate values on popular
culture• Impact of corporate influence on
legislation/deregulation• Can an organization be “moral?”