How Enron’s Organizational Culture contributed to its Bankruptcy
Analysts have described Enron’s organizational culture as aggressive and arrogant. People once considered Enron the world’s leading organization but the executives’ arrogance lead them to believe that the company had no genuine competition. Before its dissolution, and after it was apparent that the company was going into ruin, the company still thrived on big-spending (Banerjee, 2002). A New York article reported that Enron believed it had to conduct its operations flashier and better than other rivals did. The company unveiled novel business ventures yearly with lavish gestures. Besides arrogance, other factors contributed to its demise. Needless spending and the lack of internal risk controls were the primary mistakes of the company (Banerjee, 2002).
Enron’s managers pushed integrity aside while rewarding innovation and punishing weak or underperforming employees (Ferrell, 2017, p.496). The company encourages a culture of rivalry and cutthroat competition within the company and outside. Enron’s philosophy was “rank and yank” where the managers rated their employees every six months. The managers forcibly expelled those that appeared at the bottom 20 percent (Ferrell, 2017, p.496). The company lacked proper ethics in its business operations, employee treatment, and decision-making. Overall, the company’s organizational structure lacked good ethics, strong values, and morals, which contributed to its inevitable downfall.
Ways Enron’s Auditors, Bankers, and Attorneys contributed to its Demise
Enron auditors engaged in fraudulent accounting practices by formulating SPEs to transfer debt and assets off its balance sheets and increasing cash flow by demonstrating that the funds were coming from its records when it traded assets. The report was not a factual representation of the company’s financial health. The company maintained this fraudulent financial position to maintain high stock prices and when the stock prices fell, the firm could not compensate for the deficit.
Investigators found that the company’s auditors were aware of its top-level employees’ improprieties in the firm’s energy accounting practices in mid-August (Oppel, 2002). The company sought advice from its lawyers who decided to support the fraudulent financial reports. In November, the firm’s accountants forced it to re-evaluate its five-year results and delete almost $600 million in reported gains owing to an investigation by the Securities and Exchange Commission (Oppel, 2002). Moreover, the firms’ auditors destroyed its financial documents aiding in the cover-up of the scandal.
The Role Enron’s CEO played in creating Problems that led to its Financial Problems
Enron’s CEO Andrew Fastow concealed $1 billion of its debt resulting in the firm’s bankruptcy by attempting to inflate the company’s profit margins (Ferrell, 2017, p.496). The investigators also charged the CEO with fraud, obstruction of justice, conspiracy, and money laundering. Moreover, Fastow swindled the company and its shareholders via off-balance-sheet collaborations that made the firm seem more profitable than it was. The Chief Financial Officer allegedly received receiving bribes amounting to approximately $30 million (Ferrell, 2017, p.496). In his defense, Fastow maintained that the company’s accountants, managers, lawyers, and directors approved every single deal he made (Elkind, 2013). He admitted that the company engaged in the largest accounting fraud in history while spending five years in federal prison.
Even though Fastow played a significant role in Enron’s financial demise, he was only part of the problem. The ultimate dissolution and downfall of Enron happened because of dishonest employees, arrogant organizational culture, deceitful financial reporting, and a lack of integrity, morals, values, and code of ethics.
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