The report is aimed to look for ways through which leadership can help influence the work culture of an organization in a positive way by making them indulge into activities within the business in a methodical and ethical manner. Enron, the US Company was formed as a result of the merger of two natural gas pipeline companies, Houston Natural Gas Company and Internorth in the year 1986. Over a period of 15 years, the company had diversified their business to deal with products and services related to communications, natural gas and electricity (Avey, Wernsing & Palanski, 2012).
The company was literally debt-stricken, which had got covered up through the fraudulous activities of auditors of Arthur Anderson, one of the five largest audit firms on a global basis. The shares had crashed, there were dues on loans, thus for the shareholders, fresh borrowings were not possible. This had resulted in the shareholders losing out on a lot of money, to be precise, $11 billion (Bello, 2012). The unethical practices followed by the executives and accountants during that period of crisis had not only tarnished the image of the organization but also resulted in the serious issue of conflict of interest. The executives tried to look for their benefits by way of creating subsidiaries, sell off assets and generate earnings in an illegal manner. The rules regarding the conflict of interest were relaxed to such an extent that the executives could benefit from even those organizations, which had question marks over their credibility (Bolman & Deal, 2017). Another unethical activity from the part of the executives was that they had transferred energy from California, resulting in blackouts and hence leading to a hike in the price of the electricity.
The report concludes that for an organization to survive, the important thing important thing is to behave in an ethical manner by maintaining integrity. Ultimately the way leaders behave and act, has great influence on the actions performed by the employees in an organization. Survival and growth are dependent on how well the organization carries out their activities ethically.
1. The problems of Enron were caused due to unethical behaviours displayed by their executives and misappropriation of funds by the renowned audit firm Arthur Anderson. In times of crisis, an organization would always look forward to be led by their executives in an ethical and manner, in order to rise above the problems and come out of the critical situation with flying colours (Brown & Treviño, 2014). So, leadership has a big to role to play in moulding the organization for developing a strong mentality to run the organization in the most efficient manner, keeping in mind the importance of corporate ethics.
Leadership is known as the art of influencing and motivating people for allowing them to perform their activities in order to achieve the organizational goals and objectives (Burnes & By, 2012). For a leader to be successful, he not only needs to be intelligent but also require to possess impeccable amount of integrity and sound character, who is equally concerned about doing the right things in the desired times and performing them by conforming to the rules and regulations. The leadership theories are discussed as follows:
i) Trait Theory:
The Trait Theory of Leadership puts the sole emphasis upon the qualities and the characteristics displayed by a leader while discharging his duties (Chun et al., 2013). This theory evaluates certain qualities of human personality which would facilitate a particular individual to lead others effectively. In this case of Enron, when the company was going through crisis, the organization needed their executives to show integrity in their dealings and be resilient enough to get the company out of the mess. Trait refers to qualities inherent in an individual and the theory believes that a leader can lead by following the inherent qualities that an individual possesses. In the current case study, the executives had failed miserably to show any kind of reasonable quality with a mix of integrity to save the face of the organization. Rather, they were more concerned about how to earn profit by indulging in illegal activities (Ciulla, 2014).
ii) Contingency Theory-
Contingency theory follows the organizational theory that there is no set principle to lead an organization or to make decisions. The belief is that the course of action that needs to be taken, is solely dependent on the internal and external situations. Thus, a leader by following this theory, would consider taking decisions based on the internal happenings of an organization and also on the external factors, which play their roles to influence the work culture of the organization.
In Enron’s case, though the problem had come out in the open, in the year 2001, 15 years after the inception, the problems were suppressed under the false showing of earning of profits through institutionalized and systematic fraud, enacted through the collaboration of accountants and the executives (Crossan, Mazutis & Seijts, 2013). This had resulted in bankruptcy for the company and dissolution of one of the largest audit and accounts firms, Arthur Anderson. Despite this critical situation, the executives did act with integrity, rather they were finding ways on how to make profits, even if that meant, taking the illegal route. The Contingency theory demands, a leader to act responsibly under critical situations. They are expected to display a mature understanding of the fact that an organization is just about the management and employees, there are stakeholders, shareholders who have invested certain amounts in buying shares of the company’s stocks (Gifford & Nilsson, 2014). Had the executives of Enron thought about the shareholders’ predicament, as a result of the their conduct along with the company’s accountants, then shareholders of Enron might not have lost around $11 billion due to the crash in the stock market.
2. Culture in general refers to the ideas, beliefs and customs followed by people while leading their lives. Organizational culture is related to the understanding of how employees conduct themselves on a professional level, how do they cope up with the various situations they come across while tackling different kinds of customers, conflict of ideas which might take place with the colleagues and management and many other unforeseen circumstances (Jordan et al., 2013). Enron had displayed a culture where individualism and unrestrained behaviour in quest for earnings profits illegally had corrupted the ethical behaviour of most of the employees.
Leaders tend to have a huge influence on the culture of an organization. Each and every activity they perform, the words they speak, create an impact on the minds of the employees. Whenever an organization faces any issue regarding the behavioural aspects, matters which not only require to be handled with care but also with integrity, the focus shifts to the culture which an organization has developed within the framework (Manning, 2012). A firm and effective culture invariably starts with leadership. A leader would always be held accountable for undertaking a decision, which might not have been appropriate one, taking the circumstances into consideration (Mayer et al., 2012). The ways through which leadership can influence culture are:
a) Leaders act as role models for the employees. As leaders guide the employees in following a particular path for the achievement of goals and objectives, so whatever behaviour the leader exhibits, would be replicated by the employees. So, displaying in their behaviours and acting on the issues as per the requirements, should be the ultimate objective of leader and that would get inculcated in the habits of the employees.
b) A leader should always define the exact purpose behind taking some decisions. Until and unless the employees become aware of the genuineness of organizational decisions taken by the management for solving certain issues, they would not get the clarity. This can only happen through effective communication between the employees and the management where everything gets cited out (Miao et al., 2013).
c) One of the most important ways through which leadership can influence culture is by way of becoming accountable for whatever things they do. Leaders can hold their employees accountable, as that would give them the idea that the instructions meted out to them do not fall on deaf ears. Accountability is a part of culture where detailed job descriptions with the clarity of the measures established in case of any deviation, get specified to make the employees understand the whole process (Neubert, Wu & Roberts, 2013). These measures need to be refined from time and time, as per the needs and requirements of the organization. This is a part of the performance management plan which executives normally chalk out with the specifically mentioned criteria. In order to make the aspect of accountability effective, transparency is key. Transparency is vital in building a culture of accountability within an organization (Shin, 2012).
Now, after going through all the above mentioned activities where the leaders can influence the culture of an organization, one things is pretty clear that the executives of Enron had failed to display their leadership skills to have a positive influence on the culture of an organization (Vaccaro et al., 2012). The lack of integrity, the greed and the manner in which the policy of hiring and firing employees were executed, goes to show the loopholes in their leadership qualities. Leaders need to take the employees along with them, rather than thinking about their own benefits. From the employees point of view, moving from an ethical behavioural pattern to get influenced into acting unethically was not difficult as the whole organization’s culture had become corrupt.
3. The case of Enron shows how a company’s culture can get destroyed by the unethical activities of their executives regarding misappropriation of profits, the executives’ creation of subsidiaries with the help of accountants and lawyers by making the creation as a partnership deal. This resulted in selling off assets and creation of earnings which were actually not real. They had used offshore organizations to avoid taxes, show in assets and profits and cover losses. Rules on conflict of interest were relaxed for the executives’ own benefits to be garnered through ventures, which had always led to loss of funds for Enron. The recommendations to curb unethical behaviour are as follows:
i) The higher management must frame strict policies and procedures to showcase the importance of ethics in corporate culture.
ii) The greed which the executives had showcased, due to which they had even benefitted from ventures not profitable for the organization can get erased by way of hiking the salaries of the executives.
iii) Selection of right people can go a long in ensuring that the organization is run under the ethical code of conduct meant for the employees and the executives.
iv) Development of people’s understanding regarding ethics will also help in curbing unethical behaviour. A system should be put in place where any unethical behaviour noticed would lead to strict actions from the concerned authority, which might even result in termination.
v) Another way through which the unethical behaviours in an organization can be put under control is through building a culture of openness, transparency and communication.
vi) Leaders ultimately have to pave the way for bringing in ethical behaviours and acting with integrity. They have to preach what they say, then only the employees would abide by the rules and regulations and make the work environment healthy.
Conclusion
The report concludes that for an organization to grow and survive, the need to behave ethically by maintaining integrity in all the activities, is extremely crucial to portray a good image of the organization. No matter how tough the situation is, the imperative thing from the leaders’ point of view is to act in accordance with the rules and regulations, by maintenance of corporate ethics and send out a strong message to the community that no matter what, they would always act with integrity and be accountable for their actions. The conduct of the executives would be a source of inspiration for the employees to follow and hence improve the overall work culture.
References
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Bello, S. M. (2012). Impact of ethical leadership on employee job performance. International Journal of Business and Social Science, 3(11).
Bolman, L. G., & Deal, T. E. (2017). Reframing organizations: Artistry, choice, and leadership. John Wiley & Sons.
Brown, M. E., & Treviño, L. K. (2014). Do role models matter? An investigation of role modeling as an antecedent of perceived ethical leadership. Journal of Business Ethics, 122(4), 587-598.
Burnes, B., & By, R. T. (2012). Leadership and change: The case for greater ethical clarity. Journal of business ethics, 108(2), 239-252.
Chun, J. S., Shin, Y., Choi, J. N., & Kim, M. S. (2013). How does corporate ethics contribute to firm financial performance? The mediating role of collective organizational commitment and organizational citizenship behavior. Journal of Management, 39(4), 853-877.
Ciulla, J. B. (Ed.). (2014). Ethics, the heart of leadership. ABC-CLIO.
Crossan, M., Mazutis, D., & Seijts, G. (2013). In search of virtue: The role of virtues, values and character strengths in ethical decision making. Journal of Business Ethics, 113(4), 567-581.
Gifford, R., & Nilsson, A. (2014). Personal and social factors that influence pro?environmental concern and behaviour: A review. International Journal of Psychology, 49(3), 141-157.
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Manning, G. (2012). The art of leadership. Tata McGraw-Hill Education.
Mayer, D. M., Aquino, K., Greenbaum, R. L., & Kuenzi, M. (2012). Who displays ethical leadership, and why does it matter? An examination of antecedents and consequences of ethical leadership. Academy of Management Journal, 55(1), 151-171.
Miao, Q., Newman, A., Yu, J., & Xu, L. (2013). The relationship between ethical leadership and unethical pro-organizational behavior: Linear or curvilinear effects?. Journal of Business Ethics, 116(3), 641-653.
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