Reference no: EM132287815

Ethics IN THE NEWS – Enron and the Creation of an Unethical Culture Enron Corp., which in December 2001 became the largest-ever US bankruptcy, did not fail solely because of improper accounting practices, although that was certainly a major contributor. It also failed because it had a culture that pushed executives into unethical behavior. During Enron’s heyday in the late 1990s, the press regularly praised the company for its entrepreneurial culture: smart, sassy, creative, and risk-taking. A post-mortem analysis reveals a different culture—an unrelenting emphasis on earnings growth and individual initiative. Instead of rewarding new ideas, the company encouraged unethical corner-cutting. How? First, it pressured executives to make their numbers. Second, it instilled lax controls over how those numbers were created. Third, it bred a “yes-man” culture among executives. People were afraid to speak out on questionable practices for fear that it would adversely affect their performance evaluations and the size of their bonuses. Fourth, bonuses and money became the Almighty God. The company sought out and rewarded people who placed a high value on money. Jeff Skilling, the CEO who created Enron’s in-your-face culture, is quoted as saying “all that matters is money. You can buy loyalty with money.” Fifth, although managers were supposed to be graded on teamwork, the culture was heavily built around star players, with little value attached to team-building. The organization rewarded highly competitive people who were less likely to share power, authority, or information. Finally, the company continually set itself wildly optimistic expectations for growth and then drove executives to find ways to meet them. “You’ve got someone at the top saying the stock price is the most important thing, which is driven by earnings,” said one insider. “Whoever could provide earnings quickly would be promoted.” One former Enron employee summed up the Enron culture this way: “If your boss was [fudging], and you have never worked anywhere else, you just assume that everybody fudges earnings. Once you get there and you realized how it was, do you stand up and lose your job? It was scary. It was easy to get into ‘Well, everybody else is doing it, so maybe it isn’t so bad.’ ” Question 1- Review the case and develop a list of strategies that, if had they been an Enron employee, they could have employed to not allow themselves to be caught up in the unethical behavior.