Enron Case Study

The thing I liked most about this documentary was the fact that it focused on the guys at the top, the self-proclaimed "smartest men in the room", the so-called geniuses who knew the energy business so much better than the rest of the industry. And what a piece of work these men were.

Enron: The Smartest Guys in the Room shows us how basic human nature does not change, whether it's in the easy fall into killing as a means to resolve disputes, or in the incessant human obsession to acquire for acquisition's sake. This all makes for terrible human actions.

One particular sequence of the film shows a series of Enron commercials that feature the Enron motto ask why. This rings almost like a corporate version of a Jack the Ripper taunt to the police: come and get us!

The three main crooks Chairman Ken Lay, CEO Jeff Skilling, and CFO Andrew Fastow, are as off the rack as they come. Fastow was skimming from Enron by ripping off the con artists who showed him how to steal, by hiding Enron debt in dummy corporations, and getting rich off of it. Opportunity theory is ever present because since this scam was done once without penalty, it was done plenty of more times with ease. Skilling however, was the typical amoral nerd, with delusions of grandeur, who wanted to mess around with others because he was ridiculed as a kid, implementing an absurd rank and yank policy that led to employees grading each other, with the lowest graded people being fired. Structural humiliation played a direct role in shaping Skilling's thoughts and future actions. This did not mean the worst employees were fired, only the least popular, or those who were not afraid to tell the truth. Thus, the corrupt culture of Enron was born. At one point, in an interview with financial reporters, Skilling calls a reporter a jerk for asking how Enron makes money. Lay comes off the worst, though, his wife whining that they're broke, even as he admits he has a net worth of over twenty million dollars, after lawyer's fees, and stock losses. He was the one who hired Skilling after a similar scandal in the 1980s nearly derailed the company, never concerned with ethics, only profits. Lay even sickeningly and psychotically compares his and Enron's criminal behavior, and the criticism of it, with the 9/11 attacks. All three started dumping their stock based on their most inside information months before the company tanked, and this forms the bases of the cases against Skilling and Lay, which are underway. Fastow opted to fink out on his bosses, after they set him up as the fall guy. If this film does not prove, once and for all, that the glorious myth of the free market is a fraud, nothing will.

On the superficial level, the attitudes and motives behind the events and decisions causing eventual downfall seem simple enough: collective and individual greed created in the atmosphere of corporate arrogance. As Enron's reputation in the global environment grew, the internal culture of the organization began to worsen significantly. Skilling, Enron Chief Executive, founded the Performance Review Committee, PRC, which gained the reputation of the harshest employee-ranking system in the whole country. Theoretically, this review system was based on the values of Enron - respect, integrity, communication and excellence (RICE). But at the end of the day, associates came to conclusion that the only real measure of performance was the scope and amount of profits they could produce for the company. To stay in organization and achieve top rating, the employees became motivated to make deals and post earnings. The division of Skilling every year replaced a large percentage of the Enron workforce. This caused fierce internal competition causing the prevailing immediate short-term results above long-term potential. The paranoia within the company flourished and a number of highly restrictive confidentiality clauses increased in trade contracts. Therefore, secrecy became a general rule for many of Enron's trading contracts and its disclosures and risk more to make the company look good. It seemed likely that Enron had taken too much risk; that it had hidden this risk from shareholders by parking it in secret partnerships; and that senior executives had urged investors to buy stock even when they themselves were selling out . . . Enron's executives apparently used the secret partnerships not just to hide risk but also to steal money, this indicates that the culture of Enron elevated risk to the point of deviant, unethical behavior. Deals, particularly in the finance division, were done very rapidly without much attention paid to whether they conformed to the organization's strategic goals or whether they complied with the company's risk management rules.

Evidence suggests that various social factors contributed to organizational deviance in Enron. These social factors strongly encouraged participation. Some apply to individual agents and some to macro level factors. They included an atmosphere of intimidation, high levels of employee control, the socialization of new employees, an extreme evaluation system, and aspects of the political economy. As the company grew and took on ever riskier propositions, the strain showed inside the building. Skilling had instituted performance review committees to determine the staff's top 5 percent and the bottom 5 percent in each division and three levels in between. Eventually nicknamed 'rank-and-yank', the system inspired all sorts of internal drama and sabotage. And the outcomes were brutal. The bottom 5 percent could expect to be sent to the redeployment office, also known as the 'office of shame', where they got a phone and a desk and a chance to be rehired by another division. The top 5 percent could expect to be invited to Mexico or Aspen on mini-vacations. The 'rank-and-yank' program was not based solely on job production. Peers made assessments based on the subjective perception of others. This contributed to unethical deal making, lying, cheating, and self-glorification between employees. Evidence indicates that high-level employees (Lay, Skilling, and others) supported the development of the 'rank-and-yank' strategy. As touched upon earlier, upper level workers regularly engaged in deceitful, unethical practices. This gives credence to previous research on organizational deviance indicating that a few key actors set the tone of the organization from the top and it flows down. It also ties into another idea related to structural ritualization:

Middle management supported and promoted such a social mechanism along with the ritualized practices resulting from it, such as risk taking among supervisors and other co-workers. Finally, lower-level employees participated in and enforced these practices in their daily interaction. Part of this