Trinity Western University
Langley, BC, Canada
The recent Enron collapse has sent shockwaves
all over the financial world and raised serious questions regarding
corporate governance: How could America's seventh largest corporation
suddenly descend to bankruptcy? What has contributed to its sudden
implosion? Currently, there are more than 10 separate committees
investigating possible wrong doings and illegal activities, such
as fraud and insider trading.
Available information suggests that Enron made
its money with smoke and mirrors. With a set of off-the books, unregulated
private partnerships to take on debts, hide losses and kick off
inflated revenues, Enron executives were able to keep bond-rating
agencies happy. They were able to sustain this shell game through
persistent refusal to disclose to analysts, who questioned where
the money came from. Arthur Anderson, the auditing firm, turned
a blind eye to questionable accounting practices because they did
not want to lose the lucrative consulting fees.
However, under mounting pressure, Enron's eventual
disclosure of its overstatement of profits in November 2001 immediately
triggered the collapse of the company and its bankruptcy filing
on December 2, 2001.
A special panel of Enron's Board recently issued
a 217-page report, condemning Enron's management for inflated profit
reports and failure of controls at every level. According to Eichenwald
(2002), "As oversight broke down at Enron, the report states, a
culture emerged of self-dealing and self-enrichment at the expenses
of shareholders. Accountants and lawyers signed off on flawed and
improper decisions every step of the way, the reported concluded."
The report is critical of Ken Lay, Enron's long
time Chairman and Chief Executive, and his protégé Jeffrey Skilling,
who served as President and Chief Executive before resigning abruptly
for setting up a flawed system for self-enrichment at the expense
of employees and ordinary shareholders.
In that system, Fastow would not only work as
chief financial officer of Enron but would also serve as general
partner of the partnerships. In order words, Fastow was on both
sides of every transaction. He took the most blame because he manipulated
Enron's financial statement to inflate profits in order to enrich
himself and other senior executives.
In the 1980s, the savings-and-loan collapse
rocked America and the junk-bonk king Michael Milken ended up in
jail. After this scandalous disaster, business schools all over
America began to set up courses on business ethics, and most corporations
have developed their own code of ethics.
However, Enron's failure indicates that the
"ethical deficit" of corporate America remains a serious problem.
In recent years, Mr. Richard Finlay, chairman of the Centre for
Corporate and Public Governance, has warned about the danger of
corporate corruption, but greed continues to dominate the boardrooms
Why the ethical deficit? What has gone wrong?
How could Enron executives tout the Enron stock to their employees,
while enriching themselves by cashing in stock options? Why didn't
they comply with Enron's Code of Ethics? What lessons can we learn
from this colossal corporate failure?
I propose that the most important lesson is
that corporate culture matters - it can either bring prosperity
or disaster to the organization, depending on whether the corporate
culture is toxic or healthy. The Enron executives created a culture
of greed, corruption and deception; eventually, their house of cards
collapsed because of the inevitable correction by forces of the
For any corporation to be healthy and productive,
it needs to be strong in four core areas: (a) financial capital
in terms of investments and profits, (b) technological capital in
terms of cutting-edge software and hardware, (c) human capital in
terms of knowledge, expertise, and creativity and (d) social-spiritual
capital in terms of ethics, relationships, meaning and purpose.
The fourth area is perhaps the most difficult
to manage and most difficult to quantify and yet, no less important
than the other three core areas. Enron used to own a lot of real
assets and values. They were one of the leaders in technology related
to gas and oil. They had hired some of the most talented workers.
And yet, they have failed miserably with respect to developing social-spiritual
Enron's senior management failed to maintain
a relationship of openness and trust with employees. Staff members
who questioned the wisdom of some of Enron's decisions and practices
were either ignored or silenced. Senior management cared more about
self-enrichment than the needs of employees. They showed little
regard for meaning and ethics beyond the bottom line. There is an
absence of shared vision that transcends moneymaking. Enron's deficiency
in social-spiritual capital proved to be fatal!
The social-spiritual capital is very difficult
to manage because workers come from different cultures, with very
different values, beliefs, habits and expectations. Yet, they all
share the basic human needs for belonging, connectedness, trust,
meaning and purpose, and they also share the same human weaknesses,
such as selfishness and greed. The biggest challenge for managers
and leaders is how to enhance the social-spiritual capital of their
organizations in the global market.
The development of social-spiritual capital
is closely related to organizational culture and work climate. A
toxic corporate culture of greed and corruption will harm the social-spiritual
capital, resulting in negative work climate of suspicion and secrecy.
A healthy corporate culture of caring for the workers, community
and environment will strengthen the social-spiritual capital, leading
to a positive work climate of empowered and supported workers. Wong
(2002) provided compelling logic and evidence that corporate culture
can influence work climate and productivity.
Culture typically includes the totality of socially
transmitted behaviors, beliefs, attitudes, human thoughts and creations.
It affects every aspect of our lives -- the way we look at things,
the way we act and react and how we express our feelings.
Culture also has a pervasive impact on business
practices and organizational behaviors. Harrison and Huntington
(2000) have provided compelling evidence that national cultures
and values shape human progress and influence economic prosperity.
For example, Asian values of personal relationships and family ties
served East and Southeast Asia well for over three decades but hindered
their economic development in the last few years.
In spite of the pervasive influence of national
culture, within each nation exist different types of organizational
cultures, because the personality and philosophy of the founder/leader
may also shape the culture of each corporation.
According to Reh (2002), "It is the leader's
job to provide the vision for the group. A good executive must have
a dream and the ability to get the company to support that dream.
But it is not enough to merely have the dream. The leader must also
provide the framework by which the people in that organization can
help achieve the dream. This is called company culture" (p.1).
Generally, corporate culture refers to the prevailing
implicit values, attitudes and ways of doing things in a company.
It often reflects the personality, philosophy and the ethnic-cultural
background of the founder or the leader. Corporate culture dictates
how the company is run and how people are promoted.
Leaders and managers need to understand how
different types of corporate cultures may either facilitate or inhibit
organizational efforts to improve performance and increase productivity.
They also need to have the necessary competency to foster corporate
cultural change. Cameron and Quinn (1998) pointed out the importance
of transforming organizational culture in order to adapt to changing
times. They have developed an assessment instrument to identify
four types of cultures, namely, market culture, advocacy culture,
clan culture, and hierarchy culture.
Toxic corporate cultures
The following corporate cultures are described
as toxic because they are dysfunctioning in terms of relationships
and adjustment to changing times. They undermine the social/spiritual
capital, poison the work climate and contribute to organizational
(1) Authoritarian-hierarchical culture - The
big boss alone makes all the major decisions behind closed doors.
Even when the decisions are harmful to the company, no one dares
to challenge the boss. The standard mode of operandum is command
and control, with no regard to the well being of employees or the
future of the company.
In this kind of culture, employees are to be
controlled, manipulated and occasionally pacified like little children.
Workers are motivated by fear rather than love for the company or
passion for the work. They are expected to do what they are told
without questioning. The main criterion for promotion is loyalty
to the boss, rather than competence and commitment. As a result,
star performers who dare to question some of the administration's
decisions are sidelined or let go, while those who obey the boss
blindly and who are willing be hatchet men get the nod for promotion.
Hierarchies are not necessarily bad in and of
themselves. Some sort of hierarchy in terms of decision-making and
responsibility is always inevitable. However, when hierarchies are
used to control and abuse workers, problems inevitably occur. Hierarchies
without accountability tend to have a corrupting influence on ambitious,
autocratic leaders. When the boss is dysfunctional and has the power
to impose his selfish, irrational decisions on others, the entire
(2) Competing-conflictive culture - There is
always some sort of power struggle going on. Leaders are plotting
against each other and stabbing each other on the back. Different
units and even different individuals within a unit are undercutting,
backstabbing each other to gain some competitive advantage. There
is a lack of trust and cooperation. People often hide important
information from each other and even sabotage each other's efforts
to ensure that only they will come up on top.
There is no regard for the larger picture and
the overall goal of the company. It is everyman for himself. Both
management and workers are obsessed with their own survival and
self-interests. As a consequence, the organization is fragmented
and there is a lot of waste of valuable resources because of duplications
and sabotage. Such intense competition within the company creates
a climate of divisiveness, conflict and mistrust. A house divided
cannot long survive in a highly competitive globe economy.
(3) Laissez faire culture - There is a vacuum
at the top, either because the leader is incompetent and ignorant,
or because he is too preoccupied with his personal affairs to pay
much attention to the company. Consequently, there is an absence
of directions, standards and expectations. When there is an absence
of effective leadership, each department, in fact, each individual
does whatever they want. The leadership void will also tempt ambitious
individuals to seize power to benefit themselves. Chaos and confusion
are the order of the day. No one has a clear sense where the company
is going. Often, employees receive conflicting directions and signals.
Often, decisions are made in the morning only to be nullified in
the afternoon. Given the lack of direction, oversight and accountability
all across-the-board, productivity declines. In this kind of culture,
the company either disintegrates or becomes an easy target for a
(4) Dishonest-corrupt culture - In this culture,
greed is good and money is God. There is little regard for ethics
or the law. Such attitudes permeate the whole company from the top
down to individual workers. Bribery, cheating, and fraudulent practices
are widespread. Creative accounting and misleading profit reports
are a matter of routine. Denial, rationalization and reputation
management enable them carry on their unethical and often illegal
activities until they are caught red-handed or exposed by correcting
forces of the market. When management are blinded by greed and ambition,
their judgment becomes distorted and their decisions become seriously
flawed; as a result, they often cross the line without being aware
of it. Enron serves as a good example.
(5) Rigid-traditional culture - There is a strong
resistance to any kind of change. The leadership clings to out-dated
methods and traditions, unwilling to adapt to the changes in the
market place. They live in past glory and any change poses a threat
to their deeply entrenched values and their sense of security. Workers
are discouraged or even reprimanded for suggesting innovative ideas.
Their accounting, marketing and delivery systems are no longer competitive
with the fast-paced technology-driven market place. Their products
and services have not responded to changing market demands. Their
mantra is "We have always done things this way." As a result, the
world passes them by and eventually they are left with an empty
shell of the former self.
The above five types of toxic cultures are not
mutually exclusive. For an example, a corporation may be both authoritarian
and traditional. Similarly, a corporation can be both authoritarian
and corrupt. When a company suffers from a multiple of diseases,
drastic operations are needed to save it from demise. Unfortunately,
not many managers are competent in the diagnosis and treatment of
toxic corporate cultures.
Healthy corporate cultures
(1) Progressive-adaptive culture - There is
openness to new ideas and a willingness to take risk and adopt innovations.
It is a culture that adjusts quickly to shifting market conditions.
It does not value the certainty of remaining the same; the only
certainty it values is that the company is future-oriented and innovative.
It is confident in catching and riding the waves of change.
It is a culture compatible with the entrepreneurial
spirit of creativity, boldness and taking ownership. The management
strives to be on the cutting edge, and encourages continuous development
of workers. There is a pervasive, restless creative energy, constantly
seeking and creating new ideas and new markets. The company celebrates
every innovation, and every discovery. Excitement is in the air.
Employees are all caught up in the adventure. This culture is the
opposite of the rigid-traditional culture.
(2) Purpose-driven culture - The leadership
articulates and crystallizes the purpose of the company effectively,
so that there is a common purpose, a shared vision for all the workers.
Everyone knows what the core values and priorities are, and everyone
knows where the company is going. Workers are highly motivated,
because they are committed to the same set of core values. More
importantly, the overarching purpose tends to go beyond the bottom
line. All great companies endure because they serve a higher purpose.
One example is Anita Roddick, founder of The
Body Shop. She has a clear vision, a higher purpose for her company:
The Body Shop will be an ethical, caring company, that will care
about the environment, human rights, animal protection and the community.
This vision is incorporated into all aspects of her corporate goals
(3) Community-oriented culture - There is a
strong emphasis on collectivity and cooperation. The leadership
attempts to build a community, in which people respect, support
each other, and enjoy working together. Please note that this is
very different from the kind of authoritarian collectivism in communist
states, where the State controls the business, and everyone has
to agree with and work for the State.
A community-oriented culture goes beyond team
building and aspires to create an authentic community in which every
worker is treated as a valuable member. Community building is more
extensive than team building. It requires that members from different
work groups treat each another in a positive, supportive way in
order to boost morale. Such a community requires collaboration and
communication throughout the organization. Management involves and
empowers all staff members in a combined effort to improve efficiency
and productivity, such as required by Total Quality Management.
For teamwork to be effective, team building
training becomes an important part of personnel development. Typically
in team building, groups are created in each work area and group
members interact and work together to identify and resolve issues
that affect individual and group performance. Guidelines are provided
for interactions among team members. Team members work together
in a mutually supportive atmosphere. Team members know the role
they play in achievement the end goal.
To create a sense of community, management need
to provide a trusting and safe environment, in which workers are
free to express their ideas rather than try to "fit in" and please
the managers. The emphasis on community building also creates a
climate of cooperative problem solving and a willingness to share
information and expertise. In such a company, there is a healthy
acceptance of diversity and a willingness to listen and to learn
from others. A community-oriented culture is just the opposite of
a competing-conflictive culture.
(4) People-centred culture - There is a genuine
caring for each worker in the organization. Everyone is valued and
validated, regardless of their positions in the company. The organization
cares for the whole person - body, soul and mind in terms of recognizing
workers' basic needs for learning and growth, for belonging and
being connected, as well as the need for meaning and spirituality.
Each worker is encouraged to develop his or her full potentials,
personally and professionally. Such a culture will create a climate
of mutual respect and genuine civility.
Organizational care for employees is based on
organizations' deep-seated core values and practices. The focus
is on meeting workers' needs, promoting their best interests, and
valuing their contributions (Liedtka, 1996. 1999). It involves setting
up the necessary infrastructure to facilitate caregiving, such as
providing support systems, and employee assistance and development
People-centred organizations which embrace the
core ideology of caring may have different ways of expressing its
core values (Collins and Porras, 1994; O'Reilly & Pfeffer, 2000),
nevertheless, caring needs to be implemented on a consistent basis.
For example, HP's core ideology of 'Respect and concern for individual
employees' and 3M's core value of "Respect for individual initiative"
are incorporated in all aspects of organizational practices. Herb
Kelleher of Southwest Airlines is another example. He treats every
employee as a valuable member of the team. As Chairman and CEO,
he has created a positive climate of safety, trust, and respect.
The above four cultures are positive, because
they create a positive work climate, which is conducive to productivity
and job satisfaction. They contribute to high-performance without
explicitly linking reward to performance. The ideal company should
possess the attributes of all four types of healthy corporate cultures.
Culture matters a great deal. Toxic cultures
can kill a company loaded with money and talents. Positive cultures
can make a less endowed company grow. Cultural transformation is
necessary in order to turn a failing company into a profitable one.
Any experienced consultant should be able to
identify the predominant corporate culture based on observations,
interviews, climate-surveys and internal company communications.
However, it would be better if managers and leaders are competent
in assessing their own corporate culture and know how to transform
Generally, it is very difficult if not impossible
to implement cultural transformation, until the senior administration
is willing to undergo training and make drastic changes in how the
company is run. Cultural transformation needs to start from the
Schein (1990): "the unique and essential function
of management is manipulation of culture" (p.317). Unfortunately,
most business schools do not provide training in cultural transformation.
Such training should include (a) assessment and diagnosis of present
corporate culture, (b) strategic planning and intervention with
respect to organizational restructuring, leadership retraining or
change of leadership, (c) management and implementation of cultural
change, (e) developing and articulating the new vision, (f) adopting
new standards, policies and practices across-the-board, and (g)
on-going dialogue and information sharing with the clear and unmistakable
message that things will be done very differently.
When the culture remains toxic and the climate
negative, talented employees, who are always in demand, will go
elsewhere. Similarly, good workers will choose to work for a company
with a healthy corporate culture. Consequently, organizations with
a toxic culture gradually bleed to death.
One fundamental truth is that all components
in any organization are organically connected, such that their optimal
functioning depends on their relationship with each other and with
the organization as a whole. Similarly, all organizations are organically
connected with the community and larger society. In other words,
managers need to have the CC competency to manage the delicate balances
of a complex of relationships between different stakeholders.
Good managers need to be cultural architects,
who are able to transform and shape organizational culture so that
it will stay healthy in spite of turbulent social changes. Too many
corporate managers are well trained in "hard", quantifiable, technical
skills, but very poorly trained in "soft" skills, such as empathy,
communication, validation, conflict management, and community building.
Current interest in emotional intelligence is a good start, but
competence in culture management requires a lot more than EQ.
Ethos of the market and profit margin naturally
dominate business corporations. Drucker (1995) has identified the
worship of a high profit margin as one of the deadly sins in management
in a time of change. We need to reclaim the ethos of community to
counteract the mentality that profit at any cost. We need to care
for the physical, emotional and spiritual needs of employees. Ultimately
it is the human system that is responsible for the success or failure
of the organization.
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