CASE STUDY 6 THE RISE AND FALL OF ENRON
In July of 1985, Houston Natural Gas merged with InterNorth, a natural gas company based in
Omaha, Nebraska. This merger formed Enron, a natural gas pipeline company with over 35,000 miles of
pipe. In 1989, Enron expanded beyond the pipeline business and began trading natural gas
commodities. In 1994, Enron began trading electricity. Soon, Enron was the largest trader of natural gas
in North America and the United Kingdom and the largest marketer of electricity in the United States.
Enron went on to trade coal, pulp, paper, plastics, metals—even bandwidth. As Enron expanded, its
value as a publicly traded company was enhanced. By December 2000, Enron shares on the New York
Stock Exchange hit a 52-week high of $84.87. Less than a year later, Enron filed for bankruptcy and its
stock was trading for less than $1, marking the most spectacular corporate collapse ever.
What happened? How did a company riding as high as Enron (a sign greeting visitors at
corporate headquarters in Houston hailed it as “the world’s leading company”) fall apart so quickly and
so completely? Many explanations for the collapse have been offered, including quick expansion, risky
business ventures, slavish attention to stock prices, questionable or illegal accounting practices, and
dishonest communication with shareholders. Interested parties in government, business, the media, and
academia will spend many years sorting out the extent to which these issues were factors in the failure.
However, very soon after Enron’s fall, many analysts were suggesting that a key contributor to the
collapse of Enron was its organizational culture (Hassell, 2001; “Houston, we have a problem,” 2001;
Sloan, 2002).
When organizations are in times of dynamic growth, there is little doubt that the culture will be
one of confidence and aggressiveness. If the organization is to successfully branch out and deal with
competition in the marketplace, managers and workers often develop a strong culture that exemplifies
Peters and Waterman’s (1982) call for autonomy and entrepreneurship. However, analysts of Enron
believe that the culture of “confidence and aggressiveness” turned into one of “cockiness and
arrogance” and that this culture—together with issues of finance, accounting, and business
development—led to the most dramatic crash in U.S. corporate history. As Sloan (2002, p. 21) notes,
“What made Enron successful—innovation and daring—got the company into trouble.” Hassell (2001)
discusses a number of “cultural indicators” and “cultural values” that, in retrospect, may have spelled
doom for Enron (see also Sloan, 2002). Consider just a few:
• Employees up and down the hierarchy adopted a “cocky” attitude after their fast and
meteoric growth. As Hassell (2001, p. 29a) explains, “[t]he arrogance at Enron became a palpable force.”
This attitude gave Enron executives and workers the belief that they could tackle anything— even
projects that seemed questionable to the outside observer.
• The reward system at Enron, initially based on group and team performance, increasingly
relied on individual performance. When Jeffrey Skilling was CEO, one performance review process
became known as “rank and yank” (Hassell, 2001). In this system, employees ranked each others’
performances, these rankings were combined, and the lowest 15 percent were laid off each year. Hassell
(2001, p. 29a) quotes a former Enron employee on this system: “Because of that, you never helped one
another. Everyone was in it for themselves. People stabbed you in the back.”
• Enron’s reward system also highlighted the importance of individual accomplishment with big
bonuses and promotions for those who landed important deals each quarter. Another former Enron
employee explains: “It took everyone’s eye off the big picture and made them focus on pushing deals
through the system, even if the deal was a bad deal” (Hassell, 2001, p. 29a).
• One eye at Enron was always on the price of its stock. As Hassell (2001, p. 30a) states,
managers and workers alike were “eager to keep the company growing and the stock price soaring.”
This attention to stock may have led to risky decisions about deals and ventures and to questionable
ways of accounting for those deals. Hassell (2001, p. 30a) quotes an industry analyst: “They booked all
the deals’ profits upfront, even though the payoff would not be for 5 years, 10 years, or 15 years. When
you do that, there is an urgency to book new deals, because all the old profit is already booked. When
you push the outer limits like that, it puts tremendous pressure on everyone in the company.”
• The concentration on stock price was enhanced because most employees were heavily
invested in Enron stock through retirement investment programs—e.g., 401(k) s. This, of course,
increased the pressure to perform at all levels as employees’ individual fiscal stability was tied to the
performance of the company. Sadly, many Enron employees lost hundreds of thousands of dollars in
retirement savings when the company collapsed. While it thrived, though, attention to stock prices
drove many employees. As a former senior executive described, “Everyone was just too excited about
the stock price and how rich we were getting. The company sold its soul for a higher stock price”
(Hassell, 2001, p. 30a).
Hassell (2001, p. 1a) begins his Houston Chronicle article about Enron by stating, “If the
incredible collapse of Houston’s most powerful company were written like a whodunit, there would be
no shortage of clues to sift through in search of the culprit behind it all.” This puts the analysis of
organizational culture in a nutshell—it is sifting through messages, stories, behaviors, and values to find
clues to the workings of an organization.
Discussion Questions
1. Consider Schein’s “onion model” of organizational culture. What were the values and
underlying assumptions at Enron? How do you think those values and assumptions were illustrated in
overt artifacts and behaviors?
2. How were various aspects of Enron’s culture interconnected? Did the culture form a coherent
whole? Do you believe there may have been subcultures at Enron that could be differentiated? How
might these subcultures have been defined?
3. Do you think there is anything that could have been done—in terms of organizational
culture—to “save” Enron? If you had been a communication consultant at the corporation, what might
you have suggested in 1995? In 1998? In 2001?
Purpose
To help you demonstrate the ability to analyze real life cases applying
concepts from the text. To prepare you for working in teams in the
workplace.
Assignment
This assignment involves two parts:
1) writing a team analysis of a case study and
2) delivering an in-class team presentation.
Presentations
Your group will make a 20-25 minute case presentation in class. In-class case
presentations will be due at the end of the semester. Visuals are encouraged if
they help your presentation and case analysis. The presentation is worth 50%
of the project grade.
Paper
Supplement your analysis with related information to your case. The length of
your paper should be 1500 – 2000 word minimum (6-8 pages) paper.
Organize your paper according to the five Roman Numeral points listed below
in the format section. Respond fully to each of the five points and answer
each point thoroughly.
Format
Your group is responsible for delivering the following in your paper and oral
presentation.
I.
A detailed description of the case, its background and issues.
II.
An analysis that defines or describes the core communication decision,
dilemma, or problem of the case. This analysis MAY generate a
specific plan for organizational change or an outline of a workshop or
document that would be useful to the organization if you have chosen a
local company.
III.
Answer thoroughly each case question accompanying the case. The
team process may generate many ideas for answers. Consolidate those
ideas with others and make sure each one lines up with the content in
the chapter. (NOTE: back up your answers with evidence from the
case and argument regarding relevant chapter concepts.
Remember, the goal of the case method is to apply theory to the
real world, not to generate solutions based on their own personal
experience.)
IV.
A list of resources (physical, monetary, human resources) needed for
implementation of the proposed solution to the problem.
V.
A statement of expected benefits or expected impact of the proposed
solution.
Evaluation
You will be evaluated on your ability to analyze the case into the areas
outlined above, to work cohesively in a team, and present the case material to
the class. Written papers will be judged on overall content, APA style,
and grammar/spelling.
The paper will be evaluated separately using standard outline format (Roman
numerals to represent the five sections)
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