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Toxic Corporate Cultures: Lessons from the Enron Debacle

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What can we learn about corporate cultures from the Enron Debacle?

Dr. Paul Wong, a Clinical Psychologist, took a stab at identifying five aspects of a Toxic Corporate Culture.  He wrote an easy-to-read 6 page paper – Lessons from the Enron Debacle: Corporate Culture Matters!

So, take a read

From the paper, here are the five signs of a toxic corporate culture and four signs of health.  This is just a summary.  Each of the these are treated in more detail in the paper along with background on how Enron conducted business.

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 decline.

  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.   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 company suffers.
  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.
  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 hostile takeover.
  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.

The 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 futureoriented and innovative. It is confident in catching and riding the waves of change.
  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.
  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.
  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.
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Written by frrl

June 7, 2010 at 11:38 am

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