ENRON VS. ZAPPOS
Culture Trumps Core Value for Business Success
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By David Burkus
Editor, LeaderLab and
Faculty of Management
Oral Roberts University College of Business
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Research shows that organizational culture is a primary driver in employee behavior and that leaders shape this behavior. Examining the influence of organizational culture on ethical behavior via Enron, we see that despite its statement of core ethical values, senior leadership’s actions created a culture of greed that encouraged unethical behavior at all levels. In contrast, Zappos has become renowned for its ethical culture.
When looking at ethics in organizations, we cannot merely consider core values statements and ignore social proof (Cialdini, 1993). Typically, people do not look to written codes for clues about how to behave, they look to others.
Enron
At its peak, Enron was an energy, commodities and services company employing nearly 22,000 people (McLean & Elkind, 2004). Based in Houston, TX, Enron was one of the largest energy companies in the world and had been named “America’s most innovative company” for six consecutive years by Fortune magazine. Enron was founded in 1985 in Omaha, NE as a natural gas provider, but was reorganized in 1979 as a holding company (BBC News, n.d.).
Enron’s Code of Ethics was a 64-page manual outlining the company’s mission and core values, as well as the various ethical policies that all employees were expected to follow (Enron, 2000). In its annual report (Enron, Annual Report, 2000, p. 29), Enron listed its core values as follows:
- Communication – We have an obligation to communicate.
- Respect – We treat others as we would like to be treated.
- Integrity – We work with customers and prospects openly, honestly and sincerely.
- Excellence – We are satisfied with nothing less than the very best in everything we do.
Several examples reveal that the culture stood opposed to these core values. Former Enron CEO Jeffrey Skilling was inspired by one of his favorite books, The Selfish Gene, (Dawkins, 1976) to establish a grading system for all employees, and routinely fired those who failed to help meet the company’s performance objectives (McLean & Elkind, 2004). Additionally, in an effort to continue building revenue on Enron’s balance sheet, one of the company’s board members undertook an elaborate process of establishing special partnerships to bundle assets and secure loans (Gladwell, 2006). The board understood that these partnerships were a violation of their code of ethics and voted to suspend the application of the code to the board member in question while these partnerships were active (Berenheim, 2002). Further, during the California blackouts, reports indicated that Enron energy traders boasted about the various tactics used to decrease supply or increase demand for energy thereby increasing the price of energy (McLean & Elkind, 2004). Despite public awareness, no one spoke out against the behavior.
While senior leadership worked to create a statement of core values that reflected the highest ethical standards, their actions shaped a culture that did not meet these standards, shaping the culture of Enron.
Zappos
Founded in 1999, online shoe retailer Zappos expanded their offering to include clothing, accessories and overstocked merchandise through its subsidiaries (Hsieh, 2010). Small compared to Enron, the company employs approximately 2,000 people. But Zappos does not just differ from Enron in size; it differs in its business paradigm as well. The company’s culture and core values emphasize the happiness of its employees and customers (Hsieh, 2010).
Surprisingly, Zappos lacked a formal statement of core values for the first six years of its existence (Hsieh, 2010). Though familiar with the offsite practice of writing core value statements, CEO Tony Hsieh did not want to draft a document that failed to reflect the true culture of his employees. Instead, he focused on creating a company culture committed to exceptional customer experiences, and then developed training programs to reinforce this internal framework (Hsieh, 2010), even offering to pay employees to quit if they are not a cultural fit (Taylor, 2008).
It was Zappos employees who eventually persuaded Hsieh that they needed a statement of values to represent the Zappos environment (Hseih, 2010). Instead of taking senior executives off-site to prepare such a statement, Hsieh emailed everyone in the company asking for their input on what they believed were the core values of Zappos (Chafkin, 2009). Then, he pruned and nurtured the ideas, combining similar values and expanding on others (Hseih, 2010) finally settling on ten core values, which remain unchanged today:
- Deliver WOW Through Service
- Embrace and Drive Change
- Create Fun and a Little Weirdness
- Be Adventurous, Creative, and Open-Minded
- Pursue Growth and Learning
- Build Open and Honest Relationships With Communication
- Build a Positive Team and Family Spirit
- Do More With Less
- Be Passionate and Determined
- Be Humble (Hsieh, 2010, p. 154)
To facilitate adoption, Zappos’ human resources department created interview questions to examine candidates' positions on each of these principles (Hsieh, 2010). Once hired, new employees are required to read and sign a statement of acknowledgement, indicating their understanding and acceptance of the company's core values.
Zappos did not lead with a statement of core values. Instead, Hsieh created and reinforced a culture that held these values, and let employees declare it themselves. Together, they not only created a list of values that employees believed in, but also leveraged the power of social proof to ensure that employees acted accordingly. The strength of their beliefs was put to the test on May 21, 2010, when a computer glitch caused the price of every product on the Zappos website to be reset to $49.95 (Albanesis, 2010). After fixing the glitch, Zappos’ Director of Brand Marketing and Business Development announced they would honor every transaction (Magness, 2010). The decision cost Zappos over $1.6 million (Albanesis, 2010). However, it also served as a shining example of how Zappos stays true to its culture and core values (Hsieh, 2010, p. 154).
Conclusion
The business world has witnessed no shortage of ethical scandals in recent years. In the wake of these, we begin to wonder how companies that profess a commitment to ethical core values can be guilty of such blatant ethical violations. Social proof argues that organizational members take their behavioral cues from the culture before the company’s stated core values. There is growing research supporting the phenomena of culture as the primary driver of employee behavior. These cultures are greatly influenced by the actions of organizational leaders. As such, organizational leaders need to consider culture as central to building an ethical organization. By doing so, leaders can ensure that their virtuous culture supports their virtuous core values and lead to ethical behavior and business success.
About the author:
David Burkus is the editor of LeaderLab, a community of resources dedicated to promoting the practice of leadership theory. He speaks, consults and serves on the faculty of management at Oral Roberts University’s College of Business.
Reprinted with permission from David Burkus. Read the full article in The Journal of Value Based Leadership, Vol. 4, Issue 1 -- Winter/Spring 2011
here
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