Enron And The IRS

I haven’t written too much about the IRS fiasco, but after reading a comparison of the IRS culture and Enron’s in this morning’s WSJ, I can’t help myself. The travesty within this government agency is consistent with the event at Enron. Enron’s management system encouraged stupid decisions, as did the system at, and surrounding,  the IRS. The strong culture at both of these organizations led to severe groupthink tendencies where leadership saw themselves as the smartest people in the room, and therefore could do no wrong. They were the standard of excellence and everyone else was evil, thus defining their management system.

What is a management system? Michael Gerber, the E-Myth, defines a management system as a “system designed into your Prototype to produce a marketing result.” Ok, I see what he means, but I think it is too simplistic. What is a system? The dictionary defines a system as “a set of things working together as a mechanism.”  Management involves who, how, and why an organization is run. It includes how planning is done, organizing is encouraged, leading becomes a style, and what the control mechanisms are to ensure a consistent and successful process is followed. An ethical, collaborative, management system will help create a high performing culture ensuring longevity for a business. A management system is the automatic process an organization follows to make decisions that effect the direction of the company. I think this reflects a pretty good definition.

There are several elements that affect the management system. First, the leaders and what they feel is really important. Second, who are the people that make up the organization? This is usually related to the first element because leaders determine who gets hired. Third, what tasks need to get done? If the task is serious or dangerous, it will lead to high cohesion within the group. This will create a strong culture leading to a tendency to think everyone else is wrong.

The article, “What Enron and the IRS have in common,” written by Steven Law encouraged me to think about systems this morning. Law begins by emphasizing ethical meltdowns. “Any good CEO will tell you that ethical meltdowns like the IRS political-targeting scandal are rarely the work of a few rouge employees.” This is a true statement. These types of failures usually reflect the reality of a toxic culture, or management system.

The Enron travesty was the result of “a small circle of certifiably bad actors who acted out of regard for the law or for anyone else. Surrounding this inner circle was a culture that gave these employees tacit permission to run roughshod over others and break the law.” Senior leadership “cultivated a malignant esprit de corps that corroded company ethics. “ Subsequently a management system emerged that allowed these so called smartest men in the room to lie to their employees about the value of Enron stock, encouraging them to invest in Enron stock, while they sold off their shares making millions of dollars.

The IRS event is just as bad, reflecting a corrupt management system. The investigation is on going, but according to reporters there were people in the IRS who acted with impunity because they “believed they had implicit consent to ideologically profile nonprofit advocacy groups.” Lois Lerner who was the head of the facility that seems to be the perpetrator of the crime has exercised her right against self-incrimination, but the investigation into a government agency focusing its power on one set of ideological groups continues.

In any organization the management system helps to create implicit permission for activities inline with said system. This can be good or bad. In the case of Enron, it led to some really bad decisions impacting a lot of good people. In the case of the IRS, the same thing is true. I don’t know if President Obama gave the order, but implicit permission (think management system) can be given via language and actions by organizational leadership. “President Obama is the first president since Nixon to refer to political opponents as enemies.” He was pressured to apologize for this comment. Obama also singled out conservative advocacy groups as a “threat to democracy.” I would agree with him there are certain advocacy groups that are dangerous, but they are on both sides of the political continuum. The President of the United States is the president of all people, not just those he considers as congruent to his cause.

Democratic leadership publically pressured the IRS “to do precisely what it is now being excoriated for: harassing center-right groups.” On top of this the union, National Treasury Employees Union, “which is headed by Colleen Kelly, has publically vilified tea party elements.” Leadership and supporting players created the culture that led to those perpetrators of the events.

The IRS employees then were influenced by a management system that gives implicit permission for the behavior that resulted in the current investigation. I really like how Law finishes his article. “As an old political hand once told me, there’s never just one cockroach. The IRS scandal wasn’t the work of a few isolated employees. It was fostered by a culture that many powerful people in Washington helped to create.”

I don’t care which side of the aisle you are on, you should be concerned about this. Whether it is a Nixonian enemy list, or an Obama one, the leadership of our country should be transparent and one that represents all of its people not just those friendly to one party or another. We elect leadership to help our country be the best democracy it can be, not one that our cronies enjoy.

And that is my thought for the day!

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