Question

NB: ANSWER ALL QUESTIONS BASED ON ”THE FALL OF ENRON: A STAKEHOLDER FAILURE” CASE STUDY.

QUESTION FOUR [25 Marks]

Discuss the strategies that the organisation should use in order to win back the trust and confidence of the stakeholders.

Answer 1

If there is a controversy, the cause is not always readily evident. To rebuild faith, a 'sense-making' mechanism is first required to decide what went wrong and how to stop it from happening again. There is often a stream of social media, TV talk shows, newspaper articles and public enquiries, with different parties presenting their point of view. Organizations openly accept what has happened, provide clarification, conduct inquiries and assist with public enquiries. Explanations must be thorough, reliable and genuine to be successful. Timeliness is also important, as people usually assume the worst if no explanation is given. Whatever happens, it's important to address the root of the problem and avoid 'scapegoing' – to blame a few high-profile people for calming the public, Nicole says. "Removing a few seniors from office is a simple and cheap solution. Although 'Changing the guard' might be necessary to restore confidence, it will not work if it is only done to avoid addressing the underlying issues.

After a breach of trust, 'victims' may experience strong emotions, including a sense of injustice and indignation. Re-establishing faith can be encouraged by some kind of ritual that restores the social order of the stakeholder-firm relationship. Public clarification, apology, acknowledgement of punishment and restitution are all ways in which the offending company can regain its reputation and restore a sense of equilibrium in its relationship with the stakeholders.

Although new control mechanisms may help restore trustworthiness, the maintenance of a strong ethical culture is equally, if not more, critical. Since ethics are part of daily life, breaches are less likely. Managers are crucial to setting the tone, however. Leaders may promote wrongdoing either by setting a poor example or by condoning or praising other people's wrongdoing. When developed, an immoral culture is difficult to reform.

Disclosing information means that a organization has nothing to hide. Research shows that organizations that are open and accountable improve or restore confidence. Of course, there is always a risk that openness will reveal bad news, and there are strong incentives for organizations to cover up failures, as the number of scandals involving data manipulation shows. Transparency can have unintended consequences, such as passing blame on managers or risk to others.