Enron- Examining a Business Failure University of Phoenix Organization Leadership LDR/531 Mr. January 12, 2010 Enron- Examining a Business Failure How did a multibillion dollar company arrive to the point of non existence? Was it the lack of organizational structure? Or maybe the lack of ethical management and leadership? One thing is certain and that is Enron has given the world a glance at how a leader within the energy industry, could have it all one minute, yet in a blink of an eye it can all be gone.
Enron’s circumstance was not a random act coincidence but a perfect example of the repercussion and consequences a business will face when there is an absence of integrity, structure, and overall firm management and leadership. In looking further into the collapse of Enron’s empire it is imperative that analysis of the company’s failures be brought to light. In addition to the discovery of its failures also identifying specific organizational behavior theories that could have predicted or explained the company’s downward spiral into disaster.
Enron’s failures began at the top of the chain which included management. According to Fayal, 1916, planning organizing, coordinating, leading, and controlling should be carried out by competent and efficient managers, and in looking at Enron’s management this was missing from its top executives. Although Enron’s top management consisted of 17 directors with MBA backgrounds and impeccable records, they were influential icons that lacked systematic approach to the business structure in regards to financial accountability and oversight of the daily business process.
In contrast financial incentives for executives appear to have been a common struggle for many in the company, and were a common culprit in steering this business’s ethics into the wrong direction. In Enron’s case that green monster known as “greed” got the best of executives and destroyed what little was left of ethical business conduct. Enron executives along with partners and share holders all became intertwined in this tangled web of deceit, fraud, and overall dishonesty. (Lagace, 2008).
The question has been asked on many occasions “why did no one blow the whistle earlier”? According to Yukl, 2006, there has been much controversy surrounding what true leadership looks like. In the case of Enron leadership seems to be a shared influence process in which buy -in on Enron’s business processes took place from several internal and external levels. With everyone shared the profits of unethical business practice this caused ethical turmoil and continued misconduct.
Enron is not the first or last to display unethical choices as we look to organizational structures. Instilling ethical discipline throughout business organizations is no easy task. “With organizational cutbacks and expectations high on employee productivity and cutbacks in the labor field it’s not surprising that more and more employees are cutting corners, breaking rules, and engaging in other questionable practices” (Robbins, 2007). Mangers can prepare their organizations for these situations by creating and implementing codes of ethics to guide employee behavior and also offer trainings, seminars, and workshops to continue facilitation of acceptable employee ethical behavior”. (Robbins, 2007). Could this have been the solution for Enron? In Enron’s case their unethical practices were brought to light not through acceptance and remorse of their wrong doing, but because they were blatantly caught.
If not for their bankruptcy claim who knows how much longer this multi- billion dollar scandal would have continued. Who should be to blame for this unfair economic affect on the people of the United States? Financial Investors and regulators are still haunted by the affects of the Enron Crisis. Enron has created mistrust towards the energy industry that in turn has led investors to stay clear or weary of investing and has increased the scrutiny on all accounting practices being performed by the corporations still in business today.
Organizational structure is one of the biggest components to making or breaking a company and in Enron’s case we see what the lack of can create. So what valuable lessons has Enron taught us? Lessons learned from Enron’s failure are “the dire need for a strengthened board oversight, avoiding perverse financial incentives for executives and instilling ethical discipline throughout business organizations” (Lagace, 2008).
As mentioned, one of the biggest factors in the Enron catastrophe was the simple fact that there was a tremendous amount of opportunity for personal gain and this derailed several good employees into unethical behavior. “Through the analysis of the Enron failure key processes that could possibly assist with avoidance or repeat of failures could include implementation of standardized quantitative measures of performance as a part of business plan, conduct regular systematic audits, and design incentive items that reward individuals for their accomplishments rather that economic performance”. Robbins, 2008) In conclusion, Enron has give prime examples of a corporation that lacked essential business organization structure, and displayed the types of repercussion and consequences a business will face when there is an absence of integrity, structure, and overall firm management and leadership. In looking further into the collapse of Enron’s empire through analysis of the company’s failures the discoveries found have identified specific organizational behavior theories that could have predicted or explained the company’s downward spiral into disaster.
Annotated Bibliography Yukl, G. (2006). Leadership in Organization, 6ed. Prentice-Hall, Inc. Judge,A. , Robbins,S. (2007). Organizational Behavior, 12ed. Prentice Hall, Inc. H. Fayol, Industrial and General Administration (Paris: Dunod, 1916). Woodrow W. C. , Demirag, I. “Enron: The Failure of Corporate Governance. ” (Winter 2002): p105 (18). The Journal of Corporate Citizenship