Enron Corporation Managerial Organization

Managerial Organization

Beverly Mahone

LDR/531

March 23, 2013

Daryl Korinek

Managerial Organization

One of the world's leading electricity companies, Enron Corporation, suffered from a financial scandal, which involved the corporation and its accounting firm. The scandal happened during the 1990s and was a result of irregular accounting procedures. This scandal caused Enron to file bankruptcy in December 2001 (Thomas, 2002). The subject of this paper will discuss how organizational behavior theories could have predicted or explained Enron failure. This subject of this paper will also compare and contrast the contributions of leadership, management, and the organizational structure of Enron, which to the corporations failure.

Organizational Behavior

Organizational behavior is the field of study that investigates the impact that individuals, groups, and structure have on behavior within the organizations for the purpose of applying such knowledge toward improving an organizations effectiveness; specifically organizational behavior focuses on how to improve productivity, reduce absenteeism, turnover, and deviant workplace behavior, and increase organizational citizenship behavior and job satisfaction' (Robbins & Judge, 2007). Organizations have a structure that consists of board of directors, senior leadership, external auditors, and internal auditors. The CEO runs the company, but board of directors and senior leadership are also involved in the decision-making process. Monitoring the corporations system is completed by the auditors. All these leaders have an important role of an organization for the organization to be successful. The leaders of the Enron Corporation failed in his or her role of the organization.

Success of the Organization

Organizational success begins with smart decisions and collective efforts made by important leaders. The failure of Enron was primarily because of Enron's leaders creating an enterprise to try to increase the wealth of their shareholders. However, aggressive accounting measures were required when Enron's stock prices were revealed to be undesirable. Enron was faced with the issue of making the shares more desirable. To do this Enron's leaders relied on increased new capital. However, Enron had to hide any risk to new investors. When Enron's new accounting operation began Enron needed to increase the deception with every fiscal year. Regardless of the cost Enron needed to ensure that they kept progressing forward. With this checks and balances were needed (Gudinkunst, 2002).

With Enron in this state, this is the time when the governance of Enron failed at their duties. The belief was that the Audit Committee of the Board could have been more critical of the auditors and their performance. However, the prices, and earnings of stock was still rising and the need to investigate the opinion letters and the internal accounting process and the Enron accounting firm was no longer needed. The Board was happy with Enron's success but displayed a false sense of security. However, the board relaxed with the overseeing of management while accepting information at face value from the executive members (Gudinkunst, 2002). The downfall of the organization also involved the employees. More than 100 internal accounting and legal staff were employed with the organization. All the employees seemed to be operating with the approval of the management team, which in turn was supported by the executive team (Gudinkunst, 2002). Because the employee's incentives were high, the employee's methods were never questioned. To help boost reported profits and to hide corporate debt, employees were paid a substantial salary.

Sarbanes-Oxley Act (SOA)

Throughout the United States the Enron scandal brought about the questioning of the accounting practices and activities of different organizations. The Sarbanes-Oxley Act of 2002 was also created because of the factors in the scandal of the Enron Corporation. Corporate governance structures were normally considered a private matter between the organizations managers and shareholders with some restrictions place through state laws. However, the Sarbanes-Oxley Act (SOA) changed the structures governing an organizations conduct by making it a matter of federal law. The adoption of a code of ethics is presently a requirement under the Sarbanes-Oxley Act. Previously it was within the domain of management prerogatives (Tipgos & Keefe, 2004).

The Enron scandal made the Sarbanes-Oxley Act provide a method of balancing power between a corporation's board of directors and its top management. The Sarbanes-Oxley Act plan serves as a deterrent to in diminishing an organization existing discretions and prerogatives with its management in conducting business. However, the plan does not prevent fraud by management. To prevent fraud by management a vision of the process has to be shared by every member of the corporation. This includes board members, management, employees, and shareholders. Under the law top management must certify the accuracy of financial reports and make certain disclosures about the controls and procedures in place to avoid fraudulent reporting of finances (Tipgos & Keefe, 2004). A code of ethics is also presently a requirement of law for a corporation's senior corporate financial officer through the Sarbanes-Oxley Act (Tipgos & Keefe,