Examining a Business Failure - Enron

Examining a Business Failure - Enron

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University of Phoenix

LDR/531 - ORGANIZATIONAL LEADERSHIP

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December 08, 2011

Examining a Business Failure - Enron

Strength of a company is the refection of leadership, vision and the employees. Regardless of the size of the company, the company will not endure the test of time without efficient management and sincere leaders. "Leadership occurs only when people are influenced to do what is ethical and beneficial for the organization and themselves" (Yukl, 2006, p. 5).Leaders must initiate structures that define themselves and goals of the company. Enron leader's, Kenneth Lay, Jeffrey Skilling, and Andrew Fastow betrayed the trust of the stakeholders by creating a structure of lies, scams and manipulation which lead to the devastation of the company.

Enron failed in regards of organizational behavior. The leaders failed to follow or place a strict code of ethics. If a code of ethics were in place the company may not have been influence by groupthink let by Kenneth Lay. As a group the leader's arrogance grew shadowing the morality and ability to lead the company. Kenneth Lay misused his ability to motivate other leaders. Employee-motivation is a powerful tool and Kenneth Lay recognized it's potential. He rewarded Jeffrey Skilling's behavior for falsifing reports showing the company making exceptional growth. Andrew Fastow falsified showing favorable performance on the balance sheet. Enron's organization behavior destroyed careers and adopted an unwritten decree, do whatever was needed to reach their performance goals (Prentice, 2003).

Enron also held information from midlevel. This prohibited employees the needed information to understand Enron's business operations. Enron accomplished this buy dividing the organization structures into traditional divisions prohibiting employees understanding the synergy of each division and the impact in the overall company's actions (Werther, 2003).

In 1999 board members waive conflict of interest to allow Fastow to create private companies to buy poorly performing assets from Enron. This was a tactic used to hide debt accumulated by Enron and inflate profits. The board of directors and other parties with financial ties choose to neglect to take action against Enron in return for monetary reward.

In October 2001, Enron scandal became public. Enron was responsible for $618 million dollars in losses initiated the end of Enron. Sherron Watkins, Enron's Vice President of Corporate Development took the first step in leadership and brought the company to its knees by writing an anonymous letter to Kenneth Lay accusing the CEO of company fraud. Arthur Anderson, LLP, Enron's auditor, admitted to knowing this information and signed letters of approval that accounting was "adequate to provide reasonable assurance as to the reliability of financial statements" (Gudikunst, 2002).

The leaders of Enron destroyed the company with unethical actions, "being "heavily focused on contracts for delivery of energy, as well as selling pieces of those contracts as 'derivatives,' matching big suppliers with smaller customers" (Reeher, 2009). Managers failed in leadership at the expense of the shareholders, The Board of Directors committed fiduciary failure by not protecting the interests of the shareholders and code of conduct. They allowed Enron to indulge in high risk accounting, inappropriate dealings, extensive undisclosed activities concealed from accounting books, and unwarranted compensation. The lack of leadership leads to the collapse of the seventh largest U.S. public company. The Board of Directors observed countless indications of problematic practices by Enron but chose to overlook the actions at the cost of the shareholders, employees and business associates" (Levin, 2002).

The Bush Administration again had shown lack of leadership. Kenneth Lay lobbied to keep electricity a free market. Kenneth Lay persuaded lawmakers in Washington that had close connections with the Bush Administration to guarantee his views will be heard in Washington. As a result of deregulation