Enron: The Smartest Guys in the Room - Essay Example

Enron: The Smartest Guys in the Room Question After Enron was declared bankrupt, the three company directors were summoned to a hearing by the congress. The interrogation revealed that the company had been causing artificial shortages for energy in order to hike prices. Besides, this would make the company’s stock more marketable. In his testimony, Skilling, who was one of the directors, stated that all his actions were meant to safeguard the shareholders’ interests. In fact such assertions were wrong since they were against the company policies and the stakeholders interests.

Yet, Skilling acted ultra vires when he manipulated the financial statements to appear as if the company was making huge profits. However, the audit showed that the company was suffering from huge losses and the financial statements manipulation was just a cover up. Therefore, if he intended to safeguard the stakeholders’ interests, he should have been truthful on the actual Enron’s financial situation. The shareholders needed the definite reflection of the company performance and maybe they would have saved the firm from bankruptcy.

Indeed sharing the right information would have informed them on the right course of action in relation to their shareholding. Nevertheless, by wrongfully manipulating the company’s financial statements, he duped stakeholders into buying more of the company’s stocks. Arguably, a clear presentation of Enron losses in the statements would have affected the stakeholders’ investment decisions towards the company (Independent Lens N.p). Additionally, apart from the shareholders, Skilling had other parties to protect.

He should have protected the company’s consumers from the harm caused by fluctuation of energy prices. On the contrary, Skilling increased the energy prices without considering the implication it had on the consumers. For instance, he created an artificial shortage of energy in California, which forced the energy prices to shoot nine times the normal price. Such actions showed that Skilling is an individualistic person who works neither for the interests of the consumers nor that of the shareholders.

The company’s employees should also have been considered in Skilling’s actions. However, he chose to trick them just as he did to the shareholders. Instead of rewarding them for their loyalty to the company, he enticed them to invest all their pension money into the company’s shares. Finally, he sucked over 20,000 Enron’s staff, and subsequently facilitated the loss of their total pension funds (Independent Lens N.p). Question 5 Enron emphasized on the rank and yank model of employee evaluation.

The model refers to evaluation of the employees’ performance through a vitality curve. Therefore, the employees who falls under the curve are sacked while those who ranks high are retained. Consequently, the model is a brutal employee hiring and retention technique. It offers employees less opportunities for improvement. Even a newly hired employee could be fired just because he or she fails to rank high on the vitality curve. The method meant to separate the performers and non-performers and was used extensively in the 1980s to early 2000s before its real effect on the employees were fully known.

Following the failure of some big companies including Enron, majority of the companies that used the model scraped it off (Economist N.p). The rank and yank model has never been an effective employees evaluation model. Even though it is meant to select only the best, it creates a hostile environment for the employees. Once a group of employees has been fired, the remaining employees work in perpetual fear wondering whom among them would be next in the firing list. The performance of such workers reduces significantly due to this fear.

Furthermore, the model measures only certain aspects of employees making it easy to by-pass special characteristics an employee may possess. Therefore, the company loses important talents among the fired workforce, which may not be present among the remaining workers. Finally, just because employees rank high on the vitality curve does not mean that they are the best performers in the job (Economist N.p). Job Performance is subject to teamwork. The ranking should, therefore, consider the lower ranking employees’ contributions to the performance of the highly ranked employees.

Works Cited Independent Lens. "Enron: Smartest Guys in the Room." 4 April 2007. Independent Lens. http://www.pbs.org/independentlens/enron/film.html. 18 November 2015. The Economist. "Ranked and yanked." 16 November 2013. The Economist. http://www.economist.com/news/business/21589866-firms-keep-grading-their-staff-ruthlessly-may-not-get-best-them-ranked-and-yanked. 18 November 2015.