Analysis of Three Articles of Enron - Coursework Example

Enron Case Analysis Student: Tutor: Course Title: Institutional Affiliation: Date: Lessons Learned from Enron’s Case Analysis Introduction Enron had until 2001 been a successful corporation based in the United States. The company had a diversified portfolio from which it realized its revenues and employed its more than 20,000 employees. Enron’s core business was in electricity generation, natural gas pipelines and broadband provision. Jeffry Skilling was the CEO at the time Enron Collapsed. The top executives at Enron managed to collapse the once successful entity by creating an aggressive and irresponsible organizational culture that rewarded profitability and short-term illegitimate gains at the expense of ethics in as far as accounting and corporate governance are concerned. Skilling together with Andrew Fastow the Chief Finance Officer and several other top executives engaged in fraudulent dealings including manipulative accounting, insider trading, and misrepresentation of financial statements to the extent that Enron’s losses did not appear in its financial statements thus misleading shareholders, potential investors and business partners. The top leaders were indeed arrogant and selfish to the extent that they rewarded themselves and their cronies using the company’s finances at the expense of the company’s survival and profitability. Values such as honesty and respect even though publicly acclaimed had no value to the management as long as profits and the illusion of false profitability could be sustained through clever and potentially illegal practices approved of by the top executives. Visionary leadership, ethics, accountability, responsible corporate governance and honesty are all essential elements of organizational culture according to (Robbins, Judge, Millet, & Boyle, 2011). All these lacked in the case of Enron. It is in light of this that this paper seeks to analyse three articles by (Sims & Brinkmann, 2003), (Stein & Pinto, 2011) and (Tourish & Vatcha, 2005) on Enron’s Case to highlight managerial lessons that can be drawn from the scandal. This will be achieved through three topics, namely; Ethics versus profitability, Gangs and Work groups in organisations, Cultism in organisations. Ethics versus profitability – analysis of (Sims & Brinkmann, 2003) Enron had enjoyed a successful run in the early 90s to emerge a very profitable and valuable company in the eyes of investors and business analysts. According to Sims & Brinkmann, (2003) , the leadership wanted to maintain this position however difficult it may have been. The leadership could not take the idea of Enron’s losses reflecting and thereby reducing the value of the company’s share and so had to manipulate accounts, push employees to the limit to bring fishy deals on board and corrupt authorities to evade scrutiny. The subsequent actions by the management to conceal losses and maintain a false sense of pride in the organisation, is what relegated ethics to the corner and encouraged unprofessionalism, immorality and criminality at Enron according the analysis by Sims & Brinkmann (2003). Enron’s top executives led by Lay, Skilling and Fastow were determined to conceal the losses, the debts and the liabilities of the organisation through special investment vehicles that could not reflect in the company’s financial books. They also encouraged an aggressive carefree attitude within the organisation where the means were justified by the end. This most definitely meant that the employees and the organisation as a whole did not have ethical boundaries within which they were supposed to conduct themselves. It is important as argued by Sims & Brinkmann (2003) that leaders play a critical role of creating and implementing a culture that safeguards and promotes ethics in an organisation. judging on this assumption, it will be correect to saiy tihat Enron’s leadership failed to do so. While it is important for organizations to make profits and remain competitive in their respective industries, it is important that they do so within the confines of accepted ethical standards (MacKinnon, 2011). This was not particularly of concern to the top executive at Enron. Employees could use whatever means to their ends provided they managed to close a deal for the company. Such employees were rewarded with ridiculous packages as encouragement. Such orientation means corruption and illegal deals were approved of by the company without regards to ethics (Sims & Brinkmann, 2003). This is what happens when the leadership by deeds, actions and words focuses employees’ attention to bottom-line financial success which disregards rules and morals as obstacles to a goal. It is vital leaders in organisation do not lead employees into the unrealistic world of pure profitability with no regard to morals and standards. The act of transferring debts and liabilities to off-balance sheet partnerships may have worked to deceive stakeholders of the reality of a loss making Enron. This was the company’s reaction to a crisis that required the leadership of Lay and Skilling to abide by ethics and portray the situation as it were. However, they showed that they valued fraud, deception and profits more than truth, integrity and professionalism. At the end, the notion that everything rises and falls with leadership proved to be true as Lay, Skilling and Fastow could not shift blame to their subordinates much as they may have wanted. Leadership therefore bears the greatest responsibility within an organisation to safeguard integrity, ethics and set standards that they too must respect. Gangs and Work groups in organisations – analysis of (Stein & Pinto, 2011) Organisations are made up of people who form work groups to bring together knowledge, expertise, creativity and dynamism to tackle unique challenges and situations facing an organisation (Schein, 1985). It is possible however to have gangs developing in place of work groups in an organisation. The culture of the work group is very different from that of a gang. A work group is always guided by norms, positive orientations and devotion to a common good. Gangs on the other hand are motivated aggressive masculinity and gang members pledge their loyalty to the gang ways and the absolute authority of the gang leader. Doing good and positive things is viewed as being weak and may lead to one being destroyed by follow gang members (Stein & Pinto, 2011). Stein & Pinto (2011) believe that the organisational culture at Enron promoted an aggressive masculine behaviour which condoned greed and irresponsible conduct to the extent that the environment was not suitable for people with virtues and strong personal principles to thrive. Ideally then, the leadership of Skilling and Lay established a gang within the organisation. Only those that worshiped the leadership and their perverted behaviours could survive at Enron (Tourish & Vatcha, 2005). Such a culture results in a situation where tolerance for individual opinions and suggestions are not condoned. Individual personalities are not respected as well (de Jong & Hartog, 2007). Essentially then, leadership failures cannot be confronted by their juniors and as such leaders will not realize when they are making serious mistakes in running businesses. The ‘gang’ culture at Enron encouraged immoral, illegitimate and illegal actions for as long as it pleased the management and contributed to the bottom-line ideology of profitability before everything. The leaders encouraged this culture through their blatant abuse of the core values of Respect, Integrity, Communication and Excellence. The leaders were immoral, corrupt, rude and dictatorial. The leadership made the organisations culture vague and reliant on their ideals and preferences thus making employees loyal to a gang whose leadership only cared about profits and not values. Dissent was not condoned neither was independent thinking. All this typified a gang environment which seeks to ‘destroy’ those it considers not committed to the gang’s or the gang leaders’ agenda. Cultism in Organisations – analysis of (Tourish & Vatcha, 2005) Leadership is the ability of an individual to convince others to pursue a certain mission and goal and motivate them along the way towards such a cause. To achieve this, a leader must have a charismatic touch that he/she uses to communicate his ideas, vision and the pathway towards that vision (Tourish & Vatcha, 2005). There are different styles of leadership which can be adopted in different organisations. However, the results might not always be the same. Where a leader is more concerned with making people committed to his/her ideals it is very different from where a leader drives people to believe in a vision which they themselves approve of in the first place not necessarily because their leader believes in it. In the former, the arrangement is more of a cult than an organisation. When leadership is concentrated in a person rather than in a vision, it lacks dynamism and the whole system relies on the ideas of a single person who may not always be right. When people believe in a vision they are able even to question their leadership when they feel the leaders veering off the track (de Jong & Hartog, 2007). At Enron, skilling and his group of top executives did a fantastic job of establishing an organisation that operated like a cult. Skilling, lay, Fastow and the rest of the executives were at the top of the pyramid in this cult. The idea of a rigorous recruitment process and a consistent method of criticizing non-performers and firing at any time meant the employees lived in fear and could not challenge Enron’s top leadership. Enron recruited only the best and indoctrinated them with a philosophy of thinking they are the best and could be rewarded anything for as long as they were loyal and dedicated their whole self to the organisation and its leadership. Undesired vices such as corruption, fraud and social misconduct were normalised by the leadership. The leadership actions could not be questioned by their juniors lest they lost their jobs trying to be smarter than their bosses (Tourish & Vatcha, 2005). While charismatic leadership is a very effective way of communicating a company’s vision and strategic direction, it may fall into the trap of creating an environment where the leadership posses an extraordinary amount of power to the extent that the employees feel powerless and vulnerable without doing things to satisfy the leadership. This means the organisation lacks a self assessment mechanism that would reduce the chances of it veering off its values and original vision. Enron only used its code of ethics “RICE” (Respect, Integrity, Communication and Ethics) as a public relations tool. Deep down, an unfair appraisal system was used to eliminate dissenting and nonconforming employees. Skilling and the rest of the powerful clique elevated themselves to the levels of small gods in the organisation and the only thing they could achieve is assemble an army of mentally corrupted employees who could not be courageous enough to confront the management when it erred (Stein & Pinto, 2011; Sims & Brinkmann, 2003). Conclusion Even though Enron was going through a had time financially, the leadership at Enron made things worse by offering a brand of organisational culture that encouraged an aggressive carefree attitude, arrogance and unethical conduct. The leadership also created a ‘gang-like’ environment that it used to intimidate employees thus limiting constructive criticism in the organisation. Enron’s workforce transformed into a cult which demanded total devotion to the company and its leadership to the point that ethics and morals were relegated in preference to profits and deception. This was a good recipe for the collapse of the organisation. Inclusive leadership would have different perspectives to help in decision making thus limiting losses out of poorly formulated and executed strategies. Leaders too should know they are the custodians of organisational culture and their actions influence how the employees behave within the organisation. Skilling was a charismatic leader but then used his charisma to lead people the wrong way. His behaviour and that of his fellow executives was unprofessional to say the least and most definitely encouraged unprofessionalism, immorality and illegality at Enron. References de Jong, J., & Hartog, D. 2007. How leaders influence employees' innovative behavior. European Journal of Innovation Management , 10 (1), pp.41-64. Hond, F., & Bakker, F. 2007. Managing corprate responsibilityin action: Talking, doing and measuring . Ashgate Publishing. MacKinnon, B. 2011. Ethics: Theory & Contemporary Issues - Concise Edition, 2nd ed.: Theory and Contemporary Issues, Concise Edition. Cengage Learning. Madu, B. C. 2008. Organization culture as driver of competitive advantage. Journal of Academic and Business Ethics , pp.1-9. Robbins, S., Judge, T., Millet, B., & Boyle, M. 2011. Organisational Behavior (6 ed.). Frenchs Forest: Pearson . Schein, E. H. 1985. Organizational Culture and Leadership: A Dynamic View. San Francisco: Bass Publishers. Sims, M., & Brinkmann, J. 2003. Enron Ethics (Or: Culture matters more than codes). Journal of Business Ethics , 45 (3), pp.243-256. smallman, C., McDonald, G., & Mueller, J. 2010. Governing the corporation; structure process and behavior. Journal of Management and Organisation , 16 (2), pp.194-198. Stein, M., & Pinto, J. 2011. The Dark Side of Groups: "Gang at Work" in Enron. Group and Organization Management , 36 (6), pp.692-721. Tourish, D., & Vatcha, N. 2005. Charismatic Leadership and Corprate Cultism at Enron: The Elimination of Dissent, the Promotion of Conformity and Organisational Collapse. Leadership (4), pp.455-480. Read More