Enron: Failure and Scandal

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The effective organization management which is based on the principles of the successful leadership, trust, and corporate ethics is one of the main conditions for the company’s progress. The world of business is challengeable and the leaders and managers’ task is to provide the effective decision-making process which can contribute to overcoming the issues and to the further development.

However, when the leaders of organizations ignore the major principles of the corporate culture, ethics, and try to manipulate the managers and employees’ actions the company may fail. The situation with Enron became the main scandal in the business world of the USA at the beginning of the 21^st century.

In the 1990s, Enron was one of the world’s leading companies which specialized in providing the services in the field of electricity and communications. Nevertheless, Enron collapsed because of the complex of the factors including the leaders’ deceptive behavior, ineffective management and organization with basing on the unethical practices.

Enron was founded by Kenneth Lay in 1986, and it was discussed as one of the most successful companies of the world in the field of electricity. The analysts paid much attention to the fact that the growth of the company was connected with its innovative approach to providing services, realizing the business activities, and with its rather aggressive leadership and corporate culture (Robbins & Judge, 2010).

Thus, the name of Enron was always associated with a success. Nevertheless, in 2001, the company filed for bankruptcy as a result of the financial scandal. It was stated that the company’s fall in stock prices was the effect of the organization’s continuous policy in hiding the aspects of the real situation in relation to the company’s financial state.

In order to preserve the high stock prices and hide the debts, the leaders of the company were inclined to realize the irregular accounting practices and provide the fraud reports for the partners with basing on the accounting investigations presented by the auditors.

The Securities Exchange Commission examined the situation in Enron and concluded that the complex financial system was developed by the company’s leaders in order to hide Enron’s financial losses and gain some benefits from the partners (Swartz & Watkins, 2003).

To understand the reasons which led to the company’s decline, it is necessary to analyze the contribution of the leadership, management, and organizational structures to the failure.

The leaders of Enron were Kenneth Lay, the chairman of the Board of Directors and the founder of the company, and Jeffrey Skilling, CEO.

Today, many researchers and analysts make accents on the role of these two figures in the company’s failure with emphasizing the fact that the wrong decisions of the executive officer and chairman which depended on the illegal and irregular activities led to the development of corruption within the company.

Why did the company’s auditors from Arthur Andersen support Enron’s activity and also provide false financial reports? It is possible to speak about the pressure which Arthur Andersen experienced. Speaking about the peculiarities of the management within the company, it is also significant to pay attention to the definite pressure. Thus, the organization developed under the rule of the charismatic leaders.

In this situation, managers were not allowed to provide their alternatives to the leader’s decisions, the system of the open debates was not supported, and the leaders realized the full control over the information (Vinten, 2002). According to these details, it is possible to say that the failure of the company could be predicted.

Moreover, analyzing the peculiarities of the management provided within the company, it is important to concentrate on such facts as the inclinations to ignore the necessary corporate balances, to make accents on the risk management, and to emphasize the individual contribution to the company’s development.

Thus, the charismatic leaders influenced the work of the managers and employees with basing on their specific goals and strategies which could not address the interests of the partners and employees, but provided the leaders with definite benefits. The members of the Board of Directors ignored the issues and aspects which accentuated the senior managers’ involving in the illegal practices.

Moreover, the leaders did not pay much attention to the fact that Arthur Andersen auditors provided the irregular services as the company’s paid and independent consultants.

Thus, knowing about the practice of hiding the company’s losses, Arthur Andersen did not object them and also provided their further services as the independent auditor (Swartz & Watkins, 2003). The possibility to hire the independent auditor as a consulter can be discussed as the drawback of the system.

The effective organizational behavior should be based on the development of such principles as the support of the company’s productivity with references to the employees’ motivation and job satisfaction and to the increase of the management’s effectiveness depending on the collective efforts (Robbins & Judge, 2010).

Furthermore, the company’s progress should also include such aspects as the orientation on the corporate ethics and culture. Thus, Enron’s corporate behavior should be considered as unethical and deceptive.

The system of bonuses and compensations in the company was developed in order to hide the major financial disbalance, and the false picture which did not reflect the real situation within the company was presented.

To meet the interests of the executives, partners, investors, and employees, it is significant to develop the effective strategy which is based on the principles of the corporate ethics and trust. Thus, Enron was not honest with its shareholders according to the questions about the real price of the shares, about the company’s position, and its financial state.

In this situation, the role of the Board of Directors is important because the members of the Board in Enron did not protect the interests of shareholders, but even ignored those issues which could mislead them. And the most important cause of Enron’s failure was the problem with irregular and illegal accounting (Werther, 2003).

The failure of Enron can be considered as one of the most significant and influential financial scandals of the 21^st century. Thus, the example of the company’s growth and decline supported the idea about the role of the effective or ineffective leadership and management within the company and accentuated the importance of the effective organizational behavior as one of the main conditions for the company’s progress.

Concluding the causes which led Enron to the failure, it is possible to determine such aspects as the position of ignoring the worrying details presented in the financial reports by the members of the Board of Directors, the senior managers’ choosing the path of the deceptive behavior and following the unethical principles in relation to the corporate culture.

It is also important to note, that the realized management and corporate culture were based on the ideas of the charismatic leadership within the company.

References

Robbins, S. P., & Judge, T. A. (2010). Organizational Behavior. USA: Prentice Hall.

Swartz, M., & Watkins, S. (2003). Power failure: The rise and fall of Enron. London: Aurum Press.

Vinten, G. (2002). The corporate governance lessons of Enron. Corporate Governance, 2, 16-19.

Werther, W. (2003). Enron: The forgotten middle. Organization, 10, 568-571.

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Enron: Failure and Scandal

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