How Enron May Have Avoided the Scandal through Conflict

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Table of Contents

Introduction
Jehn’s findings
Analysis of Enron
Conclusion
Reference

Introduction

The following is a discussion on how conflict among the leaders of Enron might or might not have changed the outcome of the largest bankruptcies in the history of United States.

The essay explores the types of conflicts that exist within an organization and the role that they play in development of the organization. It examines the role of task and relationship conflicts as well as whether conflicts are beneficial to the group performance or not. The analysis focuses on research findings of the article and application of the findings in an organization.

Jehn’s findings

The research found out the role played by conflict in the performance of an organization. The research recognized that two types of conflicts exist within a group. The first type of conflict is the task or cognitive oriented conflict. This conflict arise out of disagreements on matters relating to responsibilities or job undertaken.

They are usually not emotive but cognitive and the research focused on whether they have any effect on the performance of the employees. From the findings the researcher found out that, the effect of the performance depended on whether the task was a routine or non-routine.

In case of non-routine task, the conflict resulted in high levels of performance and the higher the conflict the higher the level of performance. In the case of non routine task, the higher the conflict the lower the performance and vice versa as the conflict was attributed to cause distractions yet it did not improve the manner in which the work was done (Jehn 1995, 2)

The other type of conflict discussed by Jehn is the relationship-oriented conflict. This type of conflict was personal and very emotive. They were necessitated by factors such as personality conflicts and ego conflicts. The research found that this type of conflict has a negative effect on the group and individual performance.

When this kind of conflict arises, the individuals tended to develop a dislike for their group and they withdrew from the group. This kind of conflict had a negative effect on the group and individual performance. The relationship conflict proved to be detrimental to both the individual and the group on both type of tasks whether they were task routine or non-routine type of tasks (Jehn 1995, 4).

Analysis of Enron

Enron was one of the most successful companies of the 1990s’ with its share value amounting to ninety dollars per share. However, the success was short lived as within a year the shares traded at one dollar per share and the company soon became bankrupt and it was termed as one of the greatest bankruptcies of the United States of America.

There are reasons that necessitated the company towards bankruptcy. The first one was that the company practiced earning management, which is the manipulation of financial figures by adding the values of the assets and removing liabilities and debts from the balance sheets to project high levels of earning to the shareholders.

This practice seems to be ingrained in the corporate culture of the company. It was a norm until the actual cash profits were different and paying shareholders proved difficult. There are conflict factors that affect the organization’s performance. It seems that the organizations may have been affected by the policy of greed or simply competitiveness.

It did not matter what it took the employees to be competitive but they had to prove that they brought earnings to the company. This led to some unscrupulous individuals getting promotions and bonus out of unethical dealings. The company had adopted a trend of silencing whistle blowers by ensuring that everyone is involved in a scrupulous deal and this made it hard for anyone to throw a stone at the other whilst they were in a glass house. The company was exceedingly competitive.

The task conflicts and disagreements led those who were uncomfortable about the practice to be silent or to leave the company. The success of the company irrespective of its practices made it have that kind of competitiveness.

The management with the leadership of Skilling seems to have had a policy of eliminating whistle blowers. This meant that those who were working with Skilling had to be like him and to agree with him in matters such as earning management. When no one challenged the practice by bringing dissension, it became easy to succumb into ill practices, as there was an agreement between all the stakeholders.

The board of the company led by the chairperson Lay also kept silent on the practices that the management had and they even changed the company policies on conflict of interest to allow the chief financial officer continue holding his position even if he was still acting for another company that had interest in Enron. The board members also kept silent on the auditor’s practices as well as conflict of interest that Anderson had in the company as its consultant and auditors.

The company seems to have had a culture of silence where personal interests dominated and anyone who had contrary ideas had to leave the company.

It is worth noting that the company had a mechanism of peer reviewing its employees and among the reviewers was the chief executive and the chief financial officers and they would not have kept anyone who had contrary ideas or opposed their unethical approach and management of the company finances. Without conflict, the management was able to mislead stakeholders of the company and eventually lead the company to the bankruptcy.

The case would however have been different if there was conflict in the organization and dissention and the management tolerated different ideas. In this case, the conflicts that will usually arise are task-oriented kind of conflicts on the issues of financial management and reporting to the shareholders.

The following are the scenarios of what might have been if there were dissentions in the organizations by those who were aware of the unethical practices of the company. The first scenario is that they would have resigned from the company as well as whistle blow and alert the public as well as the single investors of what was happening in the company. This would have brought the company operations in the limelight and investigations would have started before the company went bankrupt thereby saving the investors money.

The second scenario involves having disagreements in the board where board members disapprove the earning management practices that the company was using to mislead the investors. With disagreements in the board the matter would have reached the authorities, investigations would have been carried out to stop such malpractices, and the investors would not have lost their money. Conflict would also have helped to ensure that the company is not too lenient on its corporate governance polices especially on the conflict of interest.

This would have prevented the chief financial officer from approving a deal, where he had personal interest. If the corporate governance practices were followed, the company may not have lost entirely as the auditor may have presented an appropriate financial report or fail to approve financial reports presented by the company’s management for approval by the auditor if he did not have any personal interest in the company.

The conflicts that may have occurred in the board are likely to be more of task oriented conflicts rather than relationship conflicts based on how to report the financial position of the company. The conflict may have been negative on the profits recorded by the company, as it would have seen the company reports being more honest and reflecting the actual financial position of the company.

Although some of the tasks undertaken by the company such as financial reporting were routine task, conflict would have resulted in proper financial reporting based on the appropriate policies and it may have led to an authentic financial reports.

Interpersonal conflicts were not prevalent in the company as most of the tasks were individual and the focus was on individual performance. The employees of Enron due to the peer review that was ongoing in the company usually avoided the conflicts as the company’s management dismissed those who received a low rating from their fellow employees.

The employees had to avoid such kind of conflicts to win the approval of their colleagues in order to receive high rating from their colleagues. This may have contributed to the scandal, as the ratings were not on one’s performance or ethics but the ability to get along with others.

Jehn also found out that conflict intensified when there was high level of interdependence between members. In the case of Enron, there was a high dependence on chief executive officer, J. Skilling, and dismissed those who disagreed with him. In instances where a relationship conflict would have occurred between an employee and the chief executive most of the time the employee opted to resign.

The board would have confronted the chief executive and if it confronted him, the disagreements would have led to a halt of the malpractices that were ongoing in the company. The silence on the part of the board and general conflict avoidance existed in the company. However, the results were not positive and it led to bankruptcy of one of the greatest American companies.

Conclusion

Conflict has been seen as detrimental to the company or an organization yet it might be beneficial to not only the company employees or workers but also the stakeholders of the company. From the research of Jehn, the Enron scandal would not be there if anyone told the company managers and the board of directors about the unethical practices.

The silence and conformity of the employees and board members to the manipulation and gimmicks of a few greedy people in the company made it become one of the greatest bankruptcies of the twenty first century. Conflict is essential in an organization as it not only affects performance but also brings an insight to the area or issue of conflict. It allows those who disagree to give their opinions and ideas.

In addition, it affects the performance of routine tasks negatively and affects the performance of non-routine tasks positively. For a company to have conflict it is imperative to analyze whether the conflict is task oriented, relationship or personality oriented. Personality kind of conflict has to be avoided through tolerance and conflict avoidance mechanisms. Task oriented conflicts are positive although they may have negative effects on the routine tasks (Jehn 1995).

Reference

Jehn, Karen. “A multi method examination of the benefits and detriments of intra group conflict”. Administrative Science Quarterly 6, (1995): 3-25.

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