An Overview Of Enron Scandal: Lessons From Leadership And Unethical Practices

History of Enron

Question:

Write an essay on the Leadership.
 

Enron was a US company that was formed in the year 1986. The company was the result of the merge of the two natural gas companies namely the Houston natural Gas and the Internorth.  The name of the chairman of the board was Ken Lay and the name of the CEO was Jeff Skilling. However, the company failed when the market lost confidence. The company however, indulged into some illegal practices where the company used to transfer the energy out of California in order to generate collapse, which in turn raised the price of power. After the energy got transferred back it was sold at a higher price (Markham, 2015).

The problems faced by the company are mainly related to the fact that the company failed because of the lost confidence of the market. As a result, the stock market security distorted and the loans became due, which made it impossible for the company to make new borrowings. The problems were also related to the failure of the business as it ran out of cash (Bienkowska & Churchill, 2014).

There were some unethical practices faced by the company that included the transfer of the power out of California, which augmented the price of the electricity. The company was one of the biggest examples of the bankruptcy case in the history of US.

The types of theories of leadership that can be applied in the case study

The theories of leadership, which is able to explain what happened at Enron, can be explained in the following ways:

1. The Transformational theories of leadership – The transformational theory of leadership are the procedure in which the leaders as well as the followers hoist one another to a higher level of ethics as well as motivation. The leadership expert McGregor Burns coined the term transformational. The transformational leadership offers an exclusive viewpoint, which in turn helps to assess the development of the culture at Enron. The transformational leaders at Enron were Kenneth Lay and Jeffrey Skilling. These two leaders helped to show the way that led the company to an unparalleled height that was not all easy to be achieved by any natural gas company (Avolio & Yammarino, 2013).

These leaders incorporated the positive intellectual values in the workers, which helped them to take risk as well as incorporate innovation. This in turn helped Enron to become the most innovative company in America. It was thus concluded that there was a more-or-less transformational leadership present in the organization of Enron that can be viewed as both an asset as well as weakness. However, the transformational leadership became a dual edge sword as the leadership was morally absent in Enron (Braun et al., 2013).

1. Trait theory of leadership – The trait theory of leadership is based on the characteristics of both successful as well as unsuccessful leaders. The Trait theory is naturally a pleasant theory. The five theories of trait have been applied in the model that includes willpower, self-possession, intellect as well as honesty and sociability (Northouse, 2015).
2. Ethical theories of leadership – This theory will mainly help to explain the missing part of leadership at Enron. The organization needs to explain that how and why a culture of self-absorption emerged within Enron. The ethical leadership is that leadership that is mainly directed by respect for ethical beliefs as well as values (Schaubroeck et al., 2012).

The leaders identify the importance of ethical behavior. In this case, it can be seen that despite the vigorous motto of the company that includes respect, integrity as well as communication it has forecasted that values of beneficence as well as justice are not present in the company. The leadership of Enron merely did not live out the ethics that they asserted to have valued.  As a result, the difference of the words as well as the action led to moral problem of leadership in the organization (Ciulla, 2013).

Leaders have the capacity to shape the way of thinking of the individuals and the way they behave. A leadership can influence the culture of an organization and the leaders can shape the culture. Leadership can influence culture in the following ways:

1. Communication – Communication needs to be done clearly because when a person is trying to communicate, he must sound clear. If a person is not able to communicate clearly and if he sounds, unclear in that case it may sound as an unofficial communication or hearsay. This will in turn have a negative impact on the organization as well as on the culture. Every individual looks forward for a conversation that sounds clear and honest, irrespective of the fact whether it is positive or a negative conversation (Muenjohn & Armstrong, 2015).
2. Obsession – Every people likes to be a part of obsession as it is communicable. As per a research, it has been told that the individual follows a leader because they have to or because they want to. Now it is up to the leader whom does they want with a gun at their back. The leaders have the capacity to motivate the people to encourage the change. As a result, the minds of the people are changes accordingly and as a result, they take the ownership that will guarantee success (The Impact of Leaders on Culture, 2012).
3. Giving rewards – Rewards is the best way to motivate the people working in the organization. If the leader wants the team members to team up and work jointly, then he needs to strengthen them by rewarding the hardworking workers. If the workers are given the rewards in the terms of promotion then the culture will outlook that meeting the requirements is the only way to succeed and this in turn will create a hierarchical culture (Jackson et al., 2013).
4. Get associated with the organization – The tire mainly hits the road when the senior leaders are removed from the front lines. These senior leaders are the one who creates culture. The leaders get the twisted sense of what is going on as most of them interrelate with the direct reports. The leaders gets all the information which are related to the fact that is going on in the frontier of the organization as well as who are the enablers as well as creditors in the organization. If there are any issues which are taking place in the organization, then the workers can opt for changing the leader. As a result, it is important to get associated in the culture.
5. When the CEO of Enron, Ken Lay as well as his team members were disrupting by stealing from the shareholders, there were many dealers who were laughing about the fact that how Ken Lay will bankrupt the old women in order to heat their bills. The toughest part of the leadership is that often the leaders are not able to keep their words and as a result, they lose respect from the people who used to look up to them. As a result, as the part of culture it is very important to execute the promise which is made (Ferrell & Ferrell, 2014). 

The unethical practice that was carried out in Enron was the transfer of energy out of California in order to generate collapse, which in turn raised the price of power. The unethical behavior can be avoided in seven ways:

1. It is the duty of every organization to investigate and develop the manuscript policies. The procedures by identifying the reasons that leads to the violation of the ethics. The organization is also responsible for providing with extra protection to those employees who do not feel safe and raise ethical issues. The policies, which are developed by the organization, should be expressed in the guide of the workers. Earlier the Enron Corporation was known to be the most complicated ethics procedures in the country. In the year 2001, it was disclosed that Enron was engaged in a major deception related to accounting that in turn masquerade the poor financial health of the organization. After the declaration of bankruptcy in Enron, the copies of the ethics procedures went up to EBay (Education Week – K-12 Talent Manager, 2016).
2. Hiring of the correct people is also very important as it is important to hire the correct people in the organization. The ethics of the organization can get affected if the wrong people gets selected or hired. In that case, it is very important to hire the right people from the beginning, which will in turn make a huge difference to the ethics of the organization. In order to avoid the unethical behavior, it is very important to conduct an interview that will help to check the background of the workers (Treviño et al., 2014).
3. It is also significant to develop the understanding of the people. It is crucial to build a procedure that can be used by the workers if they find that the ethics are violated. The development of this process is much more important than simply giving training to the workers about how to work ethically. This procedure will help to build the understanding among the workers (Ferrell & Fraedrich, 2015).
4. In order to avoid the unethical behaviors the leaders need to speak about the significance of the policies as well as the procedures, communication and incentives. However, if the leader starts acting unethically, it will be like throwing a big stone into a pond of ethics quietly. This case is quite similar to that of the fact when an unethical person is promoted. The workers also easily recognizes those leaders who talks the talk but do not walks the walk as far as ethics are concerned. This in turn can break the trust of the workers that they have on the leaders. In order to avoid the situation these leaders need to walk the talk (A Proactive Approach to Addressing Unethical Behavior in the Workplace, 2016).
5. It is also important to build a culture that is transparent as well as open. In order to avoid the unethical behavior, it is important to perform in such a manner that will ensure the success of the organization. This will take place when the workers who are working will be able to see and hear whatever is going on in the organization. They will also be able to stand up and speak whenever they will see anything wrong taking place in the workplace. 

Reasons for Enron’s downfall

Conclusion

It can be concluded that the transformational leadership offers an exclusive viewpoint which in turn helps to assess the development of the culture at Enron. The toughest part of the leadership is that often the leaders are not able to keep their words and as a result, they lose respect from the people who used to look up to them. The workers also easily recognizes those leaders who talks the talk but do not walks the walk as far as ethics are concerned. A leadership can influence the culture of an organization and the leaders can shape the culture. It can thus be concluded that the Enron case was one of the largest bankruptcy case in the history of US.

The alternative solution to unethical behaviour is by considering the alternatives, document all the facts and also to think and talk. The leaders think and then talk that can avoid unethical behaviours. The unethical behaviours need to be unaddressed as it is illegal. At most, of the workplace, the managers or the human resource department mainly raises their voice if they face any such problems. However, in this case the manager himself is aware of the unethical situation that has taken place.

It has been noted that CEO of Enron, Ken Lay as well as his team members were disrupting by stealing from the shareholders. As a leader, they should have stopped this disruption and this could have helped the company from becoming bankrupted. 

References

A Proactive Approach to Addressing Unethical Behavior in the Workplace. (2016). San Leandro.

Avolio, B. J., & Yammarino, F. J. (Eds.). (2013). Transformational and charismatic leadership: The road ahead. Emerald Group Publishing.

Bienkowska, S., & Churchill, M. (2014). Corporate Social Responsibility, a Necessary Charity?.

Braun, S., Peus, C., Weisweiler, S., & Frey, D. (2013). Transformational leadership, job satisfaction, and team performance: A multilevel mediation model of trust. The Leadership Quarterly, 24(1), 270-283.

Ciulla, J. B. (2013). Leadership ethics. Blackwell Publishing Ltd.

Education Week – K-12 Talent Manager. (2016). 

Ferrell, L., & Ferrell, O. C. (2014). Examining Organizational Integrity Failures. Business and Corporate Integrity: Sustaining Organizational Compliance, Ethics, and Trust [2 volumes]: Sustaining Organizational Compliance, Ethics, and Trust, 181.

Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. Nelson Education.

Jackson, T. A., Meyer, J. P., & Wang, X. H. F. (2013). Leadership, Commitment, and Culture A Meta-Analysis. Journal of Leadership & Organizational Studies, 20(1), 84-106.

Markham, J. W. (2015). A financial history of modern US corporate scandals: From Enron to reform. Routledge.

Muenjohn, N., & Armstrong, A. (2015). Transformational leadership: The influence of culture on the leadership behaviours of expatriate managers.international Journal of Business and information, 2(2).

Northouse, P. G. (2015). Leadership: Theory and practice. Sage publications.

Schaubroeck, J. M., Hannah, S. T., Avolio, B. J., Kozlowski, S. W., Lord, R. G., Treviño, L. K., … & Peng, A. C. (2012). Embedding ethical leadership within and across organization levels. Academy of Management Journal,55(5), 1053-1078.

Treviño, L. K., den Nieuwenboer, N. A., & Kish-Gephart, J. J. (2014). (Un) ethical behavior in organizations. Annual Review of Psychology, 65, 635-660.