Discuss about the Case Study for Enron of Natural Gas Companies.
The case study talks about a US company named, Enron, which was formed in the year 1986 after Internorth and Houston Natural Gas companies merged. The next fifteen years were seen as the rise and diversification of business into various sectors such as communications, electricity, and natural gas. In the year 2001, the company had employee around 22,000 staff members and the then Chairman of the Board was Mr. Ken Lay and the CEO was Jeff Skilling.
The company fell hard on the ground when the market had lost interest and confidence in the company following its big profit and asset write-downs in the third quarter of the years, 2001. This led to a persistent pressure on them to pay their due loans and the possibility of taking new loans became almost impossible. Hence, Enron was forced to face a fate like every other failed business enterprise, and it ran out of cash. The reason for the collapse was not merely loss of confidence rather it was one of the following reasons. One of the more shocking things to gallop down is that the escalating rise in the company’s earnings and it’s coming up on the Fortune top ten list was a big cover for the number of failures and faults of the company and the damage done by the tangled web of financial deals and related companies which led to an enormous burden of debt on the company, Enron. We can call it good or bad, but the aggressive and artistic accounting practices and market power helped them in ensuring that the secret of the company remain intact, even if that was or a short period.
In the year 1997, operating results around $515m along with a profit margin of $105m was reported by the company, keeping in mind the non-recurring amount of $410m which as per the company allowed them to make their deck for all the future works and growth.
From that time around until the summer months of 2001, the escalation of profits and company’s earnings were quite spectacular to have a look at and the company was able to meet the minimum set bar for earnings target and many times cross that margin in as many as 20 successive quarters. The annual results of these publications for the company was $698m in the year 1998, $957m in the year 1999 and the year 200, it was $1.266bn.
(www.westhardfortoc.org)
Well, it is a fact well known that no particular set of qualities decides whether a leader will be good or bad rather various scenarios and conditions required a different set of leadership qualities which can qualify him/her as a successful leader.
But then, on the other hand, this also does not imply that a person cannot learn or inculcate qualities within them which will help them being effective leaders. It is quant essential to understand the various theories of leadership to use the right approach at the right place and time and anchor the firm to safety in difficult times (Yukl, 2006).
So now let us examine this given case of Enron Company with a different set of leadership theories.
Trait theory
It is said that real leaders share some common traits, and the earlier trait theories stated that leaders should be instinctive, innate, but now hopefully, we have moved ahead of times and these criteria’ have changed. This approach helps us in identifying the traits of the leader
Now, if we are supposed to label different characteristics of Jeff Skilling, then they can be Gutsy, confident, motivational but unethical, adventurous and aggressive.
Behavioral theories
This theory focuses on how does a leader behave and act. For example, do they ask for cooperation or do they dictate terms?
There are three types of leader namely autocratic leaders who make decisions without any consultation with the team, and it is helpful while taking decisions quickly, then there are Democratic leaders who wait for their team to give input and then proceed. Although, it can be a time taking activity it ensures that decision has been made with the help of management. Lastly, there are laissez-faire leaders who don’t interfere. These leaders let different units to make their decisions and act accordingly as the situation demands. It is good when the employees are highly skilled, but it can raise doubt that leader is lazy and inactive.
In this case, Jeff can be regarded as the Aristocratic leader reason being he had the whole sole power of management, board of director and all the other units. Employees were forced to work in a particular style; management was asked to reject the employees who did not adhere to the given instructions, and even board of directors was ineffective in front of his plans and strategies (Mcofney, 2012).
Contingency theories
Nowadays, people realize that no set of perfect leader and a leader should perform as per the situation demands. Some of the more famous theories are Path-goal Theory and Fiedler’s Contingency Theory.
As pet the situation demands in the given case study, Jeff should have taken help of his management and that would have reaped success instead of company’s failure
Power and influence theories
These theories have an altogether different approach wherein the leaders opt to use their power and influence in a various manner for getting the job done from an employee. One of the best theories is French and Raven’s Five Forms of power. This model signifies about three positions of authority- reward, coercive and legitimate and then to sources for personal power namely expert and referent (i.e. personal charm and appeal). As per this theory, it is advantageous to use one’s personal power for leading, and one should work on his/her expert power (this power comes from having expertise in that particular job).
The other control theory is of transactional leadership. As per this theory, people work for rewards and nothing else bothers them. Hence, it focuses on making compensation models. Although it is not the best approach for stabilizing the work environment, it can help leaders (McDonough, 2012).
The latter approach is what was chosen by Jeff for keeping the profits high at the sake of unethical culture and environment.
(theleadership.blogpost.com)
It is important to understand the gravity of the fact that leaders, as well as managers, hold the key to motivation, innovation and smooth working of any firm and which in turns benefits the organization. More importantly, different kinds of leaders have a different kind of impact on the whole setup of an organization, workplace environment or in short the culture of enterprise. A leader is a person who moulds and shapes the thinking and the manner in which rest of the employees of an organization behave, hence, it is crucial to the values, and working style of the leader aligns with the values, philosophy, and missions (Guest, 2013).
Leaders are the one who set short-term missions for the organization achieving which the organization I able to reach its final milestone in a given frame of time; leaders are the one who affect the culture within an organization and in turn impact the long-term effectiveness of a firm. A leader or a manager has got the role of setting up boundaries or context within which other employees strive hard to achieve excellence and the organizational goals (Baeur, 2014).
A real leader is not one who treads on a wrong path just for the sake of profit making, but a true leader is one who can bring a disillusioned or de-motivated firm back on track with the promise of working harder and innovatively. This was missing quite evidently in the leadership of Jeff Skilling as the CEO of the Enron Company. Some would say that it was his ability to work his way round the tricky regulations and rules which made him a dynamic leader, but as it is visible from the case, Jeff went way too far then just simply challenging the regulations boundary. It is entirely true that the culture of an organization is governed by the qualities of a leader, so was the case in this Enron case study. The employees were ready to make profits anyhow and for that, they even kept company’s integrity and ethicality at stakes. The culture of risk taking as well as profit making eroded the very backbone of company’s concept of integrity, respect, communication, and excellence. The leaders of the organization gave freedom to the employees for undertaking unethical modes for making profits or manipulating the estimates of profit making. Enron could have still saved itself from ultimate failure if the leaders had put a check on the reckless and ruthless culture of the organization which was booming due to the attraction of incentives and the pressure of keeping the job.
(jjlewis.org)
To recommend measures for the wrong or unethical behaviour described in the case study, it becomes imperative first to discuss the different immoral activities which were going on inside Enron.
Firstly, the lawyers and accountants went way off the grid and were ready to hide every dirty act of the company, some would say that lawyers are supposed to help its client, by any means possible, but then it is not to say that they can put thousands of employees and stake holders in the harm’s way.
Secondly, the transfer of energy from within California to create an artificial blackout was a heinous and unethical activity with which the company was able to earn billions of money.
Thirdly, the board of directors was also unethical in their working, although, they are regarded as the harbinger of loyalty, trust, sufficiency and guardians of ethical code. It is sad to say that those who were assigned to be responsible for the stakeholders were the most irresponsible facet of the entire chain (Kuhlmann, 2015).
The performance review committee of the management was also unethically removing the staff members. The cover for removing these staff members was that they did not deliver as per the core values of the systems, but actual reason was that the employees who generated more paper profit were entertained, and the rest were discarded, and new hires were added.
Much more such activities were a part of the system but now let us talk how could have Enron overcome such obstacles.
Some of the steps are:
1. Enron desperately required a change in leadership because a leader’s traits affect the working of an organization and Jeff’s nature of playing smart till the edge technique was seriously hampering the ethical code of the firm.
2. Enron is required to accept its mistake in public, remove the mal board of directors and re-instigate a new and loyal set of directors who can feel responsible to stakeholders, hence, building back the so important trust
3. The next thing to do is that the employees should be kept in check, and their incentive should have a higher limit such that they do not opt for unethical ways to earn more and save their jobs
4. The employees should be judged by how well they follow the actual core values and not how much paper profit they can generate for the company.
(www.ethicalpost.com)
After going through the entire case study and analyzing each and every aspect of the firm, it would be good enough to provide certain recommendations to Enron or any other company which is falling on the same track. We have gone through all the given questions and answered them analytically and elaborately. Now some of the recommendations are:
1. It is important to keep a check on the leader’s intention for the company and how far can he go to make profits and maintaining the fine balance between the integrity of company’s policies, ethicality and success of the company or profit making by any means possible (International, 2012)
2. The culture of the organization depends on the leader as well as the boards of the director which in this case has been a total failure, rather out of seventeen board members seven of these members were found to have inside trading with the firm or had sponsorship trading relationship with the firm.
3. A committee should be made which would look after the functioning of all the different bodies of the company such that these fiascos can be dealt with in the very starting of the problem. Various parts and leaders of the organization should be accountable to a particular committee which would only surveillance the efficiency of the organization.
4. Profit making should be a key target of the firm, but greed is not good, the company should not take help of unethical of cheap tactics for making millions or billions of profit
Conclusion
The following paper has helped us in understanding various concepts related to leadership, the culture of an organization, bankruptcy, profit making and many another subject. It is essential to notice that the paper has given a clear and elaborative insight on various questions asked in the case study which ranged from dependability of culture on leadership, steps required for minimizing the impact of unethical activities on the working of Enron. The paper ends with providing you with some recommendations for the company. The company, Enron was taking help of unethical activities for hiding the strangled web of the due loan and the pressure of massive debt on the organization. It was possible mainly with the aid of different leaders including the board of directors of the company.
References
Baeur, M. (2014). How culture affects leadership. Retrieved June 26, 2016, from https://www.martinbauer.com/Articles/How-Culture-Affects-Leadership
Guest. (2013, May 21). How leaders can impact organizational cultures with their actions and behaviors. Retrieved June 26, 2016, from https://www.halogensoftware.com/blog/how-leaders-can-impact-organizational-cultures-with-their-actions-and-behaviors
International, H. S. (2012). Leaders impact on organizational effectiveness and culture. Retrieved June 26, 2016, from https://www.humansynergistics.com/OurApproach/ImpactofLeadersonCulture
Kuhlmann, A., & Bio, V. (2015). Culture-Driven Leadership. Retrieved June 26, 2016, from https://iveybusinessjournal.com/publication/culture-driven-leadership/
Leadership-Central, 2016. (2010). Leadership theories – in chronological order. Retrieved June 26, 2016, from https://www.leadership-central.com/leadership-theories.html
McDonough, M. (2012). Path-goal theory: Discovering the best leadership style. Retrieved June 26, 2016, from https://www.mindtools.com/pages/article/path-goal-theory.htm
Mcofney, B. (2012). Core leadership theories: Learning the foundations of leadership. Retrieved June 26, 2016, from https://www.mindtools.com/pages/article/leadership-theories.htm
Yukl, G. (2016). An evaluation of conceptual weaknesses in transformational and charismatic leadership theories. The Leadership Quarterly, 10(2), 285–305. doi:10.1016/S1048-9843(99)00013-2
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