1. How can what happened at Enron be explained by some of the theories of leadership that you have looked at?
2. In what ways does leadership influence culture?
3. What can be done to reduce the type of unethical behavior demonstrated in this case? What are your recommendations?
The purpose of this paper is to critically analyze the traits and characters of leadership and the ethical approach as taken by the team of managers of Enron. Enron is an US formed company dealing with resources such as natural gas, electricity and communications. In its early stage, Jeff Skilling was the CEO. The company failed to abide by proper leadership and ethics that an organization must follow in its business journey. The company has been triggered for its mal practices and numerous scandals. This paper will focus on various perspectives of leadership and ethics that are related to the working procedure of the company.
According to Tannenbaum, Weschler and Massarik, (2013), it is the trait of an individual that makes him distinguished between a leader and a non-leader. In fact, as pointed out by Aarons et al., (2015), that leaders are born and they are not made. However, leadership can be largely innate through learning rather than developing. In fact, research has proved that two basic terms related to leadership are personality and traits. However, there are certain criticisms towards this approach of leadership theory because the theory has been approached with much simplicity and it has failed to take other approaches, such as environmental or situational scenarios, behind the success or failure of a leader. As pointed out by McMurray et al., (2012), that leadership does depend on traits and characters but it is mainly accountable towards the situational factors that a leader has to face at the time of conducting his or her duty. In this respect, certain traits and characteristics can be discussed that creates a great impact on the leadership. These characters are:
Northouse, (2015) introduced the concept of transformational leadership. According to him, leadership is a process involving the role of both leaders and his fellow companions to raise the levels of morality and motivation to a higher level. As stated by Nazir and Shah, (2014), a leader is one who has certain expectations to fulfill. These traits could be:
As suggested by Daft, (2014), one can become a transformational leader, if one is capable in the creation of inspiring vision for the future, keep motivating people to deliver their vision towards the development of the company and building a stronger and trust based relationship with the people involved in the organization. There has been identification of five traits in a leader. These are determination, self confidence, integrity, intelligence and sociability. The transformational model suggests that there should be the presence of all the mentioned traits in a leader. It has to be mentioned in this respect that if one of these traits went missing then there remains a doubt in the effective leadership of the individual.
In case of Enron, there was complete absence of trait leadership. The key person never used to take other individuals in the company seriously and was more focused towards making financial profit for them. In this respect, it can be said that if the leadership approach would have been different, the scenario would have been different and the company would have functioned properly in the market.
Organizational culture is often viewed in two perspectives; one explains how an organization is, while the other explains what an organization has. No matter what, but culture of an organization is greatly influenced by the leadership of the organization. A leader is responsible for branding the success or the failure of the organization. When the employees work under the guidance of a leader, a systematic approach is made towards the work and the employee looks towards the guidance of a leader to continue with their work. A strong and positive culture exhibited by well integrated and specific values, beliefs and culture shapes the culture of an organization. When the behavioral patterns are similar, it is expected that the company would achieve better in its productivity.
As per the view point of Miner, (2015), a positive organizational culture is easily reflected in the work and development of a company. On the other hand, a negative culture in the work place is bound to affect the working condition of the organization. In respect to this approach, Gupta, Loon and Casimir, (2016), said that negative culture in a work place is capable enough to create a significant challenge for the organization that it would call for certain changes in the organization. In fact, a negative leadership shows a fast and dramatic effect on the culture of an organization. Negative culture can undermine the positive approaches undertaken by the managers of the company. A manipulative and complacency culture can create a challenging atmosphere in the work place (Myint, 2015).
Leaders are viewed as the role model for others. In fact, the employees of an organization keep a good eye on the consistency and the role played by the leader. There is no doubt that leader’s shape the culture of an organization and in fact, results in long term effect of the strategic planning of the organization. It is under the guidance of the leader and the manager of the company that the employees excel to achieve organizational goal. In fact, as pointed out by McPhail, (2015), it is the leader who set agenda and long term effectiveness of an organization. There is a clear indication that highlights the relationship between leadership strategies and the effectiveness of leadership role.
As opined by Pullen and Rhodes, (2015), collectivism in leadership is indeed more fruitful than individualism. When the members of an organization work in a collective approach, the chances of gaining a positive result automatically increase. It becomes a privilege to work in a company that has a collective approach towards the company culture and are more employees centric.
Enron has an individualism culture in the company. This culture along with unethical innovative ideas and the greed to pursuit profit has eroded the ethical consideration of the company. The company offered some promotional and incentive schemes but only to those belonging to the higher authorizes. Some of the key individuals of the company are Jeff Skilling, CEO of the company, the Chief Financial officer, Andrew Fastow and Mark. They were mostly responsible for shaping the culture of Enron. These people never approached the collective culture in the organization and were always focused towards their dominating nature. Trait leadership had no meaning with the type of performance that these key individual used to do. In fact, there was no integrity or truth worthiness among the leaders or the employees. This could be easily counted as one of the reasons for the devastating failure of the company.
As stated by Dent and Whitehead, (2013), every company reflects the ethical culture as it is practiced by the leader of the company. Ethical considerations are based on certain factors such as respect, integrity, excellence and communication. In the organization, people were encouraged for conducting unethical practices. Certain factors have been put forwarded by Chaturvedi, (2013), that shows how leadership can affect the culture of an organization. There are certain ways that might be taken into consideration by a leader of a company to improve the unethical behavior in the work place. Some of these cultures are:
As pointed out by Garg and Tiwari, (2015), there are certain obstacles as well that hinders the performance of a leader. These obstacles are basically internal. These are false ego, fear, pre conceived ego and other such that creates a negative impact both among the individual or the organization as well. Again in opposed to that, it has been pointed out by Pullen and Rhodes, (2015), that people also learn to cope with these situations and bring active changes in them. All it depends on the leader itself.
The high level managers used to take advantage of the compensation structure and were more inclined towards making profit for themselves rather than a collective approach towards the company. They were self serving pride people and they used to destroy the ethical consideration of the organization for the sake of their financial gain. The main scandal that they did was by shifting huge amount of resources away from the local region and then returning them by increasing the price of the product. This accounting scandal was enough for the company to get on their knees. Their continuous approach to encourage the use of non-standard accounting practices for the sake of making profit destroyed their work culture and resulted in their failure.
Recommendations:
With the understanding from several approaches gained by the literature review of the various facts and theories, it is certain that it is due to their dominancy in the leadership style and organizational culture that has resulted in the devastating failure of the company. However, certain recommendations can be made in respect that would have changed the organizational scenario, if better approaches were made by the company.
It can be easily concluded that the devastating end of Enron is due to the lack of an organized leadership approach in the organization. The research and various theories that have been highlighted in this paper provide a clear understanding of the importance of a positive leadership in a company. Moreover, keeping a good level of ethical consideration is also important to carry out regular business operation. For the sake of making profit, one cannot ignore the fundamental ethical consideration. Thus, there unethical approach towards the business was also one of the reasons behind their decline.
Reference list:
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Chaturvedi, V. (2013). The Role of Virtue Based Ethics and its Application for Effective Business Functioning: A Refurbishing Approach for Developing Ethics Based Organization. Asian Journal of Research in Business Economics and Management, 3(9), 131.
Daft, R. (2014). The leadership experience. Cengage Learning.
Dent, M., & Whitehead, S. (Eds.). (2013). Managing professional identities: Knowledge, performativities and the’new’professional (Vol. 19). Routledge.
Frederickson, H. G., & Ghere, R. K. (2013). Ethics in public management. ME Sharpe.
Garg, A., & Tiwari, P. (2015). A Synthesis of Literature on Ethics Program for Political Behaviour in Organization. International Journal of Management & Behavioural Sciences (IJMBS), 6, 372.
Li, Z., Gupta, B., Loon, M., & Casimir, G. (2016). Combinative aspects of leadership style and emotional intelligence. Leadership & Organization Development Journal, 37(1).
McMurray, A. J., Islam, M., Sarros, J. C., & Pirola-Merlo, A. (2012). The impact of leadership on workgroup climate and performance in a non-profit organization. Leadership & Organization Development Journal, 33(6), 522-549.
McPhail, K. (2015). Accounting, ethics and organization. The Routledge Companion to Ethics, Politics and Organizations, 181.
Miner, J. B. (2015). Organizational behavior 1: Essential theories of motivation and leadership. Routledge.
Myint, M. K. (2015). The recipe model of leadership: an approach linking leadership to managership.
Nazir, T., & Shah, S. F. H. (2014). Mediating effect of knowledge sharing between participative decision making, transformational leadership and organization performance. Journal of Management Info, 1(1), 1-12.
Northouse, P. G. (2015). Leadership: Theory and practice. Sage publications.
Pullen, A., & Rhodes, C. (Eds.). (2015). The Routledge Companion to Ethics, Politics and Organizations. Routledge.
Tannenbaum, R., Weschler, I., & Massarik, F. (2013). Leadership and organization. Routledge.
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