Leadership In Enron: Theories, Culture And Unethical Behavior

Enron Company

Describe Leadership in Enron. Explain the following:

1. How what happened at Enron can be explained by some of the theories of leadership?

2. How leadership influences culture?

3. How to minimize the type of unethical behavior demonstrated above?
 

Leadership originates when there is a relationship. The basic human relationship involves two people, though a relationship can involve a lot of people for instance in an organization. To fulfill an objective in a relationship, people normally differ in their way of perceiving things and in other various ways. Hence, leadership is always needed in such situations to prevent scandals that may rise due to everyone wanting their will to predominate. Leadership enables decision making to be an easy process because if a person differs then he or she would have to give up his or idea, hence forming a hierarchy. Leadership is very important but if it is not appropriate then would fail in achieving the objects set. For instance, Enron had the potential to grow. Because of the leadership style and the type of leaders it had it ended up bankrupt and failing. Thus, leadership is a crucial aspect for the success of the organization.

The story concerns Enron which is the United States based company. The Company began in 1986 after the merging of Houston natural gas and Internoth. Enron grew into a big company and ventured into producing many different products and services relating to natural gas, electricity, and communications. It had 22,000 employees as at the statistics of 2001. But due to insolvency, Enron collapsed. This was mainly influenced by the market losing confidence in Enron due to the profit and asset write down. The main reason why Enron had collapsed was because it had a lot of imaginary assets and expected earnings which were to lay a foundation for their objective, to rise into a fortune. In the meanwhile, the company had large of debts which were kept secret. From the year 1997 to summer 2001, the company reports had exclusive results that showed that the company met or exceeded their rising targets. The management developed a false partnership that resulted in the sale of assets. The dispute developed among the executives leading to the draining of the company’s funds.

Creating blackout in California and raising the electricity prices was an example of unethical practice performed by the executives of Enron. The CEO in an interview defended this act saying that the company acted according to the rules set to the marketplace.  The CEO resigned later and sold all his stock in the company. The company appointed a new CEO. He tried to bring out the value of the company’s shares by talking to investors and the public to ensure that the direction in which Enron was heading to was the right one.  Despite this, the other executives were selling their shares. The management of Enron failed in executing their responsibilities. They had a role to ensure that every employee’s action is for the benefit of the company. However, this was not the case as even some of the executives were involved in the scandals.

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The leadership of any organization is done by the executives. Their actions influence greatly the actions of other employees and hence they should always act to the very best of the organization. Enron was not an exception thus the bad actions of the executive and senior management lead to the failure of the company. The culture adopted by Enron also contributed to its failure. The business culture constituted of individualism and it lead to the erosion of employees’ ethics. The company gave bonuses to those who had high amounts of profits and sacked out employees with low amounts of profit. This encouraged the employees to manipulate the amounts of profits they had.  It should be that rewards and bonuses should be given according to the way an employee has delivered the ethical values and not according to the results obtained as in the case of Enron. It is beyond doubt that Enron gave appraisal to those employees with the unethical behaviors and disregarded the employees who were true. Due to the inappropriate leadership of Enron, the company went down in United History as one that had the largest and most complex corruption case. This had a lot of effects on very many people, both investors, and employees. 

There are various theories of leadership and this include; behavioral theory, great man theory, trait theory, contingency theory, transactional leadership theory, and transformational theory. The great man theory began in the 19^th century. It says that the traits of leadership comes from within and cannot be obtained.  According to this theory, leaders are destined right from their time of birth (Lussier & Achua, 2015. This theory came about as a result of studying the heroes and legends. The trait theory generally identifies characters in an individual that makes him or her to naturally be a good leader (Northouse, 2015). Such qualities include; critical thinking, intelligence, problem-solving skills among many others. The theory identifies some of the social, physical, and mental characteristics that make one to be a great leader. This theory has got a limitation because not all those who have the leadership qualities make good leaders. Behavioral theory is more or less the same as the trait theory. This theory is mainly concerned about the behaviors of the leaders in contrast to their mental, physical and social qualities (Shek & Chung, 2015). This theory proves that a person can become a good leader even if he or she does not pose the leadership qualities. Behavioral theory is analyzed into categories; analyzing behaviors according to the task performed by the leader and the behaviors according to how the leader interacts with people. Contingency theory outlines that there are no particular ways of leading as the leadership style to be adopted will depend on the situation at hand. The transactional leadership theory outlines that the leadership style to be used will depend on the relationship of the leader and his followers. In this case, both the leader and the follower are to benefit (Miner, 2015). For this theory to be effective, the leader must find a way on how to set regulations for the performances of the followers. For instance rewarding a follower for good performance and punishing a follower in the case of a bad performance. The transactional theory is usually applicable in the case where there goals and objectives set that are to be achieved. Transformational leadership theory mainly majors on the interaction between a leader and follower that increases motivation on both sides. In this theory, the leader should be able to transform their followers positively through their nature and good personalities.

How leadership influences culture?

The above leadership theories were observed in the case study described above. In this case, the behavioral theory was more dominant than the others. The behaviors of an individual will determine the kind of a leader he or she is. In Enron did not have acceptable behaviors, they engaged in unethical acts and lied to the public by manipulating their earnings and hiding their losses. From search behaviors, the behavioral theory refers to those leaders as incapable. Transactional leadership theory was also applicable in Enron. Enron was a company that had set goals and objectives. There had to be a relationship between the executives and employees that both had to benefit. In order not to put the benefits of the set objectives, rules and policies are policies are always put that are to be adhered to. In the case of Enron, the leaders neglected their duties and the company’s objectives and pursued their personal interest. Most of the employees also followed the example that had been set by their leaders. In most organizations, employees are not always aware of what should be done and need leaders to show them away. In such a case transformational leadership theory is applied, where the leader’s actions and nature transform the employees. The transformational theory was negatively applied at Enron where the employees engaged in negative actions. However, the type of leadership thus not defines how great a leader is but instead, it will depend on the leader. Hence, leaders should always aim at giving positive impacts to their followers. 

Culture can be defined as the values of an organization and this will influence how individuals in an organization behave. A good culture is one that aims at the diversity and influencing the actions of the employees to adhere to the strategies set (Li , 2016).  Leadership can be influenced by culture in the following ways;

Through the visions and strategies put in place by the leaders. In order to achieve the objectives, strategies that would help achieve the objective are always important to put in place to help set regulations that employees are to adhere to. In the case of Enron, the strategies in place were not so effective and hence did not create a culture that would the Employees to achieve objectives.

Through the leaders putting in place ethics that support specific values. The implementation of the actions is what counts. Ethics are developed to demonstrate values to the employees. It is advisable for leaders to perform actions that bring out the values. And as such leaders should be able to lead by examples. Such type of leadership would lead to the formation of an ethical culture where values are not just spoken of but are performed. The developed values should be used to achieve the company’s set objectives.

How to minimize the type of unethical behavior demonstrated above?

Developing a plan that will help in empowering the employees. This a situation where the leader gives his or her followers power to make the decision on their own. In the case of an organization, the employee empowered is given responsibility, authority and will be accountable for each and every action that he or she performs (Markus & Kitayama, 1991. It is also a way of creating leadership in all units of the organization. Empowerment helps in creating a sense of responsibilities in the employees and also to show that they can be entrusted. Each and every organization should always try to empower their employees since it does not create a sense of responsibility but it also nurtures their leadership skills. 

Due to the Enron’s unethical behavior, electricity prices in California were raising and this became expensive for the residents. The rise in prices was due to blackouts. The following are ways in which such unethical behaviors can be reduced:

a. Putting in place policies and practices that would regulate how an employee performs his or her duties. The policies will also help in identifying and reporting cases on those who violate the ethical code of conduct. Policies are not just enough but putting them into practice will make them more effective.

b. The employees to be employed should have the qualifications for the work. When an employee has enough experience then he or she is able to understand the importance of keeping up to the policies even without being followed up. He or she will also be able to make right decisions when faced with a situation where the choice counts. Such employees are vital for the development of the organization.

c. The roles of each employee should be clearly defined to each and every person. This will make them understand the objectives, policies and the reasons for putting them in place in an organization. Organizing training and seminars for the employees would help enforce this.

d. Developing the necessary control measures. This could be action control among others. These controls ensure that the employees do their work as it is required of them. The controls should always aim at upholding values in an employee and not to rely on results because some good results are not obtained in the right way. 

Conclusion

Enron even to date is still being used to set an example to other organizations over the unethical practices that lead to its collapse. For such a case not be repeated every organization must ensure that its leadership style is one that would influence ethical practices among members to ensure positive results that would help in its growth.  

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