Leadership Theories For US Based Companies – Enron Case Study

Comprehension

Discuss about the Leadership Theories for US Based companies.

Leaders are the one that lead a group of people or guide entire organizations to achieve and accomplish the goals and targets of the organization. There are various leadership theories that are applicable on organizations. Leaders are as essential part of organization as they are the ones that lead an entire team and understand the problems that they face. Leaders have great roles and responsibilities to play. Leaders are responsible for planning, forming a strategic plan and implement it in organizations (Aaker & Joachimsthaler, 2012). It is also responsible for creating a vision for the company and motivates the workers to work hard so that they are able to fulfill the goals and targets of the organization. The inefficient leaders can create havoc in the organization due to its mismanagement. Same was the case with Enron where due to the mismanagement of the leaders the entire organization had to face loss. The company lost market confidence due to the loss of the profit and the financial plan that the company applied. The main purpose of the assignment is to identify the issues that the organization faces and how the leadership theories can be applied to the issues of the organization. There are various leadership theories such as Great Man theory, Participative leadership, situational leadership, contingency theories and transactional leadership (Daft, 2014).

The case study of Enron is complex as well as simple.  It is simple because the problems that the organization faces have to do with general terms like leadership, culture, unethical behavior of the managers and rewards. It is complex because the organizations financial ability and plan is difficult and complex. Since the company is US based the report analyzes the corporate culture within USA and the key issues for Enron. Enron was formed in the year 1986 from the merger with various other gas companies. In fifteen years the company diversified its products and services related to natural gas, electricity and communications.  The main problem with organization is that it simply ran out of cash. The market lost its confidence on organization due to the loss that it is facing and the rise in the stock borrowings (Enron Case Study – History, Ethics and Governance failures, 2016).

The work or the corporate culture in USA varies across different industries and in different part of the countries. It is also essential for the employees to respect the work relationship with the superiors of an organization. The main key points of US business culture are individualism, competitiveness, efficiency, informality and openness to innovation and change. The values in the organization greatly affect the etiquette and behavior at the workplace. It is also greatly influenced by the behavior of the individuals (Spector, 2014).  The work culture of USA is both professional as well as casual in nature. The work culture and dressing style in USA varies from different countries. The work schedules are flexible in nature while people prefer to dress casually at work. It is mostly informal in nature. It also lacks hierarchy between managers and theory subordinates. All the employees are treated equally without any discrimination. Americans prefer privacy in their work and does not like anyone entering their private life (Markham, 2015).

Analysis and problem diagnosis

Enron faced many challenges and issues in its operation. The major problem was that the organization simply ran out of cash and it failed due to loss of the confidence of the market. The debt condition of the organization was continually rising. The business of Enron had failed that lead the entire organization and the people associated with it to suffer. The major reason for the failure of the organization was not loss of market confidence but due to fail in leadership skills. Many leaders were involved in unethical practices and involved in creating false earnings. The organization was involved in hiding the false losses and creating unnecessary rise in the prices of assets to cover the cost (McLean & Elkind, 2013). .One such example of unethical practices is the transfer of energy out of California that led to blackouts and unnecessary increase in the price of electricity. This action was taken to generate extra profit from energy and gas. The problem with the leaders of Enron is that they are very smart and aggressive and use only those policies that benefit the organization and not the employees or the customers. The most important issues were that the stakeholders and the customers were not happy with the price of the stocks of the company and the unethical practice that it is involved in. It is essential for the leaders to follow ethical code of practice and conduct the business efficiently. The leaders were also involved in conflicts sue to which many of them were sued. The reason was that the directors were involved in trading with sponsorships and inner trading (Foti et al., 2014).

The key determinant of the ethical culture is respect, integrity, communication and excellence. The senior management plays an essential role in setting ethical culture for its organization. The reason for erosion of the value of the organization was the culture of the company that includes individualism, innovation and unethical way of creating profit. The unethical practices were not only followed by the directors but also the employees of the organization. The main issue with Enron was the reckless and ruthless behavior that it showed to its employees (Tiftik et al., 2015). The example of such behavior is the firing of employees without giving any warning notice prior to termination. The review of the committee was also false as the performance appraisal of the employees was not made on how well they perform but on the basis of profit that the employees earn. The lack of ethical culture and practice greatly affected the position and condition of the organization as the company was declared as bankrupt (Guetterman & Mitchell, 2016).

Theory and practice

The situation that Enron faced was unavoidable. The leaders could have used the alternate methods to raise profit in spite of adopting the unethical codes of practice. The main issue of the case study is unethical practice that the leaders follow. There are three leadership theories that are related to ethical leadership. These include transformational leadership theory, spiritual leadership theory and authentic leadership theory. Authentic leaders are the ones that give emphasis on how they behave morals, ethics, strengths and knowledge. Spiritual leadership is based on ethics and values that are in context to religious texts. This involves incorporating integrity in its work organization. Transformational leadership deals with the change in the lifestyle of people’s behavior in society. The leadership ethical theories include incorporating the ethical decision making (Spector, 2014).

Corporate culture has a great impact on leadership. There are various ways leadership can affect culture. Both the culture and leadership of an organization plays an essential role in determining the behavior of the organization. It is crucial for the benefit and success of the organization. Culture of an organization helps in determining the criteria of the leadership of the organization. Organizational culture is the beliefs and values that exist in an organization. The core values of an organization starts with the leadership as the behavior of individual is greatly affected by the culture and values that they hold. The culture of the organization helps the employees know whether the action is acceptable and feasible or not. Culture is the rights and norms that the organization posses (Abdullah et al., 2015).

Leaders influence the organization culture as they are the creators of the culture. Leaders are the ones that adjust according to the culture of the organization in order to accomplish the goals and objectives of the organization. This also helps in increasing the job satisfaction of employees. Organizational culture is positively correlated with the culture of the organization. This is evident from the case study of Enron a US based company (Landis et al.,2014). Due to the inefficiency of the leaders the culture of the organization is greatly hampered. The unethical practice of the work that is conducted by the leaders of the organization is followed by its staff members as well that hampers the culture of the entire organization. There are many ways by which the leadership can influence the culture of the organization. Few to be specified are collectivism versus individualism. If the company has Collectivist Company culture that is socially conscious then it is the millennia’s that will be interested to work in organization. While in case of individualist culture the employees will work to appease the managers and higher level executives of the company (Agosto et al., 2013).

The organizations success also greatly depends on the attitude and behavior of the organization. A boss should be the one that is able to motivate the employees and influence them in positive way. Culture and leadership is a two way phenomenon. Organizational culture influences the leaders and it is the leaders that also influence the culture of the organization. Changing culture is a difficult and complex process if it is prevailing in social and cultural norms. A cultural norm is the behavior and values that everyone in a group posses and it is of similar kind. Every society has a cultural norm. Leaders shape and form culture and they themselves are formed by culture of the organization. The theories of the leadership tend to follow the societal norms and are based on the culture of the organization. There is a difference as to how the society sees the world and how the leadership theories see the world (Chhokar et al., 2013).

There are five primary mechanisms that a leader can use to influence an organization’s culture. These include attention, reaction to crises, role modeling, allocation of rewards and criteria for selection and dismissal. These assumptions reinforce and encourage behavioral and cultural norms within an organization. The organization used five mechanisms to reinforce a culture that was morally flexible opening the door to ethics degeneration, lying, cheating and stealing (Chhokar et al., 2013).

Leaders are the ones that motivate and influence the employees of the organization. Leaders can prevent or curb the unethical behavior in an organization especially in the case where the leaders themselves are involved in practicing unethical codes of conduct. As in case of Enron there are many alternatives ways to earn the profit and cover up the loss in spite of using unethical practice. The leaders of the organization should that the employees with care and not by aggressive nature (Johnston & Marshall, 2016).  It is essential to issue the warning sign before terminating any employee. The performance of the employees should not be marked on the basis of the income that they earn but it should be marked on the basis of the contribution of employees towards organizations performance. The employees rely on the managers and leaders for the direction on how they should conduct themselves in an organization. It is the leaders or the managers that make the decisions based on ethics. The leaders are responsible for monitoring the employee’s behavior and check whether the employees are following the ethical codes of practice (How Cooking the Books Works, 2005).

There are three processes of business strategy against which the success of the business depends. This includes suitability that defines whether the strategy will work or not, second is feasibility that explains whether it is feasible to make the operations work and the third is acceptability. Rationale of the strategy is dealt with suitability and the tools used to evaluate suitability are decision tree and strategic options. The resource that is required to implement the strategies is feasibility. Acceptability deals with the expectations of the stakeholders (Amernic & Craig, 2013)

Conclusion

Leadership is a skill that is required to manage the working of the organization. Leaders are the ones that motivate the entire team and set a clear vision of the organizations to achieve the targets. It is essential for the leaders to indulge in ethical codes of practice to make the organization sustainable and lead it to a path of success. As studied in the case of Enron since the leaders are involved in unethical practice the employees of the organization also indulge in unethical practice. This lead the company into a serious trouble as it simply ran out of cash. There are many ways that the organization can use to resolve the issues that are ethical in nature.

References

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