Enron

Enron Enron was an organization that was based out of Houston, Texas. The mega-organization was an employer to nearly 22,000 employees. Prior to calling Houston its home, Enron began the business in Omaha, Nebraska. As one of the suppliers of natural gas and electricity, Enron distributed these commodities nationwide. Named by Fortune Magazine as America’s Most Innovative Company for six years running, Enron became one of the top 100 companies to work for. The organization appeared to be demonstrating all the key ingredients of operating as a model organization. That vision became blurred in 2001 when Enron became a defunct organization because of an accounting scandal that resulted from unethical and inappropriate accounting practices. Fraudulent accounting procedures and misappropriation of funds were occurring between Enron and the Arthur Anderson Accounting Firm, which was once known as one of the largest accounting firms in America. One example of the fraudulent accounting practices is the large number of off-shore accounts that Enron created to evade taxes being assessed on the business’ profits. Better known as currency movement or money laundering, this vehicle was created to hide Enron’s alleged losses. Hundreds of millions of dollars were in-turn being funneled from these off-shore accounts to Andrew Fastow, Chief Financial Officer, other officers at Enron, and their family members. Enron Page 3 Leadership Fails When wearing the leadership hat, leaders have a responsibility to be an example and to therefore lead by example. Leadership styles have a big impact on the success of an organization. Leadership, if the leader is clever, comes with the ability socially to influence others’ decisions in an effort to support the vision of the leader and the organization (Yukl, 2006). Directors and officers have fiduciary responsibilities they must uphold. The duty of obedience, the duty of care, and the duty of loyalty cover every aspect of how the corporate officers should carry themselves and the organization. It begins with the duty of obedience. The corporate officers at Enron did not respond to this loss of revenue appropriately. They did not act within the authority of the bylaws, or the article of incorporation when these officers stretched the limits of their accounting firm’s expertise, causing the firm to create a way to favorably manipulate Enron’s Balance Sheets. There was zero duty of care occurred on behalf of Kenneth Lay, Andrew Fastow, and Jeffrey Skilling. These officers did not practice diligence or care, nor were these officers acting in the best interest of Enron. They were each personally liable to Enron and the shareholders for damages resulting from the accounting scandal. This scandal occurred solely with the intent of personal gain. The officers’ act was intentional and personal gain was the final result. Management Fails Enron Page 4 The decisions made by Enron’s Finance and Accounting managers appear to have been made without regard to their fellow subordinates. This style of management is known as an autocratic style. Managers tend to make all the decisions in a unilateral format with absolute disregard of the impact the decisions could have on subordinates or the organization. In the case of Enron, the type of leadership demonstrated is permissive. The managers still made the unilateral decisions; however they did not micromanage their subordinates. Instead, the managers allowed for latitude in performing these unethical and fraudulent acts. Not every unethical accounting act stemmed from the Arthur Anderson Accounting Firm. A large number of the acts were committed through Enron’s internal staff of accountants. Approximately 80 accountants were involved in the day-to-day manipulation of the figures on the balance sheets under the direct supervision and approval of Enron’s finance managers. A lot could be gained “if” the scheme could be pulled off; and for years, it was. The idiotic idea of reporting false profits to increase the market shares became more important to management than making an earnest organization out of Enron. Management questioned nothing because there was too much to lose. The organization was operating at an extremely high risk. The managers forgot all about the principles of good business. Enron was in too deep and the situation escalated to a point of no return. Organizational Behavior The environment at Enron became anything but normal. The organizational behavior shifted during the accounting scandal. Employees were no long satisfied. They lost that sense of Enron Page 5 organizational and job security, and turnovers became constant. There were no rules as the organization’s corporate culture was spiraling out of control for the love of money. References Yukl, G. (2006). Leadership in Organization (6th ed.). Saddle River, New Jersey: Pearson Prentice Hall. Retrieved August 2, 2010 from University of Phoenix Eresources.