Organization_Leadership-Enron

Natalie Rivera LDR 531- Organizational Leadership March 1, 2011 Enron was an energy corporation involved in electrical communications, pulp and paper, and natural gas. In 2001 the company found itself facing a financial scandal that consisted of unethical financial practices, and procedures such as manipulation of stock prices. Enron was the leading energy company in the world and become “a popular symbol of willful corporate fraud and corruption” (Wikipedia, 2010). The core of this scandal were organizational behavior, leadership and management failures, which having taken the proper actions Enron’s failed empire could have been prevented. Enron’s failure began from its top management and filtered down to the employees. Enron’s executives wanted to obtain more wealth, and as their solution they veered towards manipulating stock prices and accounting books. With the assistance of Arthur Andersen auditors, a creative yet unethical practice began to make stocks appear more rewarding to their shareholders and stakeholders both present and potential investors . Enron’s executives and auditors accomplished this, and by doing so they found themselves obligated to continue altering stocks every fiscal year. Throughout the years, these accounting practices were possible to execute do to the lack of social and corporate responsibilities on behalf of the leaders directing this company, and consequently its subordinates. Audit, analysis, and review of all transactions that took place, especially when working with excessive amounts of money, should have been a priority to the committee and Board of Directors assigned at Enron. The fact that the numbers projected success, lead auditors to believe it was not necessary to investigate. Action was not taken to ensure processes, and procedures were being done ethically, and to corporate and business standards. The leniency and lack of supervision on behalf of the board, supervisors, and auditors is an essential determinant on how these accounting practices were able to be executed. Enron’s executives did not work alone in the accounting practice. Leaders depended on the employees to execute as well. To do so, employees had to hide losses, and begin reporting future profits as real profits. These employees, some oblivious to the practices taken place but others, bought into the unethical practices in exchange for larger salaries and excellent benefits provided by Enron. Enron’s top management as well as employees collaborated in the largest financial scandal in corporate history (npr.org). The CEO for Enron at the time was Kenneth Lay. The most important and crucial player when it comes to how and why Enron experienced the collapse has been pointed toward the CEO himself. As stated in Wikipedia 2010, Lay’s demeanor toward the issue and response to the problem continued to drive investors to purchase stock. His participation in these creative accounting practices, and creating “a dozen partnerships” which “hide huge debts and heavy losses on its trading businesses” led Enron to “the biggest fraud in corporate history” (npr.org). The organizational behavior, leadership, and management failures as mentioned previously points to Enron’s CEO, Kenneth Lay, and Enron’s executive’s who performed unethical practices. The organizational influences and explanation for the cause of this historical event is very important to analyze. “These influences include the shared beliefs that groups develop about who is important, what is permissible, and how things are done here in this group”, which makes sense on why Kenneth had such a good turn around on the followers that accompanied him during this time of corruption (Hanson, Velasquez, Moberg, Calkins, 2002). Seen as a leader and trustworthy, it was easy to reel in anyone who was interested in making the big bucks. The corporate governance was abused by these individuals, and all those who should have, and could have noticed the continuous malpractice were blinded by the increase in wealth taken place before their eyes. “…[R]evelations poured forth from Enron: tales of shredded documents, stories of Enron execs seeking help form top administration officials, allegations that company officials willfully ignored internal warnings about the accounting irregularities even as they pocketed millions of dollars in stock-market gains” (npr.org). Stockholders and stakeholders alike experienced a sense of success which in fact was a false sense of financial gain. This catastrophic event, and the level of corruption reached was a devastating situation to experience but one that opened the corporate world eyes. What actions and measures needed to take place to prevent this from happening again' Who was going to stop such actions from recurring' After Enron’s scandal and other corporate fraudulent scandals, and the impact on the organization behavior in corporations across the business world, there was a need to act upon the failed organizational behavior, leadership, and management. “These scandals resulted in a decline of public trust in accounting and reporting practices” (Murray, 2007). As a result, the United States Senate passed the Sarbanes- Oxley Act of 2002. “The Sarbanes-Oxley Act of 2002 is a United States federal law passed in response to the recent major corporate and accounting scandals including those at Enron…” (Murray,2007). There was a need to establish corporate governance, and a need to establish a basis to abide by for all United States public accounting firms and companies. As mentioned in Murrays article, some of the provisions included under the Sarbanes-Oxley Act are the requirements of companies listed on stock exchanges to have independent audit committees that oversee the practices and relationships between a company and its auditor. Among others, the most important, I believe, is the incentive for those potential whistleblowers that have the courage to “file a complaint, to be provided protection, reinstatement, back pay and benefits, compensatory damages, abatement orders, and reasonable attorney fees and cost”(Murray, 2007). If this had existed during the times Kenneth, his executives, and colleagues where executing such unethical practices, at least one person would have raised the flag. It only takes one individual to make the difference, and these practices and corruption might have been stopped billion of dollars sooner. The Sarbanes-Oxley Act also equalizes authority of top management, board of directors, corporation’s leadership and management, which can be understood as having the right to question actions executed by a member of the company at a higher hierarchy. Although what happened at Enron distraught the public’s trust in accounting practices and companies, the creation of this federal law gave the business world another chance to face the market and give it one more opportunity to see things done correctly, and ethically. Enron failed because the organizational behavior was not set to standards, and actions were executed by misleading and corruptive individuals. Greed overcame what the mission, vision and objectives were, and consequently lead to the collapse of the Enron empire. Enron is a great example of how failure in organizational behavior, leadership, and management can take a company from historical success to historical failure. References Calkins, Martin, Hanson, Kirk O., Moberg, Dirksen & Velazquez, Manuel. What really went wrong with Enron' A Culture of Evil' www.scu.edu March 5, 2002. Retrieved: February 28, 2011. Murray, James. The Sarbanes-oxley Act andEnron. September 30, 2007. www.ariclebase.com Retrieved: February 26, 2011. Enron Corporation. Wikipedia,2010. Retrieved: February 26, 2011. The Fall of Enron. www.npr.org. Retrieved February 26, 2011