...Title of Paper : Examining a Business Failure Name: Steven Turyahika Course: LDR/531 Organizational Leadership. Date: 05/08/2010 Instructor Name : Professor Paul Wallace Introduction This paper examines a business failure that occurred at Enron Corporation, an American energy company based in Houston, Texas. The corporation was formed in 1985 by Kenneth Lay after the merger of Houston and InterNorth natural gas pipeline companies. In the early 1990s when the federal government deregulated energy production, the company was able to thrive due to expanded markets that enabled the corporation to sell energy at high prices. By 1992, Enron had become the largest merchant of natural gas in North America and the gas trading business became the second largest contributor to Enron’s net income, with earnings before taxes and interest of $122million (Wikimedia Foundation, Inc, May, 2010 ). In an attempt to achieve further growth, Enron pursued a diversification strategy and by 2001, Enron had become a conglomerate that both owned and operated gas pipelines, pulp and paper plants, broadband assets, electricity and water plants internationally. The corporation also traded in financial markets for the same types of products...
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...Examining a Business Failure - Enron Patricia Davis LDR531 May 14, 2012 Thomas Ach Examining a Business Failure - Enron * Organizational behavior is defined as a field of study that investigates the impact that individuals, groups, and structure have on behavior within the organizations for the purpose of applying such knowledge toward improving an organizations effectiveness; specifically organizational behavior focuses on how to improve productivity; reduce absenteeism, turnover and deviant workplace behavior; and increases organizational citizenship behavior and job satisfaction (Robbins & Judge, 2007). This paper will summarize the Enron scandal that caused the company to fail and show how organizational behavior theories could explain the failure. * According to Wikipedia - The Free Encyclopedia, retrieved on May 13, 2012, “Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. Several years later, when Jeffrey Skilling was hired, he developed a staff of executives that, through the use of accounting loopholes, special purpose entities, and poor financial reporting, were able to hide billions in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives not only misled Enron's board of directors and audit committee on high-risk accounting practices, but also pressured Arthur Andersen, their outside accounting firm, to ignore the issues” (Enron Scandal). * To make Enron’s shares...
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...Managerial Organization LDR/531 March 23, 2013 Managerial Organization One of the world’s leading electricity companies, Enron Corporation, suffered from a financial scandal, which involved the corporation and its accounting firm. The scandal happened during the 1990s and was a result of irregular accounting procedures. This scandal caused Enron to file bankruptcy in December 2001 (Thomas, 2002). The subject of this paper will discuss how organizational behavior theories could have predicted or explained Enron failure. This subject of this paper will also compare and contrast the contributions of leadership, management, and the organizational structure of Enron, which to the corporations failure. Organizational Behavior Organizational behavior is the field of study that investigates the impact that individuals, groups, and structure have on behavior within the organizations for the purpose of applying such knowledge toward improving an organizations effectiveness; specifically organizational behavior focuses on how to improve productivity, reduce absenteeism, turnover, and deviant workplace behavior, and increase organizational citizenship behavior and job satisfaction´ (Robbins & Judge, 2007). Organizations have a structure that consists of board of directors, senior leadership, external auditors, and internal auditors. The CEO runs the company, but board of directors and senior leadership are also involved in the decision-making process. Monitoring the corporations...
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...Why Enron Failed By Suzy Bills In 2001, Americans were appalled to learn of the unethical practices carried out by leaders and other employees of Enron (as well as its accounting firm, Arthur Andersen). Enron used various methods of deception to appear more profitable than it really was, including through creating off-the-book entities to which Enron transferred its substantial debt (Jennings, 2005). While the company’s stock rose, so did its debt, and company leadership began using insider information and trading millions of dollars in company stock. When the scandal and impending bankruptcy were revealed, the company’s stock decreased from $90 to less than $1, a devastating hit to the financial market and numerous investors and employees (Betz, 2002). While the public was shocked at the numerous unethical financial practices, several organizational behavior theories, when applied to Enron, explain how such unethical activity could be permitted to take place. Chima (2005) describes organizational behavior as the result of the decisions of those who have obtained decision-making power, with the decisions reflecting the decision makers’ assessment of what is economically and politically beneficial for themselves and the company. Enron’s executives allowed themselves to be motivated much more by what would benefit themselves than what would truly benefit the company. The political model of organizational behavior describes this focus on self-interest (Chima, 2005). Money, greed...
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...Abstract Business practices based on fraud and unethical behaviors can collapse a fortune 500 company. An important element in deciding a business’s success or failure is the structure and behavior of its key leaders. Enron was a successful corporation claiming revenues of almost 100 billion dollars and named in Fortune magazine as America’s most innovative company for six consecutive years. In this paper, specific organization theories can predict and explain Enron’s failures because of greed, lack of business ethics, and deception in what is considered one of the largest corporate scandals of the decade. Enron's Business Failure In July 1985, Houston Natural Gas merged with InterNorth forming the largest energy trading business called Enron (Thakur & Kalra, 2003). Based in Houston, Texas, Enron was a leading supporter of restructuring energy markets in the United States. Growing from a natural gas pipeline company into a marketing giant, Enron managed to build a large and successful organization consisting of more than 20,000 employees and boosting annual revenues of more than $100 billion. Despite Enron’s years of reported success; exposure of deceit, poor managerial business practices, and illegal activities of its key leaders led to the collapse of this marketing giant once known as the largest players in the energy trading business (Electric Power Supply association, 2012). Organizational behavior is the study and application of knowledge about how people...
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...The Fall of Enron is a perfect example of management failure. Enron started off as a merger between Houston Natural Gas and Inter-North. A few years after the merger, Enron started changing the strategy and structure of the organization. Enron went from a raw materials management company to a company selling energy commodities. Enron proceeded to change from an energy company to a risk management firm that traded everything from commodities to derivatives. Enron failed for many reasons, ranging from organizational leadership, conflict of interest, and the off-book financials, which created an ethical disaster for the organization. Various organizational behavior lessons have learned from Enron’s fall from grace. The following paper will discuss some of the reasons for Enron’s internal combustion. Enron’s unethical organizational behavior was the main reason for allowing various illegal actions to take place, which killed the organization in the end. Organizational behavior is a field of study that investigates the impact that individuals, groups, and structure have on behavior within organizations, for the purpose of applying such knowledge toward improving an organization’s effectiveness ("Enron 101," 2002, p. 41). In the demise of Enron the leaders were producing behaviors contingent on demands, constraints, and choices that affected the behavior of the organization. In Enron’s situation the demands were for the company to be successful, which affected...
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...Examining Enron's Failure Organizational-behavior theories help to understand the effects of leadership, objectives, individual characteristics and action, and employee behavior and attitudes within an organization. It also explains the effects of internal environments, such as culture, the structure of the organization, resource and task allocation, and external environments such as competition or government regulation. These factors contribute to the performance, success or failure, and survival or fall of an organization. Organizational-behavior theories help to explain the collapse of Enron and how leadership, management, and organizational structure contributed to its failure. Organizational Structure With a market capitalization of nearly $74 billion, Enron was one of the world’s leading energy companies by the late 1990s. However, it had gained this status through the perpetration of illegal activities at the very highest levels of the organization. Enron’s fall was because of the organizational-level corruption that grew from its structure and trickled down to the collective behavior of its employees. Enron’s top-down, hierarchical structure by unit grouping meant that the top management team either directly or indirectly through their subordinates influenced the actions of the organization. For example, the structure of the accounting department allowed it to disregard legal requirements through “structural secrecy” that Enron’s executives could exploit (Beenen &...
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...Business Failure in Enron and The Organizational Behavior Theories That Explain the Company’s Failure Name: Institutional Affiliation Enron Corporation was one of the world’s top electricity corporations that underwent a financial indignity, which involved Enron and its bookkeeping company. The scandal comprised of the detection of unbalanced accounting techniques, which occurred through the 1990s. This resulted in Enron filing for insolvency in December of 2001 (Thomas, 2002). The aim of this paper is to define how organizational behavior theories could have anticipated or illuminated Enron’s failures. Organizational behavior, is described as an area of study that explores the influence that groups, individuals, and structure have on performance inside the organizations for the aim of applying such information toward refining an organizations efficiency; precisely organizational behavior concentrates on how to increase output; decrease absenteeism, turnover and unusual workplace conduct; and raise organizational loyalty behavior and job fulfillment (Robbins & Judge, 2007). The key players of any business are senior management, board of directors, in-house auditors and external auditors. In case of Enron, all the stakeholders were unsuccessful in playing their parts. Enron failure was mainly because of Enron’s managerial team trying to make an enterprise which would raise riches amongst their owners. Nevertheless, when it was exposed that Enron’s stock prices were less...
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...The Demise of Enron university of phoenix LDR531 July 09, 2012 The Demise of Enron Introduction: When the issues of business practices, regulation, and ethics are raised in the business world, Enron has frequently finds itself as the flagship example of irresponsibility, and intrinsic fraud. In retrospect, it is clear that Enron lacked a moral compass from the top down. In terms of organizational-behavior theories, these traits manifested themselves as a result of their corporate cognation, and organizational culture. Enrons biggest lack of business ethics was in its accounting. The deeply rooted accounting problem exposed by Enron's failure was the weak consolidation rule prescribed for highly leveraged "special purpose entities" (SPEs), or partnerships that were formed to carry out various projects whose assets and liabilities were not shown in Enron's balance sheet. Enron failed in part because of losses arising out of the many SPEs that it had created. Not only was this poor business practice, but Enron executives knowingly compromised the business so that they could maintain the stock price, and none from the accounting department or any other part of the business acted as a whistle blower or so much as questioned the practice of cooking the books. Unfortunately, these practices did not merely affect the perpetrators, is also destroyed the finances of investors, and faultless employees with stock options, as shares fell from a high near $90.00. Thus...
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...Managerial Organization (Option 1) University of Phoenix Organizational Leadership Patricia Caracena June 10, 2013 How did Enron a multibillion-dollar energy company arrive at a state of non-existence? Was it due to the lack of leadership and ethical managing or the whole organizational structure? Nevertheless, the collapse of Enron shed a whole new light on the industry of how one-minute they are the leader of the pack and the next just a remembrance of what was complete. Problems that plagued Enron were the lack of management possessing values, ethics, structure, leadership, and integrity to oversea the company. After Enron, government agencies begin to explore what caused the company to plummet. With the discovery of the uncovered risks, which show specific organizational behavior theories were unseen, the prediction was that this ultimately caused the downhill demise. Problems faced by Enron arose from the CEO and other management not acting in a manner that was competent in terms of knowing how to organize properly lead, and control the company. Enron consisted of some of the best executives with business backgrounds and employment records that showed them as being flawless. With this combined experience the entire team lacked the ethical approach of accountability on the level of financial insight and daily business processes. “Enron was undone by shaky accounting, too much borrowed money and an unwillingness to provide information to investors who grew to doubt...
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...Running Head: ENRON BUSINESS FAILURE Examining a Business Failure Paper Enron Rachel Y. Pointer University of Phoenix LDR/531 Ernest Price, Instructor January 17, 2010 Enron Business Failure One of the world’s most catastrophic business failures was Enron. Unveiled in October 2001, this scandal involves the renowned energy company Enron in conjunction with the accounting, auditing and consultancy schemes of Arthur Andersen. Enron disgraces ultimately lead the organization to a scandal that resulted in the biggest economic failure in United States history (TIME Enron, 2001). The Enron scandal also destroyed one of the foremost accounting agencies in the world, Arthur Andersen. Enron’s downfall was the result of their choice of accounting practices, in particular target entities and poor financial reporting. Enron’s accounting structure had so many loopholes that it was unproblematic for Andrew Fastow, the organization’s chief financial officer, to mask billions in debt from failed transactions and schemes. Fastow and other main executives purposely misinformed the organization’s board of directors and audit commission. The U.S. Securities and Exchange Commission (SEC) began an investigation into Enron after the organization’s stock price began to plummet and Dynegy offered to purchase Enron at a price much lower than normal market price. When the Dynegy deal did not happen, Enron filed for bankruptcy on December 2, 2001 under Chapter 11 of the...
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...ENRON’S FAILURE RESEARCH #1 Failure of Enron Corporation Enron Corporation, called America’s most innovative company for six consecutive years by Fortune Magazine, was the world’s leading energy company. Enron was formed in 1985 by a merger of Houston Natural Gas and InterNorth, involving the transmission and distribution of electricity and gas throughout the United States, but majority of its growth was due to the pioneering marketing and promotion of power and communication bandwidth commodities as well as its related risk management derivatives (Columbia Electronic Encyclopedia, 2009). Under new leadership Kenneth Lay and Jeffrey Skilling, Enron adopted an aggressive growth strategy. To ‘seal the deal’, they hired Andrew Fastow as CFO and it was he, that helped to create the complex financial structure for Enron (Reinstein & Weirich, 2002). One could say that Enron began to plummet as soon as the company shifted its focus from regulated natural gas domestically to international energy, water and broadband communications – as these were volatile and risky hedging transactions (Reinstein & Weirich, 2002). Engaging in these risky transactions, enabled Enron’s stock to rise but when these three new areas went sour, the stock plummeted as well. Enron’s management did not disclose these losses and liabilities on their financial records nor to the investors of the corporation (Reinstein & Weirich, 2002). Despite Enron being called the most innovative and having alleged...
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...Examining a Business Failure: The Downfall of Enron Team D: LDR/531 2012 Eric Heard In December of 2001, Enron was forced to file for bankruptcy after an investigation of their finances. This investigation uncovered a history of conspiracy, money laundering, and inside trading that led to one of the largest fraud scandals in history (Cernusca, 2011). As a result, businesses should examine exactly where this powerhouse faltered. The areas to be studied specifically are organizational structure, leadership, and management (Yuki, 2010). Once this is complete, business should learn from Enron's mistakes and be careful not repeat history. Organizational Structure's Part of the Enron Failure When looking at an organization, the structure which is defined as “how job tasks are formally divided, grouped, and coordinated” is important to fully understand the organization and how it can be an asset or in the case of Enron a failure (Robbins & Judge, 2011, p. 493). Since the fall of Enron people have studied the company to see what caused the failure. Due to Enron’s failure we have new legislation to help prevent some of the issues from happening again in other companies from the Sarbanes Oxley Act (SOX). One of the reasons for the act was the way Enron’s upper management ran the company. One key element to organizational structure is Centralization and Decentralization decision-making. This key aspect could be argued as the main...
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...Enron Committed Suicide Name Leadership/LDR 531 April 11, 2011 Instructor Enron was considered the major player in energy and considered as one of the most successful companies until it collapsed in 2001. Failure of this company did not only affect the employees and stakeholders, but also it had a negative impact on the United States economy. Public scrutiny of Enron’s failure, through legal battles, revealed how the toxic organization leadership and culture were two of the major reasons the world’s top energy company collapsed. In this paper, the subject to be examined is how Enron’s organizational structure, culture, and the major contributors contributed to its failure. Enron’s Failure “Originally a gas pipeline company, it metamorphosed into the world's largest trader in gas, electricity, water, and all sorts of post-modern commodities such as bandwidth” (Gutman, 2002, p. 1). It appeared that Enron was one of the most successful companies in the United States. Share prices were doing well in the stock market, and the share value consistently grew, making them very attractive. The company’s growth was perceived as genuine until the company suddenly collapsed, leading to a disclosure of a scandal that involved the top leadership of the company. The scandal that led to the failure of Enron did not happen overnight. The failure was rooted in the company’s unethical leadership (Weidlich & Calkins, 2006). Enron’s fast rise to the largest energy management...
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...the failure of Enron? Briefly explain two key factors. Enron collapsed in large part because of the unethical practices of its executives. Egoism (Self interest) was one of the major factors contributed to the failure of Enron. Enron’s executives put their own interests above those of their employees, company and the public, and failed to exercise proper oversight or shoulder responsibility for ethical failings. They allowed themselves to be motivated much more by what would benefit themselves than what would truly benefit the company. Money, greed, arrogance and hubris led company executives to lose focus on working for the good of the company and to act unethically (Gini,2004). Abuse of power to make decisions which were beneficial economically and politically to themselves and the company, was one of the key factors that led to Enron’s failure. Company leaders used insider information and traded millions of dollars in company stock, borrowed from subsidiaries with no intent to repay the loans (Wilke, 2002) , and avoiding federal taxes even though some of its subsidiaries, like Portland General Electric, collected tax payment from customers (Manning & Hll, 2002). Such behaviors of moral failure at the top and irresponsible behaviors led to the collapse of Enron. The unethical behavior of Enron’s leaders appears to be the product of both individual and situational factors. Greed was the primary motivator of both managers and their subordinates at Enron (Cruver, 2002)...
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