...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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...Examining a Business Failure: ENRON LDR 531 Organizational Leadership December 5, 2011 . Examining a Business Failure Effective managers and leaders contribute to the organizational success of an organization. Companies lacking strong managerial leaders failing to enforce the ethical code of conduct of an organization are prone to organizational failure. Yukl (2006), states, “One viewpoint is that leadership occurs only when people are influenced to do what is ethical and beneficial for the organization and themselves” (p. 4-5). The notorious Enron scandal created a historic impact to the organizational culture and processes of businesses in the United States. The following paragraphs will address organizational behavior theories, which could have predicted Enron’s failure. Furthermore, a comparison of management, leadership, and organizational structures is scrutinized to determine the influence each had on Enron’s failure. Who was ENRON? Enron was founded in 1985 when Kenneth Lay merged Houston Natural Gas and InterNorth creating Enron (CBCNews, 2006). In the early 1990s Kenneth Lay commenced the sale of electricity at reasonable prices. However, Congress deregulated sales of natural gas. As a result, Enron’s earnings increased and became the largest retailer of natural gas. To expand, Enron diversified and incorporated gas pipelines, pulp and paper, broadband services, water, and electricity plants. Furthermore, the deregulation allowed Enron executives full...
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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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...to 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...
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...Enron’s Failure Daphine Carter Leadership -LDR/531 July 18, 2012 Lorinzo Foxworth, DM Enron’s Failure Abstract Enron was the world’s top electrical, communications, pulp and paper, and natural gas company. Unfortunately, due to poor leadership and unethical decisions Enron failed to remain a stable and productive company. Enron due to a misrepresentation of funds found itself on the brink of bankruptcy. The company stock was worthless and within a short period of time has gone down by 89.00 per share. A scandal was revealed that involved the companies own accounting firm, Arthur Anderson, and Enron. The unethical practices of Enron were discovered in 1990 resulting in an investigation, which included finding out why stock prices being manipulated. This paper will identify the failures of the management and leadership of this company, how correct and positive organizational behavior and leadership of the management team would have affected the configuration of the now disgraced company. (Cernusca, 2011). Organizational Behavior Theories Enron’s failure could easily be predicted if the company ensured that the accountants and leaders were following the code of ethics set forth by the company. They adopted unethical practices like using unconsolidated affiliate companies for financial purposes and omitted expenses that were in the amount of billions of dollars. Enron misused...
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...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 system is completed by...
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...The Enron Business Failure 1 The Enron Business Failure The Enron Business Failure 2 The Enron Business Failure The company selected for intense scrutiny on leadership failure and ultimate business catastrophe is Enron. Enron had a very rich history of success and innovation in the industrial market of energy production and delivery. An important note to identify, Enron was named “America’s Most Innovative Company” (Lordan, 2002) for six straight years. This title sheds a great deal of light on the success and adaptability that was projected during the lifetime of Enron. This analysis will carefully review and identify major key factors of deception that brought an end to what was once a possible trademark of American Pride. The main reasons or conventional wisdom that most people believe Enron failed was due to sloppy board oversight, critical deception in imaginative accounting, multiple occurrences in off-balance sheet financing and criminalist policies of the Chief Financial Officer. According to many leading experts in the field of the Enron collapse (Stewart, 2006) the above mentioned reasons for the collapse were merely consequences to actions rather than the actual causes that brought on these fatal occurrences. After much research and the most complex bankruptcy to date in the United States of America, the Enron Bankruptcy and failure is hinged on the premise that the company failed due to the intentional cover-up of aiming at the wrong financial measures...
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...Business Failure Enron xxxxxxxxxx University of Phoenix Online February xx, xxxx xxxxxxxxxxxx Examining a Business Failure: Enron This paper will discuss the contributions of leadership, management, and organizational structures that led to the demise of Enron. The structures will also be compared and contrasted to help better understand why the company failed. Enron Corporation was founded in Omaha Nebraska 1985 and was defunct on December 2, 2001. In the year 2000 Enron had published revenues of $101 billion and employed approximately 22,000 employees. The Company’s founder and CEO was Kenneth Lay Other notable people who lead Enron where Jeffery Skilling, Andres Fastow, Rebecca Mark-Jusbasche. Fortune magazine nominated Enron as “Americas Most Innovative Company” for six consecutive years. At the end of 2001 it was discovered that Enron had been creatively distributing its debt through fraudulent planned Accounting making the company seem very profitable in previous years ("Enron", 2012). Leadership, Management, and Organizational Structures (contributed to the failure) Leadership has many different definitions; one definition is “the behavior of an individual directing the activities of a group toward a shared goal. (Hemphill & Coons, 1957, pg 7). This definition is closely is related and applies to Enron’s leadership, Management and structure. Enron’s leadership...
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...to the failure of Enron? Briefly explain two key factors. Greed was the first individual factor that one can blame for the failure of Enron. As the greed of gain has no time or limit to its capaciousness, the executives did massive fraud and insider trading in order to get more profit because of their egoism, self-interest. As a result, their irresponsible behaviour led the company into bankruptcy with numerous executives charged with criminal acts. The failure of leadership was also one of the individual factors that contributed to the collapse of Enron. The actions of Enron’s leadership did not match the company’s expressed vision and mission as well as it values. If Enron leaders like Kenneth Lay and Jeffrey Skilling had also adopted strategic leadership, they could have also become able to bring a strategic change as required throughout its worse period. There were many top executives engaged in many unethical behaviours like making a false financial statements, misleading statement and frauds,etc as a result of slippery slope. Andrew Fastow (CFO), Jeffrey Skilling (CEO), and Kenneth Lay (auditor) are among the most notable top-level executives implicated in the collapse of Enron. In fact, the board of directors should have prevented all of the unethical behaviours from happening. 2. What were the organisational factors that contributed to the failure of Enron? Briefly explain two key factors. The first organisational factors that contributed to the failure of Enron...
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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 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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...Enron's Business Failure 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...
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...exaExamining a Business Failure: Enron Examining a Business Failure: Enron Most people today have heard of the big Enron scandal through various different forms of entertainment such as television, radio, and the internet. Even those business people that never have time to watch the news heard some bits and pieces of the rise and fall of Enron. The basic issue that got Enron in trouble to begin with was the lack of good leadership and management. We know that insider trading is an unethical business practice. With that said, the big business executives and other members of the administration team at Enron had unethical business practices, and only one of those being insider trading. This paper will discuss the contributions of leadership, management, and organizational structures that led to the demise of Enron. Leadership, Management, and Organizational Structures Leadership has many definitions. According to Yuki, (2006) leadership is behaviors, influence, interaction patterns, role relationships, and occupation of an administrative position (p. 2). With this definition in mind, the average person can see the clear issues behind the fall of Enron. Csorba (2006) states that Enron’s management was built based on deception and lies. Even though some of the Enron leaders knew fraud and deception was taking place, like lifting conflict of interest rules for the CFO, they continued to look the other way and continued their employment and working dishonestly. One of the many...
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...Enron, Hurricane Katrina Examples of Leadership Gone Wrong Poor crisis leadership was on display after Hurricane Katrina and during the financial crisis The New Orleans masses who huddled in the Superdome after Hurricane Katrina, the Enron retirees who lost their life savings, and the laid-off workers buried under the economic ruin of financial companies all live with a simple truth. Just as spectacularly as great leadership can spark success, failed leadership can bring down cities, businesses, and economies. The collapse of major financial companies starting with Bear Stearns, the stunningly botched reaction to Katrina, the inept federal response to tips about Bernard Madoff's Ponzi scheme, and the financial sleight of hand that brought down Enron are only the latest examples of leadership failure. "We keep making the same stupid mistakes, generation after generation," says William Baker, who holds a doctorate in industrial psychology and is the journalist in residence at Fordham University. Many of the most stunning leadership disasters have common ingredients, such as executives who lack integrity and build organizational cultures where dissent isn't heard. "Leadership is not position. It's moral authority. Moral authority comes from following universal and timeless principles like honesty, integrity, treating people with respect," says Stephen Covey, author of several bestselling books on leadership and self-improvement, including The 7 Habits of Highly Effective...
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...Examining a Business Failure: Enron Examining a Business Failure: Enron Most people today have heard of the big Enron scandal through various different forms of entertainment such as television, radio, and the internet. Even those business people that never have time to watch the news heard some bits and pieces of the rise and fall of Enron. The basic issue that got Enron in trouble to begin with was the lack of good leadership and management. We know that insider trading is an unethical business practice. With that said, the big business executives and other members of the administration team at Enron had unethical business practices, and only one of those being insider trading. This paper will discuss the contributions of leadership, management, and organizational structures that led to the demise of Enron. Leadership, Management, and Organizational Structures Leadership has many definitions. According to Yuki, (2006) “leadership is behaviors, influence, interaction patterns, role relationships, and occupation of an administrative position” (p. 2). With this definition in mind, the average person can see the clear issues behind the fall of Enron. Csorba (2006) states that Enron’s management was built based on deception and lies. Even though some of the Enron leaders knew fraud and deception was taking place, like lifting conflict of interest rules for the CFO, they continued to look the other way and continued their employment and working dishonestly. One of the many...
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