Enron was founded in 1986 in the Houston, Texas as operator of natural gas pipeline. Enron had expanded the business from providing the products and services of natural gas, electricity and communication. North (2002), ???Enron was named the most innovative company in America for the sixth consecutive year by Fortune magazine??? (?¶9). And Enron was referred to role model as innovative corporation in the academic communities, business markets and public. What made the most innovative company collapse Financial fraud was the main reason for collapse. When Enron??™s senior management perpetually denied for any knowledge of fraud or illegal acts, people wondered what management did. And people assumed that the lack of leadership of senior management and organizational structure were the factors of its collapse. If senior management was not aware of daily operation in the organization, what did management do
So research paper will focus on how leadership, management and organizational structure affect the failure of the Enron.
Organizational structure and culture
Enron was obsessed with profitability and business success. The virtue of Enron was ???bold, innovative, smart, ambitious, accomplished, adventurous and undaunted??? (Cruver, 2002). At Enron, professional and adventurous employees worked in a decentralized structure with no supervision. Seeger (2003) stated, ???In the decentralized structure had the additional benefit of reducing the leaders??™ level of direct knowledge. When company gave the authority to execute multimillion-dollar deals with little or no oversight, management lost track of company operation???(p.73).
Enron was applied entrepreneurial organization. Entrepreneurial organization emphasizes the aggressive growth and rapid exploitation by breaking existing rules.
The Enron encouraged employees to be innovated and created in creating new chances for company??™s revenue. The Enron??™s culture allowed employees to make risky and ethically questionable operations. Risk taking for personal gain and company??™s profits had become the primary principle in the company. Since Enrons leadership pursed short-term profitability and risk taking, ethical behaviors in business were not considered the value of the organization, unethical behaviors continued to build during Enrons period of success. Enrons organizational culture created an atmosphere for the unethical and illegal acts that occurred. Since Enron seek a profit, employees focused on daily??™s bottom line and short term transactional events and closing deal for organizational success. Al (2004) stated, ???Enrons failure is results of total breakdown of corporate structure and corporate culture brought about by the failure of corporate leadership” (p.9). Without commitment of management for ethical leadership, ethical practices do not create and retain in the organization.
The ethical leader can create ethical workplace and facilitate the ethical decisions and establishes the vision and mission in the workplace. The primary purpose of enterprise is seeking a profit; the leadership style of Enron was fitted the nature of business.
In order to survive in the high competitive industry, Management should emphasize the efficiency and profitability. And management needs ability to earn the maximum returns with minimal inputs. In contrast, leadership contributes to motivate the employees to accomplish the goal, establish the vales of organization and communicate for vision. Enron emphasized the management aspects; as a result Enron??™s management lost the leadership.
Organizational culture is the key in the success of organizations. The failure of Enron began with a flawed organizational culture. Enron??™s corporate culture ruined the company??™s successes and ensured it for eventual collapse.
Leadership and management at Enron
The leadership style of Enron contributes to collapse the seventh largest company in the U.S. Leaders need to communicate visions with employees what organization value, want to complete, and expect from employees. The roles of organizational leaders is to accomplish the goals, strengthen values, develop the strategies to achieve the vision, build the organization to carry out the strategies, and manage the uncertainty and changes to make sure the development and existence. The lack of leadership can ruin the ability of organizations to implement and continue strategic change initiatives. Employees make a direction of work strategic based on response, behaviors, and recognition of leader in the organization. If leaders focus on profitability, employees follow the organization??™s intention and act correspondingly. Al (2004) stated, ???The differences between leadership and management; the preferred qualities of character that individual leaders should possess; and, detailed taxonomies regarding the social/psychological role of leadership and the specific jobs and tasks of the leader??? (p.7).
The Enron??™s management overlooked the nature of leadership to focus on nature of business. Corporation cannot expect long-term growth and success without effective leadership. Enron used to approve the deal verbally or inadequately empower the authority to employees for profits. Enron??™s management emphasized the decentralized and empowering management to promote the rapid business innovation. In the process, existing rules and procedures were easily ignored. Enron failed the management style due to inattentive and incompetent supervision by senior management and boards of directors. The management style of Enron caused the unawareness of management for daily operation. In large corporation, management is not able to know all information, but management has obligation to maintain a fundamental knowledge of operations. Due to absent of effective management and leadership, Enron collapsed.
The financial fraud was the primary reason on the surface for collapse of Enron. But people should understand the ground of financial fraud. The inattentive internal control and supervision by management, and lack of leadership contributes to create a flawed organizational culture, which focus on profitability instead of vision and value of organization led the collapse of Enron. Enron chose the decentralized structure to focus on profitability to survive in the high competitive industry. In the process of making organizational culture and structure, Enron failed to understand the importance of organizational culture and leadership. Enron??™s collapse was caused by lack of respect and concerns for business practices. The effective leadership is primary factor in order to accomplish the company??™s goal.
Cruver, B. (2002). Anatomy of greed: The unshredded truth from an Enron insider. New York: Caroll &Graf
Seeger, M.W., & Ulmer, R.R. (2003). Communication and Responsible Leadership, 17(1), 58-84. Retrieved June 25, 2009, from Sage database.
Al Gini (2004). Business, ethics, and leadership in a post Enron era. 11(1), 7-9. Retrieved 25 June 2009, from Gale database.
North, Gary. (2002). Enron, Spawn of Business Journalism. Lewrockwell. Retrieved June 25, 2009, from http://www.lewrockwell.com/north/north92.html