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Enron Business Failure Essay

1237 words - 5 pages

Examining Enron’s Business Failure
“Failure happens less frequently when the right mix of resources is brought to the task” (McCarthy, Flynn, Brownstein, 2004, p. 273). How could a corporation ranked 7th in terms of revenue in the United States at the time, coined “America’s Most Innovative company” six years straight by Fortune Magazine not have an adequate mix of resources? Enron, a well-known business failure, primarily disclosed itself late 2001. Along in the exploited affair, Enron Corporation also took down its principal accounting firm, Arthur Andersen, leaving few in either organization unscathed. The Enron scandal was a product of accounting ambiguities, ill-intentioned ...view middle of the document...

The deception was especially facilitated with the collaboration of world renown accounting firm, Arthur Anderson, whose job was “supposed to guard against such deception by going over the corporate financial statements of the companies they audit so as to certify to the public that when a company says it earned $1 billion, it actually did” (Guel, 2008, p. 434). The travesty was simple, “Enron stockholders were simply lied to. Investors must be able to rely on the veracity of financial statements” (Guel, 2008, p. 435).
Organizational Theories
Many approaches for studying leadership include assessing the leader’s skills, traits, and behavior. These approaches emphasize the leaders’ attributes, such as personality, motives, values, and skills (Yukl, 2006). Clearly, focusing on the characteristics of an effective leader, one could foresee a problem on the horizon. Kenneth Lay lacked many of the attributes associated with successful leadership including; values, integrity, and ethics that fueled the way he did business and influenced others in a negative fashion.
Guel (2008) refers to the Enron debacle “an ominous sign of a systemic problem” (p. 435). This could lead one to believe that had Enron adopted some of the organizational behavior theories into practice the company’s devastation may have been mitigated or foreseeable in the least. “Managers are people who do things right and leaders are people who do the right thing” (Yukl, 2006, p. 6). If that were the case, most would classify Kenneth Lay, CEO of Enron as neither a manager nor a leader. However for many years, people thought of Kenneth Lay as a leader, and he certainly projected himself as such. Meanwhile, he was dumping his stock while reinforcing in public appearances that Enron was still good. Yukl (2006), defines leadership as “the process of influencing others to understand and agree about what needs to be done and how to do it, and the process of facilitating individual and collective efforts to accomplish shared objectives” (p. 8). Fortunately for Lay, “the definition of leadership is not limited to processes that necessarily result in ‘successful’ outcomes” (Yukl, 2006, p. 9). Although Lay did have a tremendous amount of influence bestowed upon him, it is apparent shared objectives were not even established, let alone accomplished.
Further organizational theory evaluates leadership effectiveness in various ways. According to Yukl (2006), “most researchers evaluate leadership effectiveness in terms of the consequences of the leader’s actions for followers and other organization stakeholders” (p. 9). Considering the outcome and demise of Enron, Lay’s leadership abilities prove ineffective in the very least. Of normal measure, there was no “preparedness to deal with challenges, crises, or follower satisfaction with the leader” was nonexistent, as was the “follower commitment to the group objectives” (Yukl, 2006, p. 10). Last, there was no feasible way that...

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