But who is to determine if the new directions are good and more affirming? For example, Kenneth Lay was one of George W. During this time Enron was extending its pipeline operations into a wider power supply business, initially in the USA and then on an international scale, completing a large plant at Teesside in the UK and contracting to build a huge plant near Mumbai in India.
We often read about good kings and bad kings, great empires and evil empires, and strong presidents and weak presidents. The second half of this Enron case study assesses business ethics and the impact on corporate governance, as measured against our Five Golden Rules.
Leadership involves values, including showing respect for followers, being fair to others, and building community. Considering the complete absence of the leadership trait of integrity in Skilling, the abuse of transformational and charismatic leadership by Lay and Mark, the overindulgence of rationalized self-interest and universal ethical egoism on the part of the traders, and the lack of either a utilitarian or a deontological system of practiced ethics at Arthur Anderson, it should come as no surprise that an organizational culture deeply rooted in narcissism developed at Enron.
To illustrate, consider the hypothetical survey summarised in the following chart. The paper begins with a narrative of the rise and fall of Enron as the seventh largest company in the United States and the sixth largest energy company in the world.
The dark side of leadership is the destructive and dark side of leadership in that a leader uses leadership for personal ends. The executives displayed all of the dysfunctional personal characteristics that are found in destructive leaders. Enron filed for Chapter 11 protection in December and instantly became the largest bankruptcy in U.
At Enron, however, this morally absent form of transformational leadership became a double edged sword that eventually cut off executive leaders like Lay from the financial reality existing around them. Banks refused further finance, suppliers refused to supply and customers stopped buying.
This disconnect with reality, coupled with the general lack of integrity on the part of leadership, ultimately fed into a culture of narcissism; a culture that permeated throughout the entire organization.
Clear goal shared by all key stakeholders Lay and, particularly Skilling, engendered in all the staff of Enron the goal of driving up the share price to the virtual exclusion of all else. The next step was, naturally, to look at how earnings could be massaged to achieve the aggressive revenue and earnings targets.
Basically, integrity makes a leader believable and worthy of our trust p.
Jeffrey Skilling, the Chief Executive Officer, developed a staff of executives that, by the use of accounting loopholes, special purpose entities, and poor financial reporting, were able to hide billions of dollars in debt from failed deals and projects.
Transformational leadership involves an exceptional form of influence that moves followers to accomplish more than what is usually expected of them. In particular, the use of mark to market valuation on contracts produced artificially large earnings, disguising for some years underlying poor profitability in major parts of the business.
At the time, Enron was ranked the sixth-largest energy company in the world. In due course it had deals all round the globe, from South America to China.
The third and final part of the paper examines the policy responses to the Enron scandal. Since the massaged figures for growth in earnings still left a shortfall in cash, Enron quickly maxed out on its borrowing abilities.
Its credit rating went to junk status, which caused the share price to collapse and triggered further crystallising of debt obligations. In conclusion, leadership is a process of influencing others. Lay, himself, was given veto power over the important position of chairman of the FERC as well as a prominent position within the highly secretive, Cheney-led Energy Task Force early on in the Bush presidency p.
Transformational leadership, on the other hand, was a leadership process whereby the individual leader engaged with the follower in such a way as to create a connection that increased the motivation and morality in both leader and follower alike Northouse,p. Those two theories are trait theory and transformational theory.
Hence, in advance of using our own membership for the survey input we can apply the very detailed findings from the post crash dissection of Enron. Remarkably, the leaders at Enron i. Rarely, if ever, do the followers have the opportunity to reciprocate this momentum and impact the leader in a genuine fashion.
In this way, an amoral and unethical culture developed in Enron in which customers, suppliers and even colleagues were misled and exploited to achieve targets.
Enron capitalized on the governmental deregulation of the natural gas market by providing consumers with greater access to natural gas via their nationwide pipeline system.
Skilling was a proponent of the asset light strategy discussed earlier. Stogdill, began questioning the universality of leadership traits. By introducing forward markets, individuals could acquire information and knowledge about the future and express their own expectations by either buying or selling forward p.
As mentioned above, integrity was a non-factor and a complete missing link for leadership when it came to establishing a bottom line for subordinates, a bottom line based solely on profit maximization and performance increase in the market share value of the company.
It is a process that often incorporates charismatic and visionary leadership p. As we have seen in this case study, what introduced the virus was the pursuit of personal wealth via very rapid growth. Of the two fundamental principles, the principle of justice is considered a priori within the Frankenaian system.
The way this creates the culture determines the performance in relation to the other four Rules. Skilling spotted an opportunity to develop new markets. In this instance, it is the leader who initiates all of the momentum influencing followers to do great things.On March 5,the Markkula Center for Applied Ethics convened a panel of four Santa Clara University business ethicists to discuss the Enron scandal.
The organizational culture of Enron was ultimately to blame. As accounting tricks were implemented to show a favorable portfolio, the ethical practices slowly eroded away.
The case 'The Enron Saga' outlines the problems faced by Enron in starting its operations in India-the legal, political and economic forces at play during the early s. The case is an example of how Enron surmounted the different hurdles and made the project viable under the.
The Enron scandal serves as an excellent case study for why their is a high demand for moral leadership in our society today. REFERENCES Avolio, B.J., & Locke, E.E. () Contrasting different philosophies of leader motivation: Altruism versus egoism. Enron has become the classic case on business ethics.
Enron formed after the merger of Internorth Incorporated and Houston Natural Gas in On January 1,as part of the merger agreement, Ken Lay became the new CEO.
In an introductory statement to the revised Enron Code of Ethics issued in JulyLay wrote: “As officers and employees of Enron Corp., its subsidiaries, and its affiliated companies, we are responsible for conducting the business affairs of the companies in accordance with all applicable laws and in a moral and honest manner.”.Download