The purpose of the paper is to investigate the scandal of Enron from different perspectives. It will start with a discussion of the rise and fall of Enron as the sixth-largest energy company globally and the seventh-largest company in the United States. The historical, political, and economic conditions that have helped Enron grow into one of the corporations that are dominant in the natural gas, electricity, communication markets, and paper and pulp have been examined in the narration. After giving the view of the practical description of the rise and fall of Enron the paper will be continued in explaining the things that went wrong by depending on the two frameworks which are provided by the leadership and the ethical theory.
From the framework of leadership, both the theories such as transformational and trait leadership theories were identified as these were found to be the analytical tools that are appropriate in examining the culture of Enron while the two ethical systems related to arrogance and the mixed deontology have provided the foundations that are philosophical in analyzing the matter of Enron from the view of ethical perspective.
In the United States, the scandal of Enron was found to be the most important collapse in the corporate culture as it faced many failures in savings and bank loans during the year 1980s. Through this scandal, the requirement for important reforms in the United States in terms of accounting and corporate governance has been demonstrated along with having a close look at the quality of ethicality of the business culture in general and the corporations of business in the United States.
In the year 1986, Ken Lay created Enron to capitalize on the chance that was seen by him in the rising out of the industry of natural gas deregulation in the United States. It started as a company of pipelines and then it was converted by the vision of Jeff Skilling the McKinsey Consultant as he had the clue of applying the models that are used in the industry of financial services to the gas industry that is deregulated.
Enron was convinced by him to set up the Gas bank with the help of which the natural gas buyers and sellers would transact with each other through the intermediate firm Enron as the contractual arrangements made by them would provide both parties with consistency and probability concerning pricing and delivery. For taking care of the business Enron has correctly recruited him as he proved himself in building up the major operations for gas trading from the early 90s (Beck & Cowan, 2014).
Over a period, its pipeline operations extended by Enron into the broad range business of power supply first in the United States and later on to the international scale where it completed building the huge plant in the UK at Teesside and making contracts to build the large plant in Indian near Mumbai. Enron has a reputation globally, which was created due to the strong driving expansion of the power business of Enron worldwide.
In the following discussions to explain the things that were missing in the leadership skills at Enron, which has enabled in development of the specific culture in that firm the two ethical frameworks will be utilized for appropriateness. From the perspective of ethicality, one has to look at the practices of the egoism of ethics by going no further as it will help explain the reasons behind how and why the culture of self-importance has emerged at Enron. As per the views of (Daft, 2014), ethical egoism can be defined as the policy that is always right ethically in seeking one’s egotism. From the wide-ranging parameters of the definition, it was argued (Daft, 2014) that there would be 4 different kinds of ethical egoism such as personal egoism, universal ethical egoism, psychological egoism, and individual egoism.
Out of the four types of egoism that were proposed by Pojman, the type of universal ethical egoism will align more closely with the reasons behind how the culture was developed at Enron. For universal ethical egoism, the theoretical basis will consist of the theory that every individual has to serve always in their interest.
Unusually, all the leaders (DuBrin, 2015) got involved in the unlawful activity of suggesting this unique form of ethical egoism. It was deduced from them that if these short-term compromises were made then it would broadcast in the long-term development of egotism within the organizational culture of the company which was certainly imitative of the ethical behavior of corporate culture (Fairhurst & Connaughton, 2014). The search for streamlined egotism has been taken at Enron to such an extent that the concept of negotiation even at the overhead of ethical considerations such as reliability has just become the nomenclature on how to perform the business ethically in a free market economy that is based on the capitals. For this type of business philosophy, the effect of validation of leadership was the progress of the vain corporate culture.
The obvious application of the framework of universal egoism has overthrown the organizational structure of Enron in maintaining their ethical principles or the reliability of the systems of accounting of the management like the Peer review committee. The theory of egotism and the compromise in ethics have resulted in providing the platform for the leaders and the employees of Enron to justify their behavior such as the policy of PRC which should not have been overlooked (Goleman, Boyatzis & McKee, 2013). Without the system being accountable honestly or without the practice of the ethical standards in place in the hierarchy of the leadership at Enron the members of the organization will fall prey to reinforcing the cultural mentality of serving their self-interest that is rationalized by their own at the outlay of the overall company’s health and its related shareholders.
In this part, the two leadership theories which specifically focus on describing the rise and fall of Enron firm are being discussed. It will help explain how and why Enron has developed such a culture in the firm. The two theories are the transformational theory and the trait theory (Johnston & Marshall, 2016). Identifying the qualities that are responsible for making up the leadership approach has begun with the trait theory of leadership as this is one of the attempts first made by scholars of the 20th century.
This theory was initially named the Great Man theory because most of the studies focused on the common characteristics or qualities that have developed great leaders in the field of political, military, and social arenas (Northhouse, 2004, p. 15).
However, Nahavandi the researcher and scholar by the middle of the 20th century has begun to question the universality of the traits of leadership. The situation that was found by Stogdill was based on the situations that were encountered by the followers and the leaders the leadership has been changing (Nahavandi, 2016).
In the model of leadership that was developed by Renz, the personal factors or the traits of leadership were involved with the social situations and the behaviors of group members for creating the budding sort of leadership that looks over the leadership that is socially constructed. The whole idea of the model is that leadership is not an inactive process rather, it’s an active one in which the group members and leaders are involved and work together in various situations (Renz, 2016).
While looking over the leadership that was developed at Enron one can notice the absence of the major trait such as integrity because of which the development of the culture in the organization has been impacted negatively. As per (Ward, 2016), integrity is considered to be a leadership trait that is important because of its involvement in the quality of developing honesty and trustworthiness. People who stick to the set of principles strongly will take responsibility for the actions taken in their exhibition of integrity; the confidence of others the integrity of the leaders.
Within the culture of Enron integrity was never a trait that was exhibited frequently by most of the executive leaders. For instance, Jeffrey Skilling was a leader who was confident, determined, and intelligent supremely. For providing the vision for the company his ability was by various accounts which are inspiring and amazing. The leadership style of Skilling was the one which exemplified and the creativity was encouraged along with taking the risks mainly since it was related to the increment in the profits and the share value of Enron (Tourish, 2014).
The development of the culture at Enron through their leadership is explained from the perspective of transformational theory. For evaluating the development of culture at Enron the transformation leadership theory will be offering a unique perspective. Rebecca Mark, Kenneth Lay, and Jeffrey Skilling of Enron were the transformational leaders. They have led the company to exceptional heights. At Enron, the workforce was motivated by the leaders with their innovation, risk-taking, and creativity which were the positive cultural values.
However, at Enron, the absence of transformational leadership ethically has become the biggest disadvantage which cut off the executive leaders such as Lay from the reality of finance that existed within them (Nahavandi, 2016). It has got disconnected from reality and has combined with the lack of integrity with regards to the leadership which has ultimately led to the culture of narcissism and this culture has spread throughout the whole organization.
As per the trait and transformational theory, the importance of having integrity at the firm has been explained and is considered to be a significant factor in developing the culture of the organization. At Enron, there was a lack of integrity which was explained by these theories of leadership which have been clarified earlier.
However, in the case of the leadership style of Skilling, the profit growth was taken to such an extent aggressively that the trait of integrity in leadership has just become a non-factor in the culture of Enron. Within the structure of the organization, lack of integrity was a serious flaw where the company’s culture started encountering situations disclosing financial information (Fairhurst & Connaughton, 2014).
Over the culture of the organization, leaders will have the greatest influence. In fact, in this case, few employees or the members of the group were motivated externally by the leadership style of Skilling in telling the truth regarding the financial situation of Enron. Employees who had that level of integrity in speaking the truth honestly regarding the financial issues of Enron were demoted dismissed or fired (Free, Macintosh, and Stein, 2007, p. 7). As a part of the leadership, the overall lack of integrity has led to the development of such kind of narcissistic culture at Enron.
For reducing the type of unethical behavior as described in the case it is recommended that the top management has to take responsibility in the corporation in making sure that their employee’s behavior is ethical. This can be achieved by motivating and encouraging leaders, rewarding them, and exemplifying them with leading ethical behavior. In the end, it is concluded that the individuals have to do all the things as per the ethical guidelines of the firm so that there will be no way for the unethical management which will be in practice.
Finally, it is recommended not to follow unethical behavior and the corporation should not have a lack of integrity. From the failure of Enron, it has been learned to be satisfied with the level of profits that are gained and what is earned legitimately. Maximizing the profits lacking leadership and integrity and developing an unethical culture at the firm will destroy you.
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