Background Information of Enron
Enron’s history as an entire corporate entity begins in 1985 when Kenneth Lay arranged a formation of Enron by means of combining Internorth and Houston Natural Gas (NPR, 2002). Internorth and Houston Natural Gas operated as “natural gas pipeline companies”, therefore, Enron obtained ownership of and control over thousands miles of gas delivery pipelines connecting producers to customers via intermediary firms (Healy & Palepu, 2003, pp. 4-5). Hence, Enron was first engaged in buying natural gas from drilling companies and reselling it to intermediary companies which, in turn, sold it to final users (p. 5).
In furtherance, Enron’s owners and top executives represented by such persons as Jeffrey Skilling and Andy Fastow, along with Kenneth Lay, got to other commodity markets such as water, paper, electricity, Internet cables and later turned them into financial instruments (futures contracts). Enron even tried to introduce a financial market of hedging weather conditions and trading in broadcasting time (Gibney, 2007). At first glance, Enron gained unimaginable profits through that scheme, but, in fact, it was a sheer bankrupt with its flawed and unsuccessful transactions hidden in the accounting books of “special partnerships and entities” (Gibney, 2007). That financial model encompassing risky future contracts and accounting malfeasance, along with unethical business ethics, gave rise to the blatant end of the company.
Enron’s Leadership: Their Managing Culture and Ethical Compromises
Any leadership style and methods of leading used and encouraged in the company may be tested by means of analyzing the following components: 1) emphasis which the attention is paid to; 2) ways of resolving troubles and addressing crises; 3) behavioral examples demonstrated by leaders; 4) rewarding mechanisms; and 5) employment and termination policies prescribed in the company (Sims & Brinkmann, 2003, p. 247). Through a comprehensive and detailed analysis of the aforementioned factors, it may be boldly and fairly claimed that Enron’s top executives and the overall corporate management were apparently unethical and immoral when setting and implementing the company’s objectives.
Enron’s workers were directly and indirectly told and showed what was valued in the company. At the public open court proceedings which were conducted in 2002, former Enron’s workers repeatedly admitted to being allowed to take vacations of any duration if the tasks set before them had been fully completed. Such a vacation policy did not comply with human resources department’s requirements. Moreover, evidence obtained during the investigations and testimonies showed that due to conflicts of interest which had been caused by Andy Fastow’s “special entities”, Enron’s executive body had to put off the company’s Code of Ethics several times (p. 247). Certainly, Enron’s workers got a clue of what was awaited from them and what conduct was expected from them by the leaders.
In addition, crisis situations often reveal true sets of principles and rules followed and cherished by top management and owners. Thus, when Enron began to endure pitfalls because of the enormous debts hidden over years in the financial statements of the “special entities” from the shareholders, analysts, and the general public, the company’s top executives just took to seeking guilty parties and laying blame on somebody else, forgetting about their direct involvement into all those transactions. Jeffery Skilling testified that even if he had known about the financial fraud before, he would not still have grasped its nuances, but it was obviously a lie (p. 248).
The same can be stated about the assessment of the other three components pertaining to the leadership style and top management culture at Enron. When the first signals of the company’s troubles became evident, the executives and higher management started to sell the shares acquired previously, but the employees were constantly reassured that everything was going well, however, that was a blatant lie (pp. 249-250). Remuneration and bonuses system served in favor of those who regularly acted inconsistently with legal, ethical, and moral rules. The company’s chief executives often held up as an example a questionable conduct of the workers’ colleagues at the internal performance meetings (pp. 250-251). Employment of individuals with eroded moral and ethical virtues who were hungry for wealthy items and huge sums of money, exemplified that Enron’s leaders firmly set their minds on carrying out the greatest fraud in the American history (pp. 251-252).
Description and Assessment of Alternatives:
Basically, of course, one could claim that the problem lay in the absence of the corporate social responsibility or in the lack of bold whistleblowers who could reveal the actual state of affairs. By the way, Enron had its own ethical code (The Smoking Gun, n.d.) which stipulated the company and personnel’s dedication to integrity, respect, avoidance conflicts of interest etc. Another story is that it was not followed properly and was even put off a couple of times, although a documentary semblance had been declared by the owners and top executives.
On the other hand, the concept “corporate social responsibility” is a recent evolvement in the corporate world which was not familiar to the leaders of that time, therefore, the statement about the lack of corporate social responsibility at Enron sounds somewhat incompatible. The corporate leaders were, of course, aware of the necessity to set forth ethical and moral guidelines for the company, but, unfortunately, at the declaratory level giving rise to frequent abuses as illustrated above. Apparently, major shareholders were not so concerned about ethical and moral abuses by Enron executives as long as it brought profits to them.
The second alternative is related with whistleblowing, but it would not also have seemed realistic since Enron’s workers who were hesitant about the company’s dealings, were afraid of approaching their higher managers with undesired questions, because they would likely have faced a dismissal, at the least. And this explanation was voiced by the former employees at the open court hearings on Enron’s insolvency (Gibney, 2007). In addition, Enron did not offer any whistleblowing policies or procedures to its staff to have a guidance of how to act, hence, that was a considerable obstacle.
Moreover, the Securities and Exchange Commission did not have at its disposal such a landmark and salient bill as Surbanes-Oxley Act which was enacted later, after Enron’s failure. Therefore, a prospective informant (whether an employee, or a shareholder) being aware of dirty dealings unfolding at Enron could have filed a claim in the court, buttressing his position and allegations with the relevant evidence and data revealing fraudulent actions by Enron’s leaders. But, easier said than done: even if that imagined claim had reached the court before Enron’s disaster, the company would likely have stated that the plaintiff had stolen its confidential information and trade secrets.
Nevertheless, the latter alternative would have appeared to have more chances compared to the effectiveness of the former two. In addition, the court alternative would have seemed to provide more benefits and eliminate a lot of ethical implications since court decisions are final binding acts for all the parties to a dispute with protective procedures to, say, shareholders who could have joined the allegations against fraudulent Enron executives to have their interests considered and protected by terminating those deceitful executives to change the leaders and thus the company’s culture.
References
Gibney, A. (Director). (2007). Enron: The Smartest Guys in the Room. Film retrieved from http://freedocumentaries.org/documentary/enron-the-smartest-guys-in-the-room
Healy, P.M, & Palepu, K.G. (2003). The fall of Enron. Journal of Economic Perspectives, 17(2), 3-26.
NPR. (2002, January 22). The history of Enron. Retrieved from http://www.npr.org/news/specials/enron/history.html
Sims, R.R, & Brinkmann, J. (2003). Enron Ethics (Or: Culture matters more than codes). Journal of Business Ethics, 45(3), 243-256.
The Smoking Gun. (n.d.). Enron code of ethics. Retrieved from http://mishkenot.org.il/Hebrew/docs/ethics/קודים%20אתיים%20של%20ארגונים%20עסקיים/Enron%20Code%20Of%20Ethics.pdf
