Examining a Business Failure: ENRON
LDR 531 Organizational Leadership
December 5, 2011
Examining a Business Failure
Effective managers and leaders contribute to the organizational success of an organization. Companies lacking strong managerial leaders failing to enforce the ethical code of conduct of an organization are prone to organizational failure. Yukl (2006), states, “One viewpoint is that leadership occurs only when people are influenced to do what is ethical and beneficial for the organization and themselves” (p. 4-5). The notorious Enron scandal created a historic impact to the organizational culture and processes of businesses in the United States. The ...view middle of the document...
Executives failed to inform analysts and shareholders actual operations and financial standpoints by using accounting limitations to falsify earnings and provide an inaccurate balance sheet. Therefore, the financial statements portrayed positive income, cash flow, increase asset values, and omitted liabilities to demonstrate profitability. However, stealing from investors, lead the company to bankruptcy (Laws, 2011).
FORTUNE named Enron, “the most innovative company in corporate America” (McLean & Elkind, 2006, par. 1). Enron was an exemplary white collar organization in the business world. In 2001, analyst Goldman Sachs “coyly compared it to Hollywood’s reigning ‘it girls,’ Jennifer Lopez and Kate Hudson, because Wall Street was virtually drooling over the stock” (McLean & Elkind, 2006, par. 1). Unfortunately, Enron collapsed nine months later and declared bankruptcy. Enron’s financial statements were nontransparent, facilitating the failure to omit the performed unethical practices.
Enron’s corporate culture includes aggressive growth, risk taking, and entrepreneurial creativity (Shuler, 2002). Although these attributes are positive reinforcements, the organizations risk taking methods and creativity intimidated individuals doubting the processes of the organization. Furthermore, the processes lead to partnerships, which contributed to the failure of the organization. Enron ensured managers and accountants/auditors focused on sales and deliveries and failed to promote individuals with strong ethical values. The downfall of Enron was preventable if the organization focused on valuing customer service, loyalty, and satisfaction (Shuler, 2002). Enron’s failure was caused by the organizations failure to establish a leadership to promote, value, and reward the appropriate individuals to influence the corporate culture that would have led Enron’s to succeed.
Effective organizational strategies needed to enforce ethical standards are internal auditing and whistleblower protection. Internal audits evaluate the financial health of the organization by providing useful information to improve and control the processes of the organization. Scandals such as Enron, WorldCom, and Tyco contributed to the creation of the Sarbanes-Oxley Act...