Examining a Business Failure
Examining a Business Failure
Introduction
Enron Creditors Recovery Corporation (ECRC), formerly called Enron, an American energy company, made history with a corporate scandal that revealed fraud and corruption of management in how the company’s financial standing was reported. This paper will discuss how organizational behavior can explain the enormous failure within management that resulted in Enron’s bankruptcy in 2001. Additionally, influences between management and leadership failures will be explored as well as the impact of the company’s structure.
Organizational Behavior
“In an organizational world characterized by cutbacks, expectations of increasing worker productivity, and tough competition in the marketplace, it’s not altogether surprising that many employees feel pressured to cut corners, break rules, and engage in other forms of questionable practices” (Robbins, 2007). In the case of Enron, owners and managers were compelled to hide financial losses and the accounting firm responsible for auditing Enron was found to be negligent by destroying documents pertinent to the Enron audit. At one time, Enron was revered by many as a remarkable company. Having been in the Fortune 500 for several years in a row, the company was praised for having excellent benefits and pension plans; however, after corporate fraud was discovered, Enron filed for bankruptcy in December of 2001. Enron’s questional financial tracking, which included creating offshore accounts in order to avoid taxes and to alter the true profitibility numbers of the company, provided management the ability to hide losses. This practice drove up their stock price and in August 2000, stock prices reached $90. Enron executives, who were aware of the inside information, begain to sell their stock while telling others to continue to buy the stock.
From an organizational behavior perspective, Enron’s culture did not encourage employees to come forth and raise red flags when something seemed wrong. Management did not include employees in decisions and did not take into consideration what kind of impact unethical decisions would have on themselves, the firm, employees, and customers. Management functions of planning, organizing, leading, and controlling were not maintained during the fall of Enron. “The planning function encompasses defining an organization's goals, establishing an overall strategy for achieving those goals, and developing a comprehensive set of plans to integrate and coordinate activities" (Robbins, 2007, p.4). Had these plans been communicated and progress monitored, the pending doom of the Enron collapse may have been caught early enough that the company could recover.
Leadership Contributions
In the case of Enron, the organization was not managed or led well. Leadership did not seem to exist at Enron. “Managers value stability, order, and efficiency, whereas leaders value flexibility, innovation, and adaptation” (Yukl, 2006, ch. 1). Owners and management took it upon themselves to get rich by hiding unflattering financial numbers. Stock was sold knowing this insider information and those who chose to take advantage of the information were able to exploit the company and its shareholders to get wealthy. Had the true information been disclosed from the beginning and a detailed plan and strategy were developed to help the company out of tough times, Enron would not have been apart of one of the largest corporate scandals resulting in bankruptcy. Secrets regarding hidden accounts were used to deceive the public into buying more stock. Managers did not have the employees’ best interests in mind. If these communication channels had been more open and honest, Enron may have been able to recover. Management’s job is to monitor and control the organization’s performance. Managers failed their employees in this case because they did not look out for the employees.
Impact
“In connection with Enron’s emergence from