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  1. 1. Enron’s business failure 1 Running head: Enron’s business failure Name: University: Course: Tutor: Date: 1
  2. 2. Enron’s business failure 2 Introduction Enron’s collapse is among the greatest business failures that has ever taken place in business history (Gordon, 2002). According to Gordon, the internal culture together with leadership practices of the top management of Enron was a major factor that led to the eventual collapse of the company in 2001. He argues that the charismatic leadership that was being practiced in the organization was instrumental in the business failure of Enron. Again, Gordon suggests that the compelling vision promotion by the top leadership of Enron combined with individual consideration and totalistic nature of the organizational behavior played a great role in the collapse. The organizational behavior of the company was characterized by conforming to the agency theory and penalizing of rebels. Enron’s business failure It has been widely noted that the organizational structure of Enron promoted a communication dysfunction that was recurring (Cohan, 2002). Even though the organizational behavior has not been given a lot of attention, it is clear that Enron’s organizational culture portrayed a side that was very dark regarding the charismatic leadership that was practiced in the organization. Thus even though several analysts had in the year 2000 suggested that the company could be perceived to be of the nature of an evangelical cult, that is according to Sherman (2002), this idea is yet to be explored systematically in most academic literature of Enron. The organizational structures were not flexible; flexibility of organizational structures would have made the organization to be more dynamic. But the rigidity that was practiced at Enron, made it almost inevitable for it to collapse. 2
  3. 3. Enron’s business failure 3 There were both cults and charismatic leadership in Enron Company. Cults refers to a movement or group exhibiting excessive or great devotion to an idea, a person, or something and use unethical coercive or manipulative techniques of control and persuasion that are designed to propagate the objectives of the leaders of the group, to the possible or actual detriment of the group members, society or family (AFF, 1986). In charismatic leadership, leaders normally have and dramatically pass a message of vision to the organization. Using a vision that is compelling, charismatic leaders usually have extraordinary and profound effects on their followers. These effects can either be personally benign or useful socially depending on the objectives of the leaders. In Enron’s case, it was quite clear that the leadership of the company was aimed at developing a charisma aura around themselves. Consistent with the business image, the leaders of Enron engaged themselves in ever increasing dramatic types of self promotion. Again consistent with Enron’s broad dramaturgical forecast for analogies star wars that were internally known at Enron as Darth Vander with the ability of controlling the minds of people (Cruver, 2003). With such organizational cultures and behaviors, the collapse of Enron was almost inevitable. Relating cults to the case of Enron, its leaders had the tendency of living in unusual wealth; this is a disparity that is used in reinforcing the intuition that the individuals possess extraordinary charisma, insight and abilities. Opulence indeed characterized the nature of lifestyle that the top leadership of Enron enjoyed. A good example is Kenneth Lay, an executive leader of Enron; he had to pay a sum of $7 million for an apartment, which together with his wife transformed into a Venetian fortress with deep velvets, dark woods and a period sanctuary (Watkins & Swartz, 2003). The 3
  4. 4. Enron’s business failure 4 insinuation was that other Enron employees could one day aspire to receive such privileges. The employees thus held firmly the system of value together with the vision that was being articulated by their leaders, emulated the behaviors of their leaders and held back any critical voices that were internal, which at times threatened to come to the surface. Enron’s leadership was thus more efficient in concentrating power in the top management as opposed to power delegation. The excessive power in the hands of a few people within Enron greatly contributed its failure. Enron could have succeeded if power was well delegated and everyone in the organization given a chance of contributing towards the good of the organization. Most of the management literature that has been highly influential in the recent past, instigated by the works of Waterman and Peters (1982), sold the impression of what adds up to an organizational culture that is monolithic is largely determined by the executive leaders. The significance of this dwells in the impression that organizational behaviors consist of systems that are cognitive that explain the manner in which people make decisions, reason, and think. If organizational behaviors can be controlled on the top leadership, the general impact on individuals has a great probability of being enormous. In such circumstances, the opinions of the non managerial workers, women together with other minorities are not likely to be accorded any consideration (Martin, 1992). Enron was not managed by objective in which case certain goals could first be identified and then pursued by the management through the employees, instead the company was managed through crisis, which ultimately lead to the failure of Enron. Looking at the case of Enron, the ego and bounty stroking, an internal culture that was punitive was developed in which everything that had been gained through hard work 4
  5. 5. Enron’s business failure 5 could be taken away by the top managers. As Miller and Fusaro (2003), suggested, that despite each and every effort that Enron Company had spent in choosing the right employees to work for the company, it was very swift at firing them. As a result, the company lost enormous goodwill in the labor market as well as experience and technical ability possessed by the fired workers. The remaining workers lacked motivation for working for Enron and most of them were constantly looking for opportunities in other organizations before they were fired from Enron. Conclusion This research paper argues that most of the dynamics at Enron mirror those of entities commonly referred as cults. The paper particularly describes the downsides and existence of charismatic leadership at Enron, a totalistic and a compelling vision, intellectual motivation with the aim of converting the goals of the employees and at the same time subordinating sense of ethics of the employees to the corporation needs, personal consideration that were designed at shaping their behavior and common culture promotion, which was more and more maintained through punitive means. 5
  6. 6. Enron’s business failure 6 Reference: American Family Foundation, 1986, Cultism: A conference for scholars and policy makers, journal article of Cultic Studies Vol. 3 Cohan, J., 2002, “I didn’t know” and “I was only doing my job”: Has corporate governance careened out of control? A case study of Enron’s information myopia, Journal article of Business Ethics, Vol. 40 Conrad, C., 2003, stemming the tide: Corporate discourse and agenda denial in the 2002 ‘corporate meltdown’, Journal article of business Organization, Vol. 10 Cruver, B. 2003, Enron: Anatomy of Greed, London: Arrow Books. Fusaro, P., and Miller, R., 2002, What Went Wrong at Enron: Everyone’s Guide to the Largest Bankruptcy in U.S. History, Hoboken, NJ: Wiley. Martin, J. (1999) ‘Come, Join our family’: Discipline and integration in corporate organizational culture, Journal article of Human Relations, Vol. 52 Martin, J., 1992, Cultures in Organizations: Three Perspectives, New York: Oxford University Press. Peters, T., and Waterman, R., 1982, In Search of Excellence, New York: Harper and Row. Schwartz, J., 2002, Darth Vader. Machiavelli. Skilling Sets Intense Pace, News paper article of New York Times. Sherman, S. (2002) Enron: Uncovering the uncovered story, Journal article of Columbia Journalism Review, Vol. 40 6