Down Fall Of Enron Corporation
Down Fall Of Enron Corporation
Thomas, C. W. (2002). Rise & fall of Enron. Journal of Accountancy
The article examines the down fall of Enron Corporation, mainly attributed to its corporate culture. The down fall of the corporation is a nightmare that is likely to continue for a long time for those currently or formerly involved with the company, such as auditors, creditors and accounting regulators. Enron was successful for several years and dominated the market for natural gas, outdoing its competitors. In the year 1990, a new division of Enron called Enron Finance Corporation, was created by the then Chief Executive Officer, Kenneth Lay. Lay hired Jeffrey Skilling to run the newly formed corporation (Thomas, 2002).The company soon attained the image of a trading business. Consequently, Skilling started to change Enron’s corporate culture to match the company’s trading business image. He made the decision to hire the brightest and the best traders, recruit associated from the leading MBA schools across the country and compete with the most prestigious and largest investment banks for talent. Enron pampered its associates with a long list of corporate perks which included company gym and concierge services, in exchange for grueling schedules. Production was rewarded with merit-based bonuses that had no cap, and traders allowed to “eat what they killed” (Thomas, 2002).Enron’s internal culture apparently started to take a darker tone as its reputation with the outside world grew. A review committee that came to be regarded as the harshest employee-ranking system in the country was instituted by Skilling. Employees were rated on a scale of one to five, with those rating at five getting fired within a period of six months. Hence, the division headed by Skilling was known to replace up to 15% of its employees annually.
Enron’s major downfall was witnessed in the year 2001, with Skilling as the corporation’s CEO. The downfall began by the unraveling of the risky deals that Enron had made in various types of underperforming investments. This resulted to suffering of a great cash downfall. The senior management continued to exit, with millions of dollars pocketed. On the 14th of August, merely six months after being appointed as the corporation’s CEO, Skilling resigned. The stock price continued to fall. The company eventually filed for bankruptcy protection on the 2nd of December 2001 (Thomas, 2002).It is clear that a national culture can either influence the downfall or success of an organization. As for Enron Corporation, its corporate culture contributed towards its downfall. Skilling, a leader of Enron Finance Corporation introduced a new culture that altered the employee performance and compensation scheme. The culture was deemed to be unfair since it led to unfair firing of employees. The only thing that mattered to employees was adding value to the company. This resulted to a working environment that fostered breaking of rules (Sims, 2003).A culture that upholds creativity and uncontrolled ambition and punishes poor performance publicly can produce tremendous returns in the short run. However, in the long run, it becomes extremely hard to achieve additional value. Employees are compelled to stretch the rules further and further till in the long run they tend to overlook the rules of ethical conduct in pursuit for the next big success.
The downfall of Enron could have been prevented by initiating a change in the company’s culture. The company should have not entertained leaders who encourage the breaking of rules, just like Skilling did. It is evident that ethical boundaries are Enron eroded due to the fact that corporate leaders encouraged rule-breaking and fostered and aggressive and intimidating environment. Leadership should be viewed as a vital component of any given organizational culture due to the fact that leaders have the potential of creating, reinforcing or transforming the organization’s culture (Sims, 2003).Additionally, to prevent the downfall, Enron leaders should have communicated the values of the company throughout the organization. Enron was facing a crisis regarding sustenance of a phenomenal growth rate. The reaction of leaders was that of supporting a culture that valued profitability at the expense of everything else. Another mistake that executives did was that of pointing fingers and shifting the blame once the company’s situation came to light. Before it declared bankruptcy, Enron started to systematically fire those it could lay blame on. It is essential for leaders to learn to take accountability and stop shifting blames once a crisis has occurred (Coombs, 2011).Finally, role-modeling is a powerful tool that could have prevented Enron’s downfall. By being good role models, leaders can develop and influence a corporate culture. Moreover, they can reinforce values supporting organizational culture. According to the values statement in the Code of Ethics of Enron, the company is strongly committed to respect, communication, excellence and integrity. However, there is insignificant evidence supporting management modeling of the mentioned values. For instance, there was poor communication between the top management and employees (Coombs, 2011).
References
Coombs, W. (2011). Ongoing Crisis Communication. SAGE
Sims, R. (2003). Ethics and corporate social responsibility. Greenwood Publishing Group
Thomas, C. W. (2002). The Rise and fall of Enron. Journal of Accountancy. Available at
http://www.journalofaccountancy.com/Issues/2002/Apr/TheRiseAndFallOfEnron.htmaccessed on June 20, 2011
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