In the year 1986, Ken Lay has created the Enron for capitalizing on the chance which was seen by him in the rising out of the industry of natural gas deregulation in the United States. It started as the company of pipelines and then it was converted by the vision of the Jeff Skilling the McKinsey Consultant as he had the clue of applying the models which are used in the industry of financial services to the gas industry that is deregulated.
Enron was convinced by him in setting up the Gas bank with the help of which the natural gas buyers and sellers will transact each other through the intermediate firm Enron as the contractual arrangements made by them will be providing both the parties with consistency and probability with respect to pricing and the delivery. For taking care of the business Enron has correctly recruited him as he proved himself in building up the major operations for gas trading from the early 90s (Beck & Cowan, 2014).
Over the period of time, the pipeline operations were being extended by Enron into the broad range business of power supply first in the United States and later on to the international scale where it has completed in building the huge plant in the UK at Teesside and making contracts in building the large plant in Indian near Mumbai. Enron has got the reputation globally, which was created due to the strong driving expansion of the power business of Enron worldwide.
Analysis and Problem Diagnosis
In the following discussions for explaining the things that were missing in the leadership skills at Enron, which has enabled in developing the specific culture in that firm the two ethical frameworks will be utilized for appropriateness. From the perspectives of ethicality, one has to look at the practices of the egoism of ethics by going no further as it will be helpful in explaining the reasons behind how and why the culture of self-importance have emerged at Enron. As per the views of (Daft, 2014), the ethical egoism can be defined as the policy that is always right ethically in seeking one’s own egotism. From the wide-ranging parameters of the definition, it was argued by (Daft, 2014) that roughly there would be 4 different kinds of ethical egoism such as the personal egoism, universal ethical egoism, psychological egoism, and individual egoism.
Out of the four types of egoism that were proposed by Pojman, the type universal ethical egoism will align more closely itself with the reasons behind how the culture was developed at Enron. For the universal ethical egoism, the theoretical basis will be consisting of the theory that every individual has to serve always in their own interest.
Unusually, all the leaders at (DuBrin, 2015) got involved in the unlawful activity of suggesting this unique form of ethical egoism. It was deduced from them that if these short term compromises were made then it will broadcast in the long term development of egotism within the organizational culture of the company which was certainly imitative of the ethical behavior of corporate culture (Fairhurst & Connaughton, 2014). The search of the streamlined egotism has been taken at Enron to such an extent that the concept of negotiation even at the overhead of the ethical considerations such as reliability has just become the nomenclature on how to perform the business ethically in a free market economy that is based on the capitals. For this type of business philosophy, the effect of validation of leadership was the progress of the vain corporate culture.
The obvious application of the framework of the universal egoism has overthrown the organizational structure of the Enron’s in maintaining their ethical principles or the reliability of the systems of accounting of the management like the Peer review committee. Theory of egotism and the compromise in ethics have resulted in providing the platform for the leaders and the employees of Enron’s in justifying their behavior such as the policy of PRC’s which should not have been overlooked (Goleman, Boyatzis & McKee, 2013). Without the system being accountable honestly or without the practice of the ethical standards at the place in the hierarchy of the leadership at Enron the members in the organization will fall as the prey to reinforce the cultural mentality in serving their self-interest that is rationalized by their own at the outlay of the overall company’s health and its related shareholders.
Theory and Practice
In this part, the two leadership theories which specifically focuses on describing the rise and fall of Enron firm is being discussed. It will be helpful in explaining how and why the Enron has developed such a culture in the firm. The two theories are the transformational theory and the trait theory (Johnston & Marshall, 2016). For identifying the qualities which are responsible for making up the leadership approach has begun with the trait theory to the leadership as this is one of the attempts firstly made by scholars of the 20th century.
This theory was initially named as the Great man theory because of the fact that most of the studies were focusing on the common characteristics or qualities which have developed the great leaders in the field of political, military, and social arenas (Northhouse, 2004, p. 15).
However, Nahavandi the researcher and scholar by the mid of the 20th century has begun to question the universality of the traits of leadership. The situation that was found by Stogdill was on the basis of the situations that were encountered by the followers and the leaders the leadership has been changing (Nahavandi, 2016).
The model of leadership that was developed by Renz, the personal factors or the traits of leadership were involved with the social situations and the behaviors of group members for creating the budding sort of leadership which look over the leadership that is socially constructed. The whole idea of the model is that leadership is not an inactive process rather, it’s an active one in which the group members and leaders are involved and work together in various situations (Renz, 2016).
While looking over the leadership that was developed at Enron one can notice the absence of the major trait such as integrity because of which the development of the culture in the organization has been impacted negatively. As per (Ward, 2016), integrity is considered to be the leadership trait that is important because of its involvement in the quality of developing the honesty and the trustworthiness. People who stick to the set of principles strongly and will take the responsibility of the actions taken by them in their exhibition of integrity; the confidence is inspiring to others by the integrity in the leaders.
Within the culture of Enron integrity was never a trait which was exhibited frequently by most of the executive leaders. For instance, Jeffrey Skilling was the leader who was confident, determined, and intelligent supremely. For providing the vision for the company his ability was by various accounts which are inspiring and amazing. The leadership style of Skilling was the one which exemplified and the creativity was encouraged along with taking the risks mainly since it was related to the increment in the profits and the share value of Enron (Tourish, 2014).
The development of the culture at Enron through their leadership is explained from the perspective of transformational theory. For evaluating the development of culture at Enron the transformation leadership theory will be offering the perspective that is unique. It is clear that Rebecca Mark, Kenneth Lay, and Jeffrey Skilling of Enron were the transformational leaders. They have led the company to the exceptional heights. At Enron, the workforce was motivated by the leaders with their innovation, risk taking, and creativity which were the cultural values that are positive.
However, at Enron, the absence of transformational leadership ethically has become the biggest disadvantage which has cut off the executive leaders eventually such as Lay from the reality of finance that was existing within them (Nahavandi, 2016). It has got disconnected with the reality and has combined with the lack of integrity with regards to the leadership which have ultimately led to the culture of narcissism and this culture has spread in the whole organization.
- How can what happened at Enron be explained by some of the theories of leadership that you have looked at?
As per the trait and transformational theory the importance of having the integrity at the firm has been explained and is considered to be the significant factor in developing the culture in the organization. At Enron, there was a lack of integrity which was explained by these theories of leadership which have been clarified earlier.
However, in the case of the leadership style of Skilling, the growth in profit was taken to such an extent aggressively that the trait of integrity in leadership has just become the non-factor in the culture of the Enron. Within the structure of the organization lack of integrity was the serious flaw where the company’s culture started encountering with the situations disclosing the financial information (Fairhurst & Connaughton, 2014).
- In what ways does leadership influence culture?
Over the culture of organization, leaders will be having the greatest influence. In fact, in this case, few employees or the members of the group have been motivated externally from the leadership style of Skilling in telling the truth regarding the financial situation of Enron. Employees who were having that level of integrity in speaking the truth honestly regarding the financial issues of Enron have been demoted or dismissed or have been fired (Free, Macintosh, and Stein, 2007, p. 7). As a part of the leadership, the overall lack of integrity has led to the development of such kind of narcissistic culture at Enron.
- What can be done to reduce the type of unethical behavior demonstrated in this case? What are your recommendations?
For reducing the type of unethical behavior as described in the case it is recommended that the top management has to take the responsibility in the corporation in making sure that their employee’s behavior is ethical. This can be achieved by motivating and encouraging leadership, by rewarding them and exemplifying them with the leading ethical behavior. At the end, it is concluded that the individuals have to do all the things as per the ethical guidelines of the firm so that there will be no way for the unethical management which will be in practice.
Finally, it is recommended that not to follow the unethical behavior and the corporation should not be a lack of integrity. From the failure of the Enron, it has been learned that be satisfied with the level of profits that are gained and what is earned legitimately. For maximizing the profits lacking the leadership and integrity and developing the unethical culture at the firm will destroy you.
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