The Enron Scandal: Leadership, Culture, And Ethics Essay.

1. How can what happened at Enron be explained by some of the theories of leadership that you have looked at?

2. In what ways does leadership influence culture?

3. What can be done to reduce the type of unethical behaviour demonstrated in this case? What are your recommendations?

Analysis and Problem Diagnosis

Enron Company was among the best companies in the world by it even taking the fifth position on the Fortunes 500. The company was among the most innovative companies at the time in the USA in the vital energy sector. The company through its senior executives, employees and its auditors engaged in unethical acts to hide the actual state of the company to its shareholders and the investors(Carnegie, G. D., & Napier, C. J., 2013). The company engaged in window dressing of the financial statements and reporting of profits that never existed. Employees that tried to raise the alarm were fired immediately. The fall of the company led to the loss of jobs and hard-earned income belonging to the shareholders and the investors. Executives were prosecuted, and the company’s reputation was tarnished (Markham, J. W., 2015). The corporate culture was that which appreciated the institutions that performed well and less amused on what the company had done to reach at that point(Roy, M. N., 2015).  It was a culture that encouraged risk-taking behavior and self-centeredness. It was the corporate culture of the US securities market to accredit the leading companies regarding their profits amidst limited regulation of its participants. Businesses that were reporting high profits were seen to have the best management. The management was thus not altered.

Enron was a company that had leaders that embraced the transactional leadership theory.  The administration was characterized by the reward and punishment systems that were common at Enron (McLean, B., & Elkind, P., 2013). The leaders were keen to embrace strategies that could categorically shape the behaviors of the subjects. It is with certitude that the employees at Enron were molded to be motivated by rewards other than punishments. It was because of this trait that the workers were reluctant to whistleblowing the vices.  Due to the promise of the leadership that they could be awarded regarding salaries in the case that they kept quiet was a factor that stirred the dominance of the deception (Brody, R. G., Brody, R. G., Perri, F. S., & Perri, F. S., 2016). The employees were more concerned about their security and the confidence of their leaders as compared to the appreciation of ethics. In the same way, the Arthur Andersen was more comfortable appeasing the leaders of the company through window dressing than standing for what was right. Everyone was doing what he could for a pleasurable return. The management was engaging in the unethical culture to sustain their jobs and also to receive credit from the shareholders (Rajagopalan, S., 2016).

Explanation of the Problems at Enron Using Leadership Theories

The other theory that will be implemented in the analysis of the Enron situation is the transformational leadership.  Transformational leadership is concerned with the positive influence of leaders on the subjects. The theory revolves around the impacting of the subjects with the charismatic attributes that mold them to individuals that are dedicated to the accomplishment of the middle term and the long term objectives of the company (Kulik, B. W., & Alarcon, M., 2016).

The senior executives at Enron were not keen at impacting the employees with skills that could transform the company to a level that could make it dominate its markets for a longer duration (Biggerstaff, L., Cicero, D. C., & Puckett, A., 2015).  Enron executives did not create a sense of belonging to the employees.  The employees that tried to stipulate the right procedures to go about the problems that were succumbing  Enron were fired.  It implied that one had no permanent place in the company (Jurkiewicz, C. L., & Giacalone, R. A., 2016).  The unethical behavior of the leaders was a factor that should have been avoided given the objectives of the company.

 The leadership of the Enron Company was the primary overriding problem in that it inhibited its success in whatsoever means. Individuals that were trying to awake the company again were brought down, and it seems that the leaders were contented with the fact that the company was surviving on a lie.  The leaders were the primary participates in paying off those that were covering the significant problems.  The leaders of the company should have been more charismatic in setting a pace for transparency,  honesty,  accountability, objectivity, and professionalism in every aspect of their operations (Grieser, W. D., Kapadia, N., Li, R., & Simonov, A., 2016).  It was not sensible for them to contribute to the falling of a company in problems that could be curbed through team working.

Culture can be implied as the distinctive way of operation of an organization.  Culture is the shared attitudes, motives, norms and beliefs. Leadership at Enron was impaired due to the perception of the leaders.  It is evident that when Skilling had realized that the company was falling, he stepped down for unclear reasons. When Lay picked up the responsibilities of the CEO of the company, he embraced the culture that was left behind by Skilling for he was part of the board when Skilling was the leader. It is crucial to identify that Lay had exemplified the leadership traits of Skilling (Carnegie, G. D., & Napier, C. J., 2013). The culture of risk taking with the speculation of high profits was dominant.The leaders were reckless, and so were the employees. There was no sense of direction.  Individuals lived with the fear of disappointing those that had hoped in them. And thus they developed a culture of ensuring that they were awarded even if they did not deserve. Transformational leadership was not present; no single leader at the time was deemed to bring revolution to the state of the company.

Leadership and Culture at Enron

Leadership shapes culture that is it dictates to the subjects on what they should embrace. The objectives of the leaders were enforceable through the implementation of punishments and rewards.  The firing of employees that could not embrace the unethical culture of Enron was standard.  Those that diligently ignored transparency were fraudulent and lacked accountability were awarded huge salaries (Dempsey, 2015). The leadership of the company defined who was acceptable and who was a traitor of the enterprise.  The leadership of the company was built on individualism in the sense that everything that was done was for the benefit of those who participated in it and not the whole organization.  The shareholders because of lack of representations were locked out and lost a lot of their money was the scandal was unveiled. In the same way, the investors also suffered as a result of the culture that had thrived on fraud and deceit.

Shifting the culture of an organization is not an easy task considering that there are internal forces from the stakeholders. It is basic to identify that there is always an element of opposition from the employees in a time that there is a leader who wants to change their way of performing tasks (Dempsey, 2015). The change of the culture of a company also calls for the change in its organizational structure a factor that is not easy to fully implement in an organization that has an already structured way of handling issues.  Change is inevitable but most employees are fearful of change, and thus they will oppose it at all dimensions to prove the enforcer wrong.

The case of Enron teaches on the extent ethical distortion that poor leadership can have on a company. Also, the cultures roles on the principle of leadership are depicted in the case.  The recommendations that can be made in dealing with the problem would be embracing of disciplinary actions that could be imposed against leaders that are involved in unethical scandals (McLean, B., & Elkind, P., 2013).  It is thus imperative to punish those that actively deal in unethical acts that have great implication to the survival of companies. The other factor could be the formulation of policies that will ensure that stakeholders are represented in the board meetings so that they are in a position to assess the transparency of the managers who are their primary agents.

 The regulation of the auditors will instigate them to be keener on ensuring that they comply with the accounting standards that will to a great extent lead to the reduction in the transparency scandals like in the case of Enron. Also, the auditors will not be working alone but as a team to ensure coordination of duties. Their salaries should also be regulated (Tricker, R. B., & Tricker, R. I., 2015).  The management of a company should be conversant with the rules that it has to play in the enterprise. The management should understand its role as agents in a public company. It is imperative for the management especially the executives be more conversant with the ethical standards and the principles of corporate governance (Bhaduri, S. N., & Selarka, E., 2016). The disclosure of material information should always be done as and when it is required. The release of information should be free from inaccuracy reports and window dressing by whatsoever method (Bhaduri, S. N., & Selarka, E., 2016).  To enhance corporate governance, the company should have engaged in the separation of its roles. For instance, the chairmen and the CEO positions are supposed to be handled by different persons. 

How Leadership Influences Culture

The recommendations will be appropriate for Enron Company given the ethical issues that it faced during its operation.  In the case of the disclosure of material information, it can be somehow difficult for the company given that competitors from private companies can access the information and use it to dominate over Enron (Covitz, D., Liang, N., & Suarez, G. A., 2013). To the shareholders, the recommendations are mission oriented in that they will make them identify how the company is performing and also forecasting on the future profits. To the general public, they would be interested in seeing the duties of the management monitored and fewer expenditures in running of the public companies. To the government, they will be keener in accessing the actual information appertaining to the enterprise so that they can acquire higher revenues. The employees will want to have a working environment that entertains ethical engagements and is free from threats and manipulations from the management. 

The application of the recommendations will be through the regular changing of the culture of the organization. That is leaders should be taught their role in the building of culture and the leadership skills that will drive the organization forward. It is fundamental also to train employees on how to make decisions in the case of ethical dilemmas (Chernov, D., & Sornette, D., 2016). The employees also have to identify their rights. In the case of Enron,  change must be embraced by the organization given that it will bring a  revolution to the deeply taught and appreciated attitudes and behaviors. The implementation will only be possible with the support of the management and the employees in general.

Conclusion

Leadership is imperative in the culture of an organization. If the authority of a company is that which is relevant to the creation of value to achieve goals, then it is clear that its stability is guaranteed (Tricker, R. B., & Tricker, R. I., 2015). The unethical issues that occur in companies like in the case of  Enron dictate the essence of having a leader that is conversant with his or her responsibilities in the bringing the company forward. A leader can nurture a team that can always stand for what is right not worried of intimidation or manipulation. 

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