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1. Critically evaluate the strategic choices that Enron had adopted from both a theoretical and practical perspective, and examine how these choices affect the organisation’s long-term sustainability.

2. Explain what was missing in the leadership at Enron that allowed its particular culture to develop.

3. If you were in a position to advise Kenneth Lay, what would you recommend he does to maintain profitability while at the same time fulfil corporate social responsibility? Explain your recommendations

Enron's Background and Strategic Choices

The essay gives an overview of the human resource management from the purview of   Enron Corp. The company represents one of the largest corporations of America formed in the year 1985 followed by a merger between the InterNorth Inc based in Omaha  and Houston Natural Gas Co. The company is also the first in the history of America to experience a major collapse. The essay puts forward a critical evaluation of Enron’s strategic choices that influenced the company in the longer term.  The essay also puts forward the missing link in the leadership that led to Enron’s debacle. The essay also provides necessary recommendations that could have helped Kenneth Lay in determining the profitability of Enron.

Enron Corp. was the first pipeline network of natural gas across the nation. With time, the business focus of the firm had a shifted from regulated transportation of the natural gas to the unregulated trading markets for energy. The principle for this shift was to make more money in the selling and buying of the financial contracts mostly linked to the energy assets than the actual ownership of the physical assets. Until late in the year 2001, almost all the observers including the professionals of Wall Street considered the transformation of the company as outstanding success. Between, the year 1990 and 2001, the company reported an increase in annual revenues from $10 billion to $ 139 billion that placed Enron at the fifth position on Fortune 500 (Eichenwald and Brick 2012). According to Markham (2015), the problem of the company was not due the core operations related to energy but the strategic choice of other ventures like the investment in high tech communication and internet business. This happened since Enron believed that internet could bring in unlimited opportunities. This motivated the company to not only purchase the online marketers and the service provider but also construct a communication network through optic fiber and create market for the trading the capacities of broadband communications. The company entered the market during the peak thereby paying higher prices and taking on heavier debts for financing the purchase. However, during the year 2000 when the dot com crashed, revenues of the company from the investments evaporated leaving aside the debt. The accountability for huge amount of debt affected the long-term sustainability of the organization.

McLean and Elkind (2013) put forward that the company’s long-term sustainability was under question when Enron recorded huge losses in some foreign operations. This resulted due to the company’s strategic choice in making huge investments in the public utilities of South America, UK, India with the hope of earning profit in the newly formed deregulated markets. The sharp price rise anticipated by Enron was blocked by the local politics. Although, the energy trading business of Enron made money but it was less profitable and extensive compared to the claims made in the financial report. Energy trading of energy did not produce enough flow of cash to aid Enron in withstanding the major loss incurred due to the dot crash and investment in the foreign portfolios.

Enron's Foreign Investments and Debt Hiding Techniques

According to Feldmann and Read (2013), the strategic choice of Enron for using special purpose vehicles in order to hide debt also had an impact on the organization long-term stability. Andrew Fastow, the chief financial officer of Enron put forward a plan for portray the greater shape of Enron despite the loss of money experienced by many subsidiaries. Thus, Fastow along with others arranged for a scheme of using special purpose vehicles for hiding the details off balance sheet. It is also known as the special purpose entities (SPEs) for hiding toxic assets and debts from the creditors and the investors. The sole aim of the SPVs lay in hiding the accounting realities instead of the operating results. The transaction between Enron and SPV occurred when some of Enron’s rapid rising stock was transferred to SPV in return of note or cash. The SPV then used the stock for hedging an asset listed in the balance sheet of Enron that in turn guaranteed the value of SPV in reducing counterparty risk. The stock price that the company believed to appreciate eventually declined. This led to the decline in the value of SPV thereby forcing the guarantees of Enron in taking effect. The ability of SPV in hedging the falling share prices of Enron was compromised, as SPVs remained entirely capitalized with the stocks of Enron.

Baker and Hayes (2015) stated that the case of Enron turned into one of the remarkable financial scandal due to the company’s response in dealing with the problems. Instead of disclosing the actual condition to the public investors, Enron made the strategic choice of falsifying all its accounts. The accounting statements of the firm put across a message that the losses were not taking place at Enron but other independent entities responsible for absorbing the losses. These were actually a plot entirely created and controlled by the management of Enron. Besides, the company also disguised bank loans as the trades related to energy derivates for concealing the level of indebtedness that affected the long-term stability of the organization.

The financial report put forward in the year 2000 portrayed accounting fictions and the disappearance of close to 80 percent of profits (Benston and Hartgraves 2012). This led to the quick collapse of a large corporation like Enron along with job loss, investor wealth loss and loss of market confidence that suggested existence of serious flaws in the securities regulation system of United States (Benston 2016.). In fact, the key issue of Enron has been transparency that referred to the improvement of the quality information available to the public corporations.

Enron's Falsified Financial Statements

Enron is one of the biggest failures in the business history of the United States. Although doubtful practices of accounting has been the reason for the company’s failure such practices were  often driven by top leader and therefore bad leadership has been one of the reason behind the organizational failure. Research conducted clearly portrayed that Jeffrey Skilling and Kenneth Lay were the two key people responsible for the demise of Enron. Author like Moore et al. (2016) pointed out that actions undertaken by the two leaders have also contributed to loss of confidence within the organization.

Tourish and Vatcha (2005) provided some insights into the process of working of Jeffrey Skilling and Kenneth Lay.  These leaders believed in self-promotion and were ruthless. The leaders ran the business of the company in an extraordinary fashion thereby hiring young people and making them work close to 80 hours in a week. The leaders made the employees believe they contributed to a world of change and experienced termination at the whims and the fancies of the manager. Thus, the leadership led to the creation of an aura of power and tried promoting the thought that everything was fair in becoming one of the renowned companies of the world.

Kenneth Lay however showed signs of a transformational leader from the very beginning. He has not only been the supporter of the free market but also advocated the deregulation in the energy market in a passionate manner. His passion for the deregulated market for energy and the profit made from it led to unethical judgment. According to Seeger and Ulmer (2013), it is found that the unethical top management was responsible for not only destroying the culture but also passing the wrong message to the employees at Enron. The attitude of top leaders and the penetration of bad culture encouraged the employees in mimicking unethical behavior for meeting their compensation targets. Moreover, the culture persisting at Enron encouraged the internal competition. Even the people having better conscience did bad things for overcoming the temporary hiccups, could never plan things right and come out of the problem. As the leadership undertaken by Jeffrey Skilling and Kenneth Lay promoted the achievement of the short-term goals under any circunstances it led to lapses (Zandstra 2012). In fact, the actions undertaken by the leaders at Enron not only eroded the culture of the company but also were finally responsible for the company’s downfall.

Enron's Leadership Issues

This included their ultimate aim of achieving the short-term financial goals placed the employees and the companies at the risk of engaging into malicious practice. The involvement of the leaders in financial tweaking for inflating the company’s performance led to the bursting of the bubble. The manipulated targets and the metrics of the performance measurement for making sure that the leaders earned the required incentive.  

Besides, when the leaders realized that the company was going down, Kenneth Lay began selling the shares of the company, as he knew that the share value would erode. In addition, he also motivated the investors and the employees in buying stock (Gandossy and Sonnenfeld 2014). On the other, Kenneth Lay maintained a lavish style funded by Enron’s money. He also used the resources of the company including the company’s private jet facilities for personal use. In fact, Lay engaged in the worst kind of Nepotism by engaging friends and family as a part of Enron.

On the other side, it was Jeffrey Skilling, the primary driver behind the overestimated, hyped and inflated financial statements. He pushed the adoption of the concept of accounting at Enron. This enabled Enron in inflating the earnings and even forging the non- existing earnings that propagated a false impression about the performance of Enron. This is considered as one of the primary reasons behind the collapse of the company. Under Skilling, the Enron traders were directed for creating forged energy shortages through manipulation of California’s electricity market in order to hike price of energy. He also sold the company’s shares that finally led to the collapse of the company.

It was also the case that the senior executives and the top leaders at Enron were paid higher salaries even when the company went down. They even enjoyed huge expenses and large bonus. Besides, the leaders also took up every opportunity in making money through engagement in fake partnerships and special entities (Useem 2013). Thus, the acts performed by Jeffrey Skilling and Kenneth Lay led to the creation of a fraud culture in Enron that percolated within the entire organization and encouraged the unethical behavior amongst employees. The primary aim of both the leaders lay in making money by any means that led to Enron’s failure.

The recommendations provided to Kenneth Lay for maintaining the profitability and the corporate social responsibility would be to base his leadership policy based on the moral responsibilities and ethics.  Moreover, if Lay coupled the ethical pronouncements of Enron with the rest of the company operations, it would have led the company in the right path. Inheritance of the ethics and the codes of conduct rather than restricting them to a mere document would have guided the company towards corporate social responsibility and profitability (Ni and Van Wart 2015). Moreover, a more grounded leadership and presence of better systems for identification of the fraudulent activities would have would have prevented Enron the debacle. In fact, the entire leadership philosophy pertaining to inclusive growth would have ensured the ethical growth of every member thereby preventing the company collapse.

Jeffrey Skilling's Role in Enron's Downfall

To maintain the profitability and corporate social responsibility of Enron, Kenneth Lay could appoint a new board for regulating the independent auditors who mostly belonged to companies traded publicly. This entity would operate under Securities and Exchange Commission (SEC).

Kenneth Lay could have raised the standards of independence of the auditors by prohibiting them from providing necessary consulting service to audit clients and ensure the pre approval from the board of directors of the client for providing services other than audit. Besides, to maintain its Enron profitability, Kenneth Lay could have involved audit committees and top management for assuming the direct responsibility that would ensure enhanced accuracy of the financial statements.  

Kenneth Lay should have consulted with SEC in adopting measures for preventing the conflict of interest involving objectivity of the stock analyst along with the frequent review of the financial reports that could have taken care of the profitability of the company. Besides the implementation of penalties for offenses like misleading auditors, forgery of mail and the damage of the records would have defined Enron’s profitability and corporate social responsibility.


To conclude one can say that Enron portrayed how ethical leadership and lack of transparency led to its downfall. From various researches, it typically emerged the leadership of Kenneth Lay and Jeffery Skilling that were responsible for the debacle. A leadership conducive to moral and ethical growth would not only enhanced the hiring process but would have led to self-praise and profitability and corporate social responsibility of the company.


Baker, C. and Hayes, R. (2015). The Enron fallout: Was Enron an accounting failure?. [online] 31(9), pp.5-28. Available at: [Accessed 10 Aug. 2018].

Benston, G.J. and Hartgraves, A.L., 2012. Enron: what happened and what we can learn from it. Journal of Accounting and Public Policy, 21(2), pp.105-127.

Benston, G.J., 2016. Fair-value accounting: A cautionary tale from Enron. Journal of Accounting and Public Policy, 25(4), pp.465-484.

Carroll, A.B., 2013. Business ethics: Brief readings on vital topics. Routledge.

Eichenwald, K. and Brick, M. 2012. Enron's Collapse: The Strategy; Deals That Helped Doom Enron Began to Form in the Early 90's. [online] Available at: [Accessed 10 Aug. 2018].

Feldmann, D. and Read, W.J., 2013. Going-concern audit opinions for bankrupt companies–impact of credit rating. Managerial Auditing Journal, 28(4), pp.345-363.

Gandossy, R. and Sonnenfeld, J. eds., 2014. Leadership and governance from the inside out. John Wiley & Sons.

Markham, J.W., 2015. A financial history of modern US corporate scandals: From Enron to reform. Routledge.

McLean, B. and Elkind, P., 2013. The smartest guys in the room: The amazing rise and scandalous fall of Enron. Penguin.

Moore, D.A., Tetlock, P.E., Tanlu, L. and Bazerman, M.H., 2016. Conflicts of interest and the case of auditor independence: Moral seduction and strategic issue cycling. Academy of Management Review, 31(1), pp.10-29.

Ni, A. and Van Wart, M., 2015. Corporate Social Responsibility: Doing Well and Doing Good. In Building Business-Government Relations (pp. 175-196). Routledge.

Seeger, M.W. and Ulmer, R.R., 2013. Explaining Enron: Communication and responsible leadership. Management Communication Quarterly, 17(1), pp.58-84.

Tourish, D. and Vatcha, N., 2005. Charismatic leadership and corporate cultism at Enron: The elimination of dissent, the promotion of conformity and organizational collapse. Leadership, 1(4), pp.455-480.

Useem, M., 2013. Corporate governance is directors making decisions: Reforming the outward foundations for inside decision making. Journal of Management and Governance, 7(3), pp.241-253.

Zandstra, G., 2012. Enron, board governance and moral failings. Corporate Governance: The international journal of business in society, 2(2), pp.16-19.

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