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Leadership in Business-A case study on Enron


Leadership in Business: A case study on Enron. 


1. Executive summary:

Ethical business practice is one of the major components for upholding the business in an effective manner. Most of the firms have been focusing on the process of gaining competitive advantages quickly. Enron was a natural gas pipeline company formed in 1986. Enron was the 7th largest U.S. Company in 2001, which was filed in the bankruptcy case in December 2001 (Hindery, 2013). In this context, the particular organization was charged with security fraud. Enron did not follow the ethical business practice to experience the profitable outcome of the business in a rapid way.

The prime issue occurred when the market lost assurance in the business since the third quarter of 2001. Enron announces its first major loss of $618 million on October 16, 2001 (Markham, 2015). Enron was suffering from the failed business process, and it was unable to provide security to its stakeholders. However, the organization was conducting business unethically due to obtaining huge profit out of the business. Most of the business analysts have assumed that Enron’s aggressive market power and accounting practice secretively hide their business making process. On October 22, 2001, the Security and Exchange Commission (SEC) started inquiry for investigating Enron’s accounting practices (Markham, 2015). It can be assumed that the particular organization was not ready to obtain the systematic growth of the business, as the company executed the unethical business practices for ensuring the sudden enhancement of the assets.

In this context, the researcher has analyzed the rationale behind bankruptcy in Enron. The researcher has provided a detailed discussion on the findings of the case study. Moreover, the researcher has provided the best possible solution for the organization.

2. Findings:

The prime issue occurred when Enron has failed to grab the attention of the market in the third quarter of 2001. Consequently, it caused the major issue, as the organization was unable to clear the bank loans. The prime finding of the case study was that Enron employed the complex dubious energy trading schemes (Voegtlin,  Patzer & Scherer, 2012). By analyzing the particular finding, it can be assessed that they took advantage of market-loophole. Moreover, the unethical business practices of the company employed the complex and dubious accounting schemes, as it was facilitated to reduce Enron’s tax payments (Parris & Peachey, 2013). With the involvement of the unethical business practices, the organization was successful in increasing the assets of the company in an effectual manner. Effective leadership practice is one of the major factors that facilitate the organization to uphold the ethical workflow design in the business.

By analyzing the ethical business theory, it can be assessed that the ethics can be categorized into three parts including normatively of ethical theories, traditional ethics, and contemporary ethics. Descriptive ethical approach facilitates the business to understand the moral business systems. Consequently, the descriptive ethics covers up the research topic in an efficient way (Mendenhall & Osland, 2012). In this context, the organization was hiding their business practices in order to enhance the assets of the business. Consequently, the descriptive ethical theory facilitates the organization to uphold the values, ethical ideas, moral virtues and moral systems in the business. Hartman, DesJardins & MacDonald (2014) have discussed that the ethical theories indicate the principles and rules for determining right and wrong business approach for a given situation.

In this context, Enron employed the offshore entities for in the business for avoiding taxes, inflate assets and profits and hiding losses. It indicates the unethical business practices that ensure rapid assets growth in an efficient way. Moreover, the organization was engaged lawyers and top executives for creating subsidiaries, which looked like partnerships. Consequently, it made possible for the organization to sell assets and create false earning. Hence, it can be assessed that the organization did not follow the ethical approach in the business. Effective leadership approach would facilitate the organization to uphold the same the workflow design in the business (Ruiz-Palomino, Martínez-Cañas & Fontrodona, 2013).

3. Discussion:

By analyzing the case study of Enron, it can be assessed that the organization experienced the rapid growth in the late 1990s when it was involved large capital investments unexpected in generating significant cash flow in the short term. Business analysts have discussed that Enron employed the complex and dubious accounting schemes for the reduction of the tax payments (Zadek, Evans & Pruzan, 2013). Moreover, it facilitated them to inflate the income and profit of the business in an effective manner. The rationale behind employing the complex accounting schemes was to hide the losses in off-balance-sheet schemes for funneling the money within the business. Most of the business analysts have identified the particular case as the biggest and most complex bankruptcy in U.S. business history (Cant, 2012). Moreover, it created the devastating effect on a huge number of employee and investors in the business.

Besides the complex and dubious accounting schemes, the organization also followed the complex dubious energy trading schemes (Ulrich & Sarasin, 2012).  With the involvement of the particular schemes, the organization was able to take advantages of a loophole in the market rules leading energy trading in California. Moreover, the organization collects a huge amount of assets by engaging the particular business schemes in the organization.

On the other hand, the particular organization was failed to establish an appropriate business culture in the organization. By discussing the organization culture, it can be assessed that Enron’s business culture had numerous issues and challenges to execute the business process in an efficient manner. The higher management of the organization includes the unethical practice throughout its core business process. For example, an employee’s appraisal scheme allows the performance appraisal committee for providing promotions and bonuses to the top employees (Jondle, Ardichvili & Mitchell, 2014). Moreover, the appraisal team avoided to include promotion scheme for bottom line employees in the business. On the other hand, the organization was the least bother for providing enhanced learning and training session to the employees in order to improve individual performance. Unlike other successful organizations, Enron fired 15%-20% employees with the lowest performance (McDonnell, 2012). Moreover, they replace the old employees with the new set of staffs. Most business consultants criticize Enron’s business practice as it included the ruthless and reckless culture. Appraisal needed to be executed based on the fact how well employees has delivered core values of the business, whereas Enron’s appraisal was conducted based upon how much paper profit had been generated by the employee (Craft, 2013). Hence, it can be assessed that the ineffective organization culture was the prime rationale for the bankruptcy of the business. Moreover, the organization had never entertained any employee complaining against the business process management. With the involvement of the ruthless organizational culture, the business had failed to save the business from major bankruptcy.

On the other hand, after resigning Jeff Skilling in August 2001, Ken Lay had taken the post of CEO. Although the organization was passing through a difficult business situation, the new CEO of the company focused on the importance of the organization’s shares (Hindery, 2013). It is the major business issue as it allows the business to enhance its competitive advantages in the global platform. Although a huge number of the investors sold their shares in the market, some investors believed in the CEO called Ken Lay and retained their stock in the business (Markham, 2015).

4. Conclusion:

It can be concluded that the lack of ethical business practice had created difficulties to Enron for upholding the profitable outcome of the business in an efficient manner. In this context, the organization had several business issues in the process. The prime issue of the business was that Enron included the complex and dubious accounting schemes for executing the business in an unethical manner. The beneficial aspect of this process was that it facilitated the organization to reduce the tax payments. On the other hand, the particular business practices allowed them to inflate the income and profit of the business.

The second issue of the organization was that the complex energy trading schemes. With the involvement of the complex energy trading schemes, the particular organization took advantages of the loophole in the market. On the other hand, the organization was failed to uphold the ethical business culture at the workplace. Among the complex organizational issues, the prime challenge was to provide the recognition to the right employees. The higher posts within the business were allowed to obtain the appraisals for the performance. on the other hand, the organization strictly ignore the performance management program for the bottom line employees, and the higher management fired 15% to 20% employees with the low performance. Hence, it can be assessed that the lack of ethical business approaches had created difficulties for the organization to obtain a profitable outcome in an efficient way.

5. Recommendations:

It can be recommended that the organization should have to implement the enhanced business practice for enhancing the business opportunity in the global market. The senior management of the organization was found guilty for hiding losses in off-balance-sheet partnerships. Hence, the organization should have improvised the work execution process in the higher management. On the other hand, Enron needed to develop their organization culture for obtaining the healthy workflow design at the workplace; the unethical organizational practice had created challenges for the employees and other stakeholders in the business. For example, the organization avoided the bottom level employee to recognize their performance. Hence, the higher management team should have included an appropriate appraisals process for all employees in the business.

Most of the shareholders of the company were selling their shares in the market due to the downfall of the business. Consequently, Enron should have accumulated feedbacks from their stakeholders for identifying the key development area in the business. On the other hand, many business analysts have argued that the effective leadership approaches would be helpful for upholding a perfect work design at the workplace. Lack of leadership approach had created difficulties for the business to diminish the managerial issues out of the business. Enron should simplify the accounting schemes to reduce the tax payment in an efficient manner. Hence, it can be assessed that the ethical business practices were the only major factors that could facilitate the organization to prevent the bankruptcy in 2001. Moreover, the higher management should not hide the energy trading schemes from the customers, as it created challenges to Enron to enhance the stock price in an effective method.

6. Implementation:

The CEO, Jeff Skilling should have implemented the ethical business practices in the business for preventing the bankruptcy in an efficient way. The higher management needed to implement the simple accounting practice and market power ensuring the secret was safe. On the other hand, the organization should have implemented the simple dubious energy trading schemes in the business. Through the implementation of the ethical business practices, the organization might follow the market rules for maintaining effective business systems. Ken Lay the new CEO after Jeff Skilling should implement new and attractive business schemes for managing the healthy relation with the stakeholders of the business.


Cant, M. C. (2012). Small Business Attitudes Towards Ethical Issues: Survival Or Ethically Correct?. The International Business & Economics Research Journal (Online), 11(12), 1347.

Craft, J. L. (2013). A review of the empirical ethical decision-making literature: 2004–2011. Journal of Business Ethics, 117(2), 221-259.

Hartman, L. P., DesJardins, J. R., & MacDonald, C. (2014). Business ethics: Decision making for personal integrity and social responsibility. McGraw-Hill.

Hindery, D. (2013). From Enron to Evo: Pipeline politics, global environmentalism, and indigenous rights in Bolivia. University of Arizona Press.

Jondle, D., Ardichvili, A., & Mitchell, J. (2014). Modeling ethical business culture: Development of the Ethical Business Culture Survey and its use to validate the CEBC model of ethical business culture. Journal of Business Ethics, 119(1), 29-43.

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

Markham, J. W. (2015). A Financial History of the United States: From Enron-Era Scandals to the Subprime Crisis (2004-2006); From the Subprime Crisis to the Great Recession (2006-2009). Routledge.

McDonnell, D. (2012). Democratic enterprise: Ethical business for the 21st century. Diarmuid McDonnell.

Mendenhall, M. E., & Osland, J. (2012). Global leadership: Research, practice, and development. Routledge.

Parris, D. L., & Peachey, J. W. (2013). A systematic literature review of servant leadership theory in organizational contexts. Journal of business ethics, 113(3), 377-393.

Ruiz-Palomino, P., Martínez-Cañas, R., & Fontrodona, J. (2013). Ethical culture and employee outcomes: The mediating role of person-organization fit. Journal of Business Ethics, 116(1), 173-188.

Ulrich, P., & Sarasin, C. (Eds.). (2012). Facing public interest: The ethical challenge to business policy and corporate communications (Vol. 8). Springer Science & Business Media.

Voegtlin, C., Patzer, M., & Scherer, A. G. (2012). Responsible leadership in global business: A new approach to leadership and its multi-level outcomes.Journal of Business Ethics, 105(1), 1-16.

Zadek, S., Evans, R., & Pruzan, P. (2013). Building corporate accountability: Emerging practice in social and ethical accounting and auditing. Routledge.

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