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Leaderships

Question:

Case study on "Leadership is a very important concept in business strategy".

Answer:

Introduction:

Leadership is a very important concept in business strategy, as it is the leadership skills of the management authority which provides a sense of direction, motivation and meaning to every task to be performed in the organization. A leader helps to maximize the efficiency of the employees and channel it towards the accomplishment of a desired goal. However, if the leader is guided only by the motive of profit maximization, the organization will never succeed in sustaining itself in future. The argument can be substantiated by the case study of Enron, an organization which was enjoying dramatic heights, until it met its failure, owing to its unethical, fraudulent activities in business. Enron is a recent example of how unethical business practices can land even a great American amidst trouble and notoriety (Tang et al., 2014).

Findings:

Enron was an incredibly huge American company, founded in the year 1985, and dealing with the production of natural gas pipelines, the company was named as the most innovative organization of America, over a consecutive period of 6 years. However, it is with the appointment of Kenneth Lay, as the CEO of the organization, that the unprecedented downfall of the company started. The managers and the executives are the actual leaders of an organization, as they are not only responsible for establishing communication with the internal and external stakeholders of the organization, but they are the ones who set the codes, restrictions and values of the organization, before the employees. Here, in case of Enron, under the leadership of Kenneth Lay, the company lacked ethical leadership and any sense of integrity and corporate values. Since Kenneth Lay, himself lacked a sense of core values in business, he failed to execute the same in Enron (Ferrell et al., 2015). The employees are under the obligation of complying with the framework of expectations, set up by the managing authority. As a result, when Lay indulged in financial corruptions, such as overstating the value of the organizational assets, by creating off-the-book-entities, the employees had no choice but to be a part of the decision making process of the authoritative leaders. In fact since Lay as a leader was inefficient and dishonest, he has always promoted those employees, who were governed by materialistic considerations and immediate profit seeking attitude in business. The whole case reminds one of the importance of ethical considerations even in a business organization, and most importantly it highlights how the ruthless leaders, devoid of moral value or responsible art of doing business, not only ruin themselves but also its employees and stakeholders (Matoussi and Jardak, 2012).

Discussion:

Schultz, who is a corporate psychologist, has rightly asserted the fact that just as character is important in the life of an individual., it plays an equally vital role in the success of an organization. A leader in any field, is not merely someone, who aggressively seeks to maximize his profit, without paying heed to the question of integrity and dignity. Ethics plays an integral role in the concept of leadership. Although, since the 1990s there had been various books and journals reflecting on the qualities of a desirable leader, the full-range leadership theory did not put much emphasis on the importance of ethical consideration in a leader (Persson and Pickett, 2012). Gardner in his book, named, “On Leadership" , talks of how there were various examples of bad leaders, who are nothing short of transgressors in his eyes, as they themselves are not only cruel by nature, but encourage and allure their followers to destroy a sense of justice and human dignity, for the sake of benefitting oneself. The Full Range theory of leadership emphasizes the importance of idealized influence of the leader on his employees. According to this theory, a leader must be able to become a role model to his employees, and he does not become so, by merely asserting his authoritative position, but by setting a code of ethical conduct that demarcates him from the rest (Northouse, 2015). Every organization should follow a particular ethical code, as it helps the employees follow a particular direction and meaning while doing their work, and needless to say that a healthy corporate culture will always benefit the organization, by increasing its brand value. This was the case with many companies, such as Starbucks, Zappos, McDonald’s and many more. But the most important fact is that the extent to which an organization will be guided by ethical considerations, is largely determined by the management authority who play the leadership roles in the organization (Anning, 2015). If a company enjoys a CEO as Skimmer, an organization like McDonald’s cannot help but rise and reach the pinnacle of success, by incorporating ethical strategies, such as Healthier Food Program, for the benefit of the consumers. Further, it is difficult for consumers to overlook an organization like Target, whose CEO Steinhafel makes an impressive ethical move of donating 5 % of the organizational revenue for charity purposes (Christensen et al., 2014). Actually, much of an organizational success depends on the CEOs who are the ultimate authoritative forces of an organization in determining and structuring the framework under which the employees are going to work. In case of Enron, the major drawback was an ineffective and fraudulent CEO, who himself being driven by an inordinate sense of ambition, brought disaster to the organization, and anyone associated with it. Although much researchers had traced the accounting frauds and unethical corporate culture as the underlying reason behind the downfall of the company, the actual reason is the inefficiency and dishonesty of a CEO (Roy, 2015). A leader, be it in any field, should not only perform the ethical duties privately, but must necessarily set an example to the followers, by setting forth a set of ethical attributes, and making it a mandate to be followed. According to Ciulla, leadership is the process of knowing what is right in a particular circumstance, and influencing others to follow and pursue the right course of work (Ciulla, 2013). The trait theory of leadership also emphasizes the qualities of honesty and integrity as the ultimate virtues which highly distinguishes a leader from a non-leader. Further, authors like Locke, or researchers like Trevino defined a leader as someone, who shows a fair and principled attitude towards the employees, investors and the consumers of the organization. The Trait theory of leadership believes that a leader is distinguished from a follower, because the former acts less out of self-interest, and more for the benefit if others. In case of Enron, Lay and Skilling, as the managerial leaders of the organization, who despite having much knowledge about the condition of the organization, both of them tried to increase the brand value, by exaggerating the financial health of the company. Besides, an ineffective, withdrawn and passive method of leadership, as shown by the company’s Board of Directors, was also equally responsible for the same (Einarsen et al., 2016). The management authority of Enron had not only deceived its employees, about its financial condition, preventing them to diversify their pensioned funds, but had won huge contracts, by lying to people about the strong financial condition of the company. As a result of this over-materialistic motive, Enron lost its professional credibility and was doomed forever. Medici, South Sea Company, Texaco are some other organizations which had to undergo a process of forced shut down, simply on ground of unethical business practices, introduced by the managerial leaders (Carroll and Buchholtz, 2014).

Conclusion:

It is the leaders who set forth the morale of the employees of the organization. As it is a case with Enron, the managerial leaders, Lay and Skilling, were great failures as the organizational heads, due to their lack of integrity and diligence in execution of business plans. Process Integrity Capacity is an important concern in an organization, which helps the managerial heads to align their profit-seeking attitude in business, with the ethical considerations, demanded out of them. Lay and Skilling overlooked the importance of Process Integrity Capacity, and their moral blindness and lack of ethical awareness had tarnished their organizational reputation, apart from bringing disastrous financial loss to its employees and investors. Furthermore, many of the extremely talented executives were also put to prison, for the very same scandal. Hence, ethical leadership is a matter of great importance in a business organization. The CEOs of an organization should try to imbibe the ideas of the  Transformational Leadership theory, which speaks of the importance of ethical awareness in decision making process, for bringing  a beneficial transformation in the lives of all (Silvaiera et al., 2013).

Recommendation:

Organizations like Enron or Worldcom remind one of the unfortunate downfall of huge organizations, and the undeniable failure of the business leaders in effectively strategizing the business activities, in accordance with the ethical standards. Keeping this in view, the leaders of the organizations should ensure that they are themselves guided by a set of ethical principles. Since in the 21st century, a sense of hostile competition and aggressive money-seeking motive, makes it difficult to stay loyal to one’s integrity some steps should be followed by the leaders. First of all, each organization should have a committee solely for the purpose of reviewing the extent the ethical norms are being followed in the organization. In case, the leaders cannot remain true to their motives, the owners and the management authority should collaborate to publish its own ethical codes of conduct and business practice, in the form of a Mission Statement, and statement concerning the core Values of the organization (Huhtala et al., 2013). It is not sufficient to create the Mission statement, but the organizational head must ensure that the core values and ethical principles of the organization are being well communicated to its employees. The employees, even the executives and the CEO should be made aware by the managing authority that any form of violation of the moral principles will lead to permanent suspension from service. Further, large organizations nowadays have their own ethical policies, which define the ethical guidelines of the organization. It is also advisable for the large organizations, to implement a training program that will train the employees about the professional ethics of the organization (Resick et al., 2013).

Implementation:

An organization is mainly governed by the ethical choices made by the top leaders of the organization. If they take a fraudulent decision by choice, the whole organization will be led astray. Keeping this in consideration, the top leaders, like the executives and the managerial heads should be professionally trained, so that they do not make any poor ethical choice. Global Learning Systems, is one such organization that provides excellent training to the employees, and an organization, nowadays, should seek help of such professional organizations, to provide corporate ethics training to the topmost leaders of the organization (Ciulla , 2013). It should be remembered, that an organization works in accordance with the directions set by the managerial heads of the organization, and hence it is indisputably important to inculcate a sense of ethical responsibility in the mind of the CEOs and the executives of the organizations. This can be achieved, by conducting professional seminars and conferences and workshops that will acquaint them with the stories of successful managers, who made it to the top, only owing to their hard work, dedication and integrity. On the other hand, they will also be accustomed to the stories of managers and CEOs whose excessive ambition and lust, had tarnished the reputation of the organizations. An organization can conduct the training seminars and the conferences, in the organization itself , or may also opt for on-line training programs, as the latter will be much time and cost effective. On completion of the course, the authoritative figures in the organization, as well as the employees, will be able to manage the business transactions with greater fairness and transparency (Shapiro et al., 2013). 

Reference List:

 

Anning, Y. (2015). Ethics in the Global Market Place.

Carroll, A. B., & Buchholtz, A. K. (2014). Business and society: Ethics, sustainability, and stakeholder management. Nelson Education.

Christensen, L. J., Mackey, A., & Whetten, D. (2014). Taking responsibility for corporate social responsibility: The role of leaders in creating, implementing, sustaining, or avoiding socially responsible firm behaviors.The Academy of Management Perspectives, 28(2), 164-178.

Ciulla, J. B. (2013). Leadership ethics. Blackwell Publishing Ltd.

Ciulla, J. B. (Ed.). (2014). Ethics, the heart of leadership. ABC-CLIO.

Da Silveira, A. D. M. (2013). The Enron scandal a decade later: lessons learned?. Available at SSRN 2310114.

Einarsen, S., Aasland, M. S., & Skogstad, A. (2016). the nature and outcomes of destructive leadership behavior in Organizations. Risky Business: Psychological, Physical and Financial Costs of High Risk Behavior in Organizations, 323.

Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. Nelson Education.

Huhtala, M., Kangas, M., Lämsä, A. M., & Feldt, T. (2013). Ethical managers in ethical organisations? The leadership-culture connection among Finnish managers. Leadership & Organization Development Journal, 34(3), 250-270.

Matoussi, H., & Jardak, M. K. (2012). International corporate governance and finance: Legal, cultural and political explanations. The International Journal of Accounting, 47(1), 1-43.

Northouse, P. G. (2015). Leadership: Theory and practice. Sage publications.

Persson, J., & Pickett, J. R. (2013). Case Study: Enron.

Resick, C. J., Hargis, M. B., Shao, P., & Dust, S. B. (2013). Ethical leadership, moral equity judgments, and discretionary workplace behavior.Human Relations, 0018726713481633.

Roy, M. N. (2015). Statutory Auditors' Independence in the Context of Corporate Accounting Scandal: A Comparative Study of Enron and Satyam.IUP Journal of Accounting Research & Audit Practices, 14(2), 7.

Shapiro, J. P., & Gross, S. J. (2013). Ethical educational leadership in turbulent times:(Re) solving moral dilemmas. Routledge.

Tang, G., Cai, Z., Liu, Z., Zhu, H., Yang, X., & Li, J. (2014). The Importance of Ethical Leadership in Employees’ Value Congruence and Turnover. Cornell Hospitality Quarterly, 1938965514563159.

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