Running Head: Examining Business Failure ﾖ Enron Corporation

Over time organizations develop a distinct and persistent pattern of behaviour or culture. The tendency of managers to draw, pick, and assimilate persons based on how comparable they are to the current employees in the organization enhances the traditions in the organization (Scheneider, B., 1994). Organizational behaviour is opposed to change due to individual cognitive progression and defensive routines. People rationalise past behaviour by forming beliefs and escalating these beliefs. These characteristics cause organizational policies and practices to persevere even in face of fresh facts unless skills and norms of examination are developed (Michael Beer, 1998).

Enron was an energy production company started in 1932 as Northern Gas Company in Omaha, Nebraska. It expanded into one of the world’s leading energy and commodity trading companies by the time of its fall. The company was transformed by its CEO Kenneth Lay when it diversified from its electricity, natural gas production and distribution into building power plants, pipelines, pulp paper, communications, online trading etc., worldwide. Its proven profitable subsidiaries included; Northern Natural Gas, Florida Gas Transmission, Transwestern Pipeline company, and Northern Border Pipeline in Canada. These affiliates provided the funds for the company’s other ventures and investments Enron had much acclaim for its perceived success in financial and corporate affairs. It was hailed by many including labour agencies and its employees as a great employer. It was praised for its favourable terms of service, long term pensions, and extremely responsive management. Enron was awarded several awards including Fortune’s magazine “America’s Most Innovative Company” for six years consecutively. Its alleged assets were reported to have accrued revenues of over111 billion by the year 2000. At its peak, the company employed over 22,000 employees, but has currently only 40 employees (Elkind, Bethany Mclean and Peter, 2004).

All this was to change in late 2001 when it was ascertained that the company had been ‘doctoring’ its books. Its financial position was sustained by deliberate and systematically institutionalized creatively planned accounting malpractices. A renowned blue chip company, its bankruptcy shocked many analysts who had not anticipated the demise of the energy giant and the many investors who lost their earnings as the company stock fell from its high of 2001 at 90 dollars to literary cents per share. The management had deliberately misled investors and the regulators through fraudulent bookkeeping practices in-tandem with the external auditing firm ArthurAndersen. The directors had used insider trading methods to offload stock and hence took off with millions of unsuspecting investor funds. (Elkind, Bethany Mclean and Peter, 2004)

Enron’s collapse was inventible due to its continued use of unorthodox accounting practices and lack of investment prudent methods, however, the fact that very few business observers had foreseen or predicted its poor financial position is largely due the company organization behavioural practices. The company was able to cultivate a culture of invincibility based on its ‘high profits’, enviable employee relations, great innovations and political patronage that ensured the company was ranked as one of the most successful firms in the world. The organisation behaviour at Enron which led to its collapse can be explained as a product of several factors that govern the interaction and evolution of the organization over time (Michael Beer, 1998).

Enron’s organizational environment and strategy, intentions, employees, and behaviour of the top management shaped its organizational behaviour and culture. Enron demise can be traced through four organisational behavioural theories:

Enron’s organisational culture and behaviour

The demand for high performance and intense competition called for continuous change and adaptability. This led to need for collaboration, conflict confrontation, and commitment. This environment created led to creation of a firm’s ‘cult’ mentality, with emphasis on out-competing rivals at all cost. The company disregarded the need for just making profits but evolved into a corporate mammoth. Enron therefore adapted strategically through experimentation rather than planning. It diversified from its core line of business – energy production and distribution, to many un-chartered ventures, in efforts to raise its revenue base. The company’s CFO, Jeffrey Skilling advocated a scheme of the corporation not needing chattels. Enron then evolved into a wholesaler of energy products. This eventually led to the company collapse. (J. Peffer, 1998) (Michael Beer, 1998)

Environment and Strategy

Enron operated in an intense competitive environment in the industry, with advent of the internet and online trading, and highly skilled labour. The company strategy was functionally influenced by the need to incorporate new technologies like e-commerce to enhance its competitive edge. Its adoption and implementation of the pioneering Enrononline.com to propagate its new arm although innovative was however, like its other ventures too aggressively pursued with disregard to prudent financial standards.

Organisation Design

Enron organisational design was based on the modern open system of management. The employees’ commitment to the company was sound as they were fully integrated by being made nominal shareholders through their pension plans and other bonuses. Enron had decentralised units through several subsidiary firms that were also closely evolved into the organisational culture. The company leaders singularly hold the authority and obligation for the continued success and survival of companies and the workforce are bound to hope to gain a share of. (Alfino, Brian Steverson & Mark, 1997) The employees were informed of financial decisions but were however, not privy to the actual top decisions that led to the company’s collapse. Enron had a collective integrated system of management that incorporated the employees into their system. The leadership were well appreciated hence; the employees had no suspicions of their top leadership fraudulent activities. The few who were aware, we too embedded in the system and were therefore part of the scam. The employees hired tend to share same characteristics and with time evolve into a shared corporate culture.

Conclusion

Employees rely on the decisions and behaviour of the administration for continued service. This reliance generates susceptibility and characterizes the employee-management. It explains the sort of stake that employees have in the sustained success and endurance of the company. In the “Kews Gardens Principles,” namely “need, proximity, capability, and last resort,” the four conditions were evident in Enron’s company collapse and the damage it caused stakeholders, with special emphasis on the fact that management represents the “last” and “only” resort for the stakeholders to turn to for help (Simon, J.; Powers, C.; J.Gunneman, 1972).

References

Alfino, Brian Steverson & Mark. (1997, August 7-10). Business Failure and Corporate Managerial Responsibility. Society for Business Ethics , pp. 8-10.

Elkind, Bethany Mclean and Peter. (2004). The Amazing Rise and Scandalous Fall of Enron. Portfolio, Penguin.

J. Peffer. (1998). The Human Equation. Boston, MA: Havard Business School Press.

Michael Beer. (1998). Organizational Behaviour and Development. Havard University , 1-16.

Scheneider, B. (1994). Personnel Psychology. In B. Scheneider, The People Make the Place (pp. 40, 437-454).

Simon, J.; Powers, C.; J.Gunneman. (1972). Responsibility of Corporations and Their Owners. in the Ethical Investor. New Haven: Yale University Press.

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