Introduction and Company Profile
Enron Corporation used to be one of the American energy companies which were based in Texas (Houston). It was a company that had more than twenty one thousand employees and grew at a very high rate. Enron had gone to the top of the list of companies dealing with natural gas, pulp, electricity and communications with its revenues being more than one hundred and eleven billion US dollars. In fact the company was named for six consecutive years as the most Innovative Company in America (Fortune). The company was formed as a result of merging of InterNorth and Houston Natural Gas which happened in the year 1985 (Gibney 2011). It was after operating for a number of years in both domestic and international expansions that involved some complicated contracts and deals that Enron was reported to be experiencing a debt worth of billions of shillings. The debt was cloaked and the shareholders could not sense it based on the partnerships that the company had with other organizations, illegal loans and fraudulent accounts that the company operated (Prakasham 2003).
Some of the involved parties that were in the management of the company in the case of Enron are; Jeff Skilling, Ken lay as well as Andrew Fastow. At first these people believed that the company was indeed a great economy that was capable of circulating money, providing jobs as well as dealing with international companies. Enron through its management deliberately attempted to interfere with its financial statement with the aim of making the statements to appear attractive to lenders as well as investors. As a result of this, a lot of parties have been entirely affected and will continue being affected in the future for a number of years (Sharma & Bhal 2004).
The CEO, Jeffrey Skilling, out of the different decisions and activities was one of the major contributors of the fall of Enron as mentioned above and this was evident from some of the decisions that he opted to settle for with the support of the other members of the management some of which have been mentioned in this paper. Skilling was not only involvement in the management of other Enron but also other side undertakings which could have resulted to some kind of conflict of interest among other factors. The amazing thing was that the other members of Enron’s administration actually voted for in line with most of the decisions that the CEO settled for. As a result it is worth noting that most of these big companies must ensure that the management team that is assisting the CEO or the overall leader in the running of a given company needs to be carefully selected to ensure that these people stand up to these leaders in the required manner if need be. They never made a step to inform the public of the imminent danger of the company sinking out of buiness in an attempt to keep the company in business but it was too late. After the fall of the company these people actually faced charges that ranged from security fraud, conspiracy, insider trading and false statements amongst others (Prakasham 2003).
Effects of abuse of corporate culture
Some of the major causes of Enron’s downfall included deregulation, mark-to-market, and special purpose entities. In the deregulation, the major problem was the decision of the government to decide on letting the gas prices to float and be carried away by the currents of the market. The mark-to-market was a strange thing that actually permitted the company to have a chance to be able to book impending profits that may be realized may be realized on the same day of signing a given deal (Icon 2003). Lastly, the special purpose entities are usually some kind of legal entities that are created with the aim of fulfilling some narrow, temporary or specific objectives (Sharma & Bhal 2004). They can be either limited companies or even limited partnerships and in most cases they are used by organizations that wish to isolate themselves with some financial risks. The organization transfers its assets to the Special Purpose Entity for it to manage it on its behalf or they can even choose to use these Entities to finance a given big project that will enable it to achieve a constricted set of goals for the company without having to put the entire organization at risk (Hicks et al 1975).
It is worth to note that all this fraud that resulted to the collapse of one of the biggest and most successful companies in the world ought to have been prevented if only some honest people took their time to ask the right questions (Sharma & Bhal 2004).
The case study of Enron is a true representation of an organization that had a humble beginning, rose to success in a couple of years and later out of corporate culture abuse fell out of business in a way that many could not actually believe. At the beginning, this company was based on some code of ethics that the investors could not break and this was the reason the company was able to take advantages of the economies of scale and expand in a very first and established manner (Gibney 2011). In its initial stages as a regional gas line trader, the company had a very strong and well established corporate culture that enabled it to be rated among the leading companies in this particular industry (Rae 2009). This particular case is one of the most commonly used in relation to business ethics (Hicks et al 1975). It was the abuse of the corporate culture and business ethics that made the company to fall from top the list of the best performing Industries in the Energy sector to a major humiliation and disgrace of being declared to be bankrupt (McLean & Elkind 2003). It wass greed amongst other things that surpassed the members of the organizational management team that entered into their heads and brought the idea of defrauding the company for self gains and this was obviously one of the major contravene of the code of ethics that governed the management of Enron and before when it registered a lot of profits and grew immensely (Ferguson et al 1998).
According to Taylor and Fayol discovered through their works that the Human resource as well as the management they undertake at all levels of the management of the business play a major role in the success of anay business (Mukherjee 2011). These scholars proved this through the application of the scientific method of management. While Taylor did his research work in regard to the level of operation right from the lowest level to the uppermost level in the management of the company, Fayol’s work was based on the Managing Director as he called them and worked down the organizational hierarchy. Most of the issues and theory’s that these scholars tried to explain were the major determinants of the both the initial rise of Enron as well as his downfall in after the officials being led by the CEO abused the Code of Ethics of the company and went against the organizational culture (Rae 2009). Out of the work of these scholars; investors are taught some of the necessary Principles of Management (General) and these ought to have been followed by the officials of Enron. It was the neglect of some of these principles that led to the fall of this big company (Krishna 2003).
One of the most important principles is authority and responsibility. Had the officials of Enron followed this principle, the case would have been avoided but sadly this was abused by the CEO of Enron and his team. According to this principle, a good manager ensures that they derive from office as well as personal authority compounded astuteness, decent worth, experience, ability to lead as well as past services. This principle demands the managers to be able to maintain the organizational culture and to make sure that this is implemented by all the employees in the company (Arbogast 2007).
Another very important factor is based on discipline or the ability to comply with the established rules and regulations (Schminke, 1998). The management of Enron was fully aware that indeed it was wrong to defraud the organization and to carry out all the illegal activities that they did leading to the fall of Enron but this did not stop them from doing. In fact, this was going against the principle of discipline and this cost so many people a lot of money when the company collapsed. It is the duty of any management of a big company to not only upholds the principle of discipline but also to ensure that this is followed strictly by their junior employees too (Burton et al 2008).