Business Leadership in Enron

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EXECUTIVE SUMMARY

Enron stands out as one of the biggest failures in business history. It’s implosion in 2001 took the world capital markets and shook the investor confidence in accounting and financial reporting. It even caused the world’s renowned international accounting firm Arthur Andersen to collapse. The most important gatekeeper could not predict Enron’s collapse before it occurred. It was then discovered that Enrons’ senior management had employed complex creative accounting techniques to manipulate the company’s financial figures and hence boost up the financial performance. This paper in contrast explores the internal culture and leadership practices of its top management. It includes a particular emphasis on charismatic leadership, in people like Kenneth Lay and Jeffrey Skilling. The compelling vision of these leaders, of a totalistic nature, expressed in a recruitment system designed to activate a process of conversion and the promotion of culture by conformity and penalizing of dissent. Some have argued that Enron’s failure was due to the accounting standards and others went far to say that it was a product of integrity and fraud culture. However, this paper discusses the context of emerging trends in business and leadership practice and considers the extent to what happened in Enron is suggestive of a growing business phenomenon.

TABLE OF CONTENTS
Executive Summary……………………………………………………………………….3 CHAPTER 1
1.0INTRODUCTION
1.1Company Background……………………………………………………..5

CHAPTER 2
2.0FINANCIAL PERFORMANCE
2.1Liquidity…………………………………………………………………..7 2.2Debt (Leverage)……………………………………………………………7 2.3The Special Purpose Entities (SPEs)………………………………………8 2.4Enron’s Creative Accounting - “Intelligent Gambling”…………………...8-9

CHAPTER 3
3.0 ENRON’S FAILURE
3.1Arthur Andersen- The Public Accountant……….………………………..10 3.2 The Enron Culture…………………………………………………………11

CHAPTER 4
4.0LEADERSHIP
4.1 Leadership…………………………………………………………………12 4.2Leadership In Enron………………………………………………………..12
4.2(i)Charismatic Leadership…………………………………………….12
4.2(ii)Compelling Vision-Intellectual Stimulation………………………..13
4.2(iii)Individual Consideration and the Process of Conversion…………..14
4.2(iii) a.Recruitment/Initiation………………………………14
4.2(iii) b.Conversion………………………………………….14
4.2(iii) c.Indoctrination………………………………………..15
4.2(iv)Promoting Common Culture………………………………………..15
4.2(iv) a.“Rank and yank and the elimination of dissent…….16
4.2(iv) b.Deception and control of information………………16

CHAPTER 5
5.0CONCLUSION…………………………………………………………………….17

REFERENCES…………………………………………………………………………….18-20 Appendix 1…………………………………………………………………………………21 Appendix 2…………………………………………………………………………………22 CHAPTER 1
1.0INTRODUCTION
1.1Background
Enron Corporation was established in 1985 in Houston, United States and in a mere 15 years of existence the firm grew from a small energy company to one of the largest and successful companies in the United States. While Enron was growing fast with an annual turnover of billions of dollars and thousands of employees all over the world, this company suddenly crumbled. As summarized by Levy and Steffy (2002) the change in corporate goals of Enron since it was established is as follows: 1985| To be the first natural gas company in North America| 1990| To be the first natural gas company in the world|

1995| To be best performing energy company in the world|
2001| To be the best performing company in the world|
2002| To recover from bankruptcy|

Enron’s CEO (i.e. Kenneth Lay), as he was the CEO of HNG in 1984, had set a strategy that was solely aimed at moving into “independent power production” using natural gas as the “cornerstone” (Baker, 2003) This lead to merger between two pipeline companies in Houston, InterNorth Corporation and Houston Natural Gas (HNG). Together they formed a huge network of almost 37,000 miles of pipes to transfer natural gas...
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