How might theories of leadership and group identity help to explain the Enron collapse?
The following essay will look at how leadership and group identity might explain the Enron collapse, a multibillion company established in 1985 after the merge of Houston Natural Gas and Inter-North, with a reported fortune of over US $100 billion in 2000 and at number 7 as the most successful company in America (Fox, 2003). Huczynski and Buchanan (2010 P 596) points out that an effective organisation is one that practices good leadership and Zaleznik (1992 P 126) identifies some of the key leadership points such as; good managerial culture, emphasising rationality and control, the question is did any of this exist in Enron?
Most people argue that Enron CEO (Kenneth Lay) was a charismatic leader, for building his company from scratch to success before its collapse. Maybe the success that his company had over the years made him offer radical decision about the future, which did not serve the company any good but led to its failure. Such leaders believe they have a gift to inspire employees to work harder and gain the confidence of investors. According to Khurana (2002, PP, 60-65) that is not a gift but rather a curse to the leaders who think they are superstars. Enron leaders overlooked plenty of things, as such they destabilised the organisation in a dangerous way.
Yukl (2010, P, 129) says that, 'some leaders suffer from the tendency to look for simple answers to complex questions', for example the audit committee of Enron board, none of them had the incentive to bring out the truth about the financial dilemma or mismanagement. Among them Arthur Anderson failed to report the accurate information because of a conflict of interest between the auditing and consulting activity for Enron, Andersen’s income from consulting for Enron was twice of audit incomes (Harshbarger S 2002). Enron cover up meant that, Even the simplest of the matter became so complicated. According to Sinclair A (2005) leadership like the one displayed in Enron only signpost to one direction disaster. It perpetuates heroic stereotype leaders and return narrow success measure whilst alienating parts of the population. When Enron collapsed 20 thousand people lost their jobs.
Enron leaders created a pursue of short term share value of individuals, ignoring the whole value of company workers, each individual has the potential to default and lack the incentive to avoid bad outcomes in the interest of individuals rather than the interest of the collectivity (Harshbarger 2002). The pursuit of personal gain by Enron leaders killed the company and lacked morals or ethics such as; honest, fairness, integrity, principled decision makers who care about people and the broader society and who behave ethically in their personal and professional lives (Brown and Trevino 2006). According to Einarsen et al (2007 P 207) leaders that violate the legitimate interest of the organisation by undermining organisation goals destroys an organisation, this was the case with Enron leadership.
A few groups in Enron created an aura charisma around themselves who engaged in ever more dramatic forms of self-promotion. Although Enron had group values and norms in the work place, which looked at the informal rules and ways of working, Huczynski and Buchanan (2010 P 357) says that individuals may be influenced to act out of the norm when in a group, opposite to the way that are not congruent when alone. With Enron company policy of, an internal company review after every six months, rated employees on a scale of 1-5 and divided to three groups A, B, C. group A was rewarded, group B was encouraged and affirmed while group C was told to shape up or ship out (Swartz and Watkins, 2003) This kind of group identity in Enron brought Anger and anxiety especially among group C who knew that if they don’t perform by next meeting they will be shipped out.
Fusaro and Miller (2003 P 52) says that...
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