Enron: Leadership without Ethics and Practical Execution
Enron, once one of the largest energy public companies globally, achieved a $65 billion asset volume but only took 24 days to go bankrupt. Initially, its main service is extracting natural gas and manufacturing energy-using products, but the excessively aggressive and benefit-oriented type of operation makes the company create lots of so-called "innovative" investment department and financial products. All these activities played as the foundation of its bankruptcy. Suddenly, all previous glory and pride fell to the ground tragically, and private and institutional investors lost more than 90% of their investment, and innumerable other business partners and stakeholders were drawn into the deceitful dealings, which seemed never to end. After a long period of federal investigation, the public finally found out the inevitable factors hidden behind the accidental factors from this, one of the world’s largest business scandal. Superficially, Enron had already met or exceeded most governance standards, such as diversified functions of the board of directors, independent compensation and audit committees, etc. (Krishna Palepu, Paul. M Haley. The Fall of Enron) However, superficial prosperity offered sufficient opportunities for the management to reap private benefits; because of Enron’s complex reporting and accounting methods, outsiders were never able to detect this. It's reasonable for anyone to condemn the inappropriate ethical leadership of Enron's board, but changing the ethics of business behavior and the "sociology" of the boardroom cannot be accomplished through structural changes alone. (De Kluyver, Page 73) Culture, supervision, and participation: all of these should be the software to catalyze ethical leadership, sound practical execution, and the company's sustainable development. To some extent, before figuring out the real purpose, employees and stakeholders were proud of having such a talented CEO and CFO as Jeffery Skilling and Andrew Fastow, It was unusual for a traditional energy company to invent so many innovative financial products and services and fancy business models. After the legal investigation, the Senate found that Skilling had used accounting loopholes (Mark-to-market accounting), special purpose entities, and poor financial reportings to hide billions of debt, which allowed Enron to sustain a mechanical enlargement of its business scale for more than 10 years. Fastow, Enron’s financial management expert and CFO, created off-balance-sheet vehicles, complex financing structures that few people could understand, misleading members on the board, and particularly on the audit committee. [the Senate report indicates that the audit committee knew what was going on] These two key decision maker instigated the most immoral business shell games, which caused longstanding negative impacts of all internal and external stakeholders, such as employees, investors, partners, community, country, etc. Nevertheless, I believe that if Enron had had positive morale and a productive supervision mechanism, it would not have been so easy to incubate the so much greed and deception. According to my personal perspective, I consider two main reasons which are relevant to culture leaded Enron to ruin gradually in about ten years. The first one is centralization. Complicated internal company structure confused all stakeholders superficially, but the essence of Enron's model was to help cover up insider trading, derail external investigations, and defraud shareholders to guarantee existing benefits for the management. Three key executives-- Kenneth Lay, Jeffery Skilling, Andrew Fastow--, controlled almost all business relations with partners and power of decisions. These key decision makers not only overly mastered all imperative resources in Enron, but also had unexpected authority to collude with the auditing firm (Arthur Anderson) and...
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