Management and Enron Employees
The Unexpected Collapse of Enron
Colleen Long
LDR/531
April 3, 2010
Kemit Grafton
The Unexpected Collapse of Enron
Beginning in 1985, Enron was formed through a merger of Houston Natural Gas and Internorth, Enron Corporation. It was the first nationwide natural gas pipeline network, which shifted its focus from regulate transportation of natural gas to unregulated energy trading markets. Enron was a huge company that traded electricity, oil, gas, plastics, and other variables.
“ The guiding principle seems to have been that there was more money to be made in buying and selling financial contracts linked to the value of energy assets (and to other economic variables) than in actual ownership of physical assets” (Jickling, 2002). For example, Enron would sale long-term contracts to sell energy at a fixed price. In essence, these contracts would allow the buyers to avoid the risk that could potentially increase energy prices posed to their business. However, the markets that Enron traded with were largely unregulated, with no reporting requirements and little information was available about the extent or profitability of Enron’s derivatives activities (Jickling, 2002). The organizational behavior theory that will be discussed will be about the systems theory and contingency theory. Both of these theories explain why a company like Enron failed. Also, the unethical contribution made by management and leaders of the company played a huge part in the company’s collapse. Discussion For instance, the organizational behavior theory that Enron should have followed was the systems theory. “ Systematic explanations look for causes outside the group, for example in the environmental forces that drive or direct groups or individuals to do one thing rather than another” (Judge, & Robbins, 2007). Systems theory is the foundation that all components of an organization are interrelated, and that one variable can change or have an
Colleen Long
LDR/531
April 3, 2010
Kemit Grafton
The Unexpected Collapse of Enron
Beginning in 1985, Enron was formed through a merger of Houston Natural Gas and Internorth, Enron Corporation. It was the first nationwide natural gas pipeline network, which shifted its focus from regulate transportation of natural gas to unregulated energy trading markets. Enron was a huge company that traded electricity, oil, gas, plastics, and other variables.
“ The guiding principle seems to have been that there was more money to be made in buying and selling financial contracts linked to the value of energy assets (and to other economic variables) than in actual ownership of physical assets” (Jickling, 2002). For example, Enron would sale long-term contracts to sell energy at a fixed price. In essence, these contracts would allow the buyers to avoid the risk that could potentially increase energy prices posed to their business. However, the markets that Enron traded with were largely unregulated, with no reporting requirements and little information was available about the extent or profitability of Enron’s derivatives activities (Jickling, 2002). The organizational behavior theory that will be discussed will be about the systems theory and contingency theory. Both of these theories explain why a company like Enron failed. Also, the unethical contribution made by management and leaders of the company played a huge part in the company’s collapse. Discussion For instance, the organizational behavior theory that Enron should have followed was the systems theory. “ Systematic explanations look for causes outside the group, for example in the environmental forces that drive or direct groups or individuals to do one thing rather than another” (Judge, & Robbins, 2007). Systems theory is the foundation that all components of an organization are interrelated, and that one variable can change or have an
References: Bauman, E. (2002). Not Business as Usual. Retrieved from http://www.pbs.org/newshour/extra/features/jan.-june02/enron.html Jickling, M. (2002). The Enron Collapse: An Overview of Financial Issues. Retrieved from http://fpc.state.gov/documents/organization/8038.pdf.com Robbins, S. & Judge, T. (2007). What is Organizational Behavior? (Chapter 1). Prentice Hall, Inc. A Pearson Education Company. Walonick, D. Ph.D. (2010). Organizational Theory and Behavior. Retrieved from http://www.survey-software-solutions.com