The combination of executive greed, a lack of corporate social responsibility, no ethics and get- it-done attitude contributed to Enron’s collapse. In addition the deregulation and lack Of governmental oversight contributed to Enron’s wild business practices. This coupled with strong political lobbying questionable ties with high level governmental official brought Enron to its knees. The company promoted a culture of deceit, getting results and getting ahead without concern for ethics or well-being of the employees and other market players.
The compensation packages made people behave irrationally even if many of hem were aware of what they were doing. The executives belived that main component of success is to motivate employees through high bonuses, commissions stock options and other kinds of monetary com pensation. That kind of culture generates sales, but the financial position of the company was all a lie which at the end could no longer be covered. The culture at Enron was very competitive. The competitiveness came out in different ways. Employees would do whatever they could to get ahead, not caring who they hurt as long as they got to the top.
The Milgram’s Experiment was created to prove so. The experimentee had to memorize a list and every time the experimentee got something wrong the experimenter flipped a switch that sent an electrical shock to the experimentee with the shocks becoming more intense with each incorrect answer. This experiment showed that 50% of experimenters were willing to shock to the death with the okay by a legitimate source. The competitive culture was effective for Enron because the company was voted by Fortune magazine as being the most innovative company in America not one, but six years in a row.
Enron was also the seventh largest corporation valued at $70 billion. Competitiveness assisted in the collapse of Enron by using a technique called pump and dump. Top executives would push stock prices up and then cash in their multimillion dollar stock options. The books showed that Enron’s stocks were soaring, but in reality, they were doing the complete opposite. Was there one leader responsible for Enron’s spiral downward or were there several? Discuss who and why this leader or group influenced the collapse. There were number of people responsible for the demise of Enron.
Enron’s concocted financial statements that were extremely confusing to tockholders, the financial analyst covering the stock and the governmental officials who were supposed to oversee it. They had complex business model that few understood and on top of that they used accounting gimmicks and legal structures to mislead everybody. Most of the deeds that contributed to these situations were done with knowledge (direct and indirect) of Kenneth Lay, Jeffrey Skilling, Andrew Fastow and other executives. There most definitely were several people responsible for the collapse of Enron.
The first person responsible was Cliff Baxter. Baxter was the closes person to Jeff Skilling, the CEO. Baxter was accused of selling $30 million worth of stock and had several lawsuits against him. He had agreed to testify in court about his involvement in the case, but ended up committing suicide later that day. It seems that Baxter was guilty due to his close relationship with Skilling. He obviously knew a lot and the pressure was too much for him to handle. The second person responsible was Jeff Skilling. Skilling was the CEO until his resignation 4 months before Enron declared bankruptcy.
Before agreeing to work for Enron, Skilling, who is known to be a gambler and risk taker, equested to use an accounting method called mark-to-market with the accounting firm Arthur Andersen. Skilling said he was resigning for “personal reasons” and that he was leaving the company in a strong financial position, but Skilling knew that Enron was in a large financial hole. It seems that Skilling decided to resign when the company was in a “good” financial position so if something suddenly went wrong, he was not to blame. Skilling pled innocent to insider trading and conspiracy to defraud investors.
The third group responsible was Arthur Andersen. Arthur Andersen was the accounting firm used by Enron. Arthur Andersen used a mark-to-market accounting method that allowed Enron’s profits to be whatever Enron wanted them to be, resulting in Enron not being able to produce a balance sheet or cash flow statement. Arthur Andersen destroyed all of Enron’s files and was later convicted for obstruction of justice, leading to the failure of its accounting firm. The fourth person responsible was Ken Lay. Lay was also the CEO after the resignation of Jeff Skilling.
Lay was “shocked” when he was told by auditors as well as Sherron Watkins that things were not up to par, but Lay knew all along that things were not right. Lay tried to reinsure investors that everything was fine, but was convicted for conspiracy to commit fraud. The fifth person responsible was Andy Fastow. Fastow was the CFO of Enron. Fastow knew Enron was $30 billion in debt so he created hundreds of companies to make the debt “disappear” by making it look like money was coming in, but the debt was really being stashed in these companies.
Fastow hired Sharron Watkins who began to figure out what he was doing and was fired by Enron’s Board of Directors. Fastow pled guilty to conspiracy to commit wire fraud and agreed to forfeit $23 million and become an informant n other executives to reduce his 10 year prison sentence. Here are other participants responsible for Enron’s collapse. Merrill Lynch illegally purchased, warehoused, and sold back 3 Nigerian power barges for Enron. Louis Borget and Tom Mastroeni took $3 million from Enron and put it into a private account.
Borget and Mastroeni eventually pled guilty which sent Borget to jail for one year and Mastroeni was suspended. Tim Belden was the one that came up with the idea to drive up California’s energy prices. FERC Was suppose to be in control of Enron’s bidding, but “overlooked” what Enron as really up to. Analyze and discuss both the positive and negative leadership styles of the upper echelon management team. Reference specific names and link your analysis to a chapter from the text. The type of leadership style possessed by Enron is a charismatic leadership.
Charismatic leaders, as described in chapter 11, have a lot of self- confidence, strong beliefs, the need to influence people, and high expectations of others. Charismatic leaders need to be able to think about the future, set expectations, and be able to meet those expectations. Ken Lay hought positively about Enron’s future by changing it from “The world’s leading energy company” to ‘The world’s leading company’, but thought negatively about Enron’s future by trying to cheat the government out of billions of dollars.
Skilling was positively expecting to have intelligent people working an Enron, but negatively provided inadequate training which resulted in maneuvering employees from one department to another or firing them altogether. Charismatic leaders must be able to energize others through personal excitement, confidence, and success. Lay was positive by confidently ncouraging investors that everything was fine and to keep their money in Enron’ stock, but negatively went and sold his stock for millions of dollars while investors lost what they had invested.
Skilling positively proved to employees that Enron could meet the numbers each quarter, but negatively, Skilling knew Enron was in a deep financial hole. Charismatic leaders enable others by showing support, empathy, and confidence. Lay positively showed support to Skilling by allowing him to switch the accounting method to mark-to-market accounting, but Lay negatively knew the accounting was going to be done in a fraudulent way. Skilling positively supported Andy Fastovts idea to get rid of Enron’s debt, but thanks to Sherron Watkins, the negative, fraudulent idea was exposed.
How was Sherron Watkins a key informant at the trial? If you knew what she knew at the time, would you have done what she had? What kinds of risks did she take by doing what she did? Sherron Watkins was a key informant at the trial because she opened up about the errors she found. Shortly after bring hired by Andy Fastow, Watkins realized something was wrong with the accounting books. Watkins sent an anonymous memo to Ken Lay about her concerns, but it was too late. If knew what Watkins did, I would have done things a little differently. I would have immediately went to Ken Lay and told him what I knew.
If he did nothing about it, I would have gone directly to the authorities. By doing what she did, Watkins risked losing her job, possible jail time for not speaking up sooner, and her trust and honesty in the professional world. Jeff Skilling quoted “Survival of the fittest; money is the only thing that motivates employees. ” Is this true? If not, what other incentives can management afford their employees? Money is not the only thing that motivates employees. For Lou Pai, CEO of one of Enron’s division companies, strippers also motivated him.
They motivated him so much that Pai would sometimes have strippers on the trade floor. Another thing that motivates employees is having a flexible work schedule. It is nice to be able to have a say in the hours you work that is convenient for you and your employer. Telecommuting is a great option to have because if the weather is bad or you have other obligations to fulfill outside of work, you can always work from home. Reward systems are fun to have because it is a great way to get employees to work hard to reach a goal.