Business Failure Paper
Enron’s Failure Enron’s Failure Stacey A. Weinert University of Phoenix Abstract This paper will discuss the business failure of one of the largest energy companies in the world, Enron Corporation. I will discuss the leadership, management, and organizational structure of the company and how this failure could have been prevented. Company Overview Enron Corporation was an American energy company in downtown Houston, Texas. Enron employed more than 22,000 workers and was one of the largest companies dealing with electricity, natural gas, and communications. In the year 2000, Enron laimed revenues of over $100 billion.
By the end of 2001, it was reported that Enron Corporation’s financial was sustained by a systematic and creatively planned accounting fraud known as the Enron Scandal. The company claimed bankruptcy in 2001, which was the largest, and most complex bankruptcy cases in United States history. By November 2004, Enron was given a plan of reorganization by the court. Enron Corporation’s name was changed to Enron Creditors recovery Corp. The company focused on reorganizing and liquidating assets. The company sold its last remaining business on September 7, 2006, which was the last chapter of Enron Thomas, 2002).
Enron’s Failure Archie Carroll is a known business professor who currently teaches at Terry College of Business in Athens, Georgia. Carroll believes in a four-segment model of responsibility, which is composed of economics, legal, ethical, and discretionary. Economic responsibility requires the company to maximize the firm’s values. Economically, firms should maximize their shareholder’s earning by producing goods and services in demand in the market. The authorities and companies abiding by them in a strict and disciplined manner define legal responsibilities.
Ethical responsibility is believed that a company should have a standard of good behavior and operate using normal ethical standards. Discretionary responsibilities are voluntary obligations a company takes beyond the normal ethical considerations In the case of Enron Corporation, they failed in all aspects of Carroll’s (zatn, 2008). model. The company’s main focus was to make profits. Some say that greed was a major factor that contributed to their failure, but after further investigation into the company and its business practices, there was much more than Just greed.
Enron anted to be the biggest energy company on the market regardless of what the company had to do to get there. Enron failed to come up with a corporate strategy, which in turn lead them to make unethical decisions. Enron’s fall ultimately came financial statements. The sustained use of these accounting practices generated false disclosures intended to hide the bad business decisions that Enron Corporation had made from its shareholders. Enron established partnerships off the books and covered up those partnership’s losses. A common term for this is known as cooking the books.
Management attempts to adjust the numbers concerning accounting in order for the company to look as though it is making more money than the company genuinely is. Billions of dollars lost in the partnerships were kept off the books. True leadership, management, and the disregard for basic business practices at Enron Corporation were absent. There was no one to check on the accounting practices, the deals with the partnership’s, therefore the company was left wide open for major conflicts of interest (Hunter, 2007). Enron’s leadership could not provide the necessary advice and skills that the company needed for it to survive.
There was no respect for the leaderships nor was there responsible decision-making with the The chief executive officer of the company wanted to make profits at organization. all cost. Enron’s employees believed they were only valued based from what profit they were earning for the company Enron recruited certain types of people. The company wanted go-getters and would do anything to close the deal no matter what. They wanted people who wanted to make money. This reminds me ofa popular film named The Firm. Tom Cruise played the part of young lawyer who Just graduated law school.
One of the top firms in the country recruited him. The salary was low, but he took the Job. He was then slowly exposed to the corruption within the firm and by then it was too late to get out. What Could Enron Have Done to Prevent Business Failure? The Enron Corporation could have prevented its business failure. First, the company should have performed traditional auditing practices. This would have allowed the board of directors to see the current state of the business, therefore enabling them the opportunity to fix the problem before it got to out of hand. Second, the organization needed to practice good ethical standards.
The company eeded rules of acceptable conduct. Although these rules may have changed, the company would have continued to practice in an ethical manner. Third, in business every company wants to make money. Enron took that to the limit with greed. Make profits, but do it legitimately. Do not put employees in positions were they will do anything for money. Finally, “Leadership is the behavior of an individual directing the activities of a group toward a shared goal. ” (Yuki, 2006, p. 3) The top management within Enron demonstrated poor leadership behavior. This played as the domino effect within Enron’s organization.
Organizations need strong leaders and managers in todays dynamic world of business. Enron needed managers but also leaders. Someone who had a vision and would create effective organizational structure and detailed plans. Conclusion Enron Corporation’s failure was brought on by lack of respect, business strategy, greed, leadership and management, unethical decision-making, and most of all the lack of business practices. Not only did the failure of Enron destroy the lives of its employees but also those individuals highly invested in the company. The Enron Scandal is now known as one of the largest accounting frauds.