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Running head: ENRON: EXAMINING A BUSINESS FAILURE.

Enron: Examining a Business Failure.
According to the Mid-American Journal of Business (MAJB), Enron serves as the absolute example of the perils of large scale success achieved in a short space of time. Created out of the merger of two gas companies in the mid-1980s, Enron began trading gas commodities in 1989 and in the space of a few years became the largest supplier in the USA, with 21,000 employees in 40 countries. Riding on a wave of optimism, Enron began diversifying its portfolio through the use of special purpose entities (SPEs) which allowed the company to embark upon less conventional ventures without necessarily reflecting their cost on its balance sheets.
From 1989 to 1995, Enron was named ??????America??™s Most Innovative Company??™??™ by Fortune magazine. In 2001, the chief executive officer (CEO) unceremoniously resigned, the chief finance officer (CFO) was fired, and the company filed for bankruptcy and was the subject of a host of litigation. What happened in between can arguably be labeled the biggest governance failure in corporate history (???Enron, board governance and moral failings,??? 2002, p. 23).
Many of the improper transactions and substantial information about Enron??™s activities were received by the main Board and were approved for them as well. During 2001 Enron had created an online trading business and formed Enron Online and rapidly became one of the biggest e-business sites in the world.
Enron believed that to succeed it would need to access significant lines of credit to settle its contracts daily, and to reduce the large quarterly earnings fluctuations, which affected its credit ratings. To address these financial needs, Enron developed a number of practices, including ???prepays,??? an ???asset light??? strategy, and the ???monetizing??? of its assets (???Antecedents and consequences of failed governance: the Enron example,??? 2005, Para. 15).
Enron began to sell or syndicate its assets, to ???special purpose entities??? (SPEs), because was not easy to find parts willing to invest and to carry the significant risks. The SPEs were entities that were not on Enrons financial statements but were so closely associated that their assets were considered part of Enrons own holdings. The assets that were losing money were sold to SPEs to avoid reporting its mounting losses and to give the appearance of rapid earnings growth. The board??™s members did not seem these methods unethical, but they even developed the shared belief that these practices were a necessary part of doing business. In the end, the Board knowingly allowed Enron to move at least $27 billion or almost half of its assets off balance sheet (???Organizational disasters: why they happen and how they may be prevented,??? 2008, Para. 10).
A year before Enron declares bankruptcy; $680 million were paid to 140 managers. They sell their stock just before Enron nosedived when the company??™s stock was still high. But the lower level employees did not have the same luck. Most of their employees belong to retirement plan known as a 401(k), which the company used to use investing it in the Enron Stock. The employees were allowed to sell their stock after they turned age 50. Even when Enron??™s executives knew about the warming related with the company??™s financing surface, they reported healthy earnings and rapid grow, and encouraged the people to keep investing their saving in Enron stock.
Most of the Enron workers had 62% of her or his 401(k) retirement savings invested in Enron stock. When crisis came they found that their retirement founds just about wipe out. Further, while Enron??™s stock plummeted, the 401(k) plan was ???locked down??? during an administrative ???blackout period,??? prohibiting those over age 50 from selling their shares. This prohibition, however, did not apply to executives who owned shares or controlled stock options (MSM. Encarta, 2009).
There were involved many management and leadership issues during and after the revelation of the Enron??™s scandal. The following will describe how specific organizational behavior theories could have predicted the failure of Enron. Additionally will show how issues as behavior of management, leadership and organizational structures could impact a company positively avoiding this kind of failures.
At the first instance the board of directors should act on behalf of shareholders. Directors??™ decisions can bring serious consequences beyond merely the shareholders, to whom they are responsible. Directors also should monitor internal and external forces that may affect the company, including performance indicators, corporate finances and assets, market conditions, and cultural, social, and political climate (Mintzberg, Lampel, Quinn, & Ghoshal, 2003).
The meanly reason because Enron fail, was not because it was not viable business. It failed because of it decisions. Some of Enron??™s business decisions did not have prudential judgment. Enron failed because the board failed. Even when they knew what was happening with the secrets partnerships, conflicts of interest, and the irregularities within the financial balance sheet, they just keep driving the company ignoring what was happening and doing nothing to correct those issues.
In the Enron??™s case the main board obviously did not understand their role as managers, they role were perform basic administrative activities such as locating information on company practices and procedures, analyzing routine information, or maintaining detailed and accurate financial records and documents. Their responsibilities were to ensure that the corporation remains loyal to its corporate purpose, to exercise prudential judgment, and to demonstrate moral courage in carrying out these functions.

One of vital free market principles is the transparency. Corruption will be systematic and the market system will not function without transparency. The board??™s directors should be the first ones in practice this principle, demand clear and transparence balance sheet statements ask questions and guarantee transparency in their reports. Enron??™s case shows the result of short-term omissions can cause long-term devastation (???Enron, board governance and moral failings,??? 2002, p. 21).
It is obvious that Enron executives had not an open and constant communication with their employees. I do believe we can learn a lot about Enron??™s failure. The workplace is changing from an environment in which a few dictate the rules to others to an environment in which all employees work together to accomplish common goals. Some of the changes for the new generations of management are:
??? Communicate a vision and rally others around that vision. The leader should be broadly openly sensitive to the concerns of followers, give them responsibility, and win their trust.
??? Establish corporate values. This value include a concern for employees, for costumers, for the environment, and for the quality products.
??? Promote corporate ethics. Include an unfailing demand for honesty and insistence that every in the company gets treated fairly.
??? Empowering workers. Giving employees the authority and responsibility to respond quickly to any situation.
In order to avoid Enron??™s failure, the company should involve more its workforce; they probably could contribute with a wide of suggestions for the good running of the company. Consequently the Enron executives could have chosen other strategies and solutions for the welfare of the company, the all their employee and community.
Board membership is a serious matter. The board members also should be courageous moral leadership that asks tough questions, insists on complete answers, and takes its role in the company and in society seriously. As Enron demonstrates, the impact of such failures is wide and deep. Unethical decisions leads in severe consequences affecting the future of the company, the live of their employee, the partner relationship and a whole nation as in the Enron??™s case.

References

Mintzberg, ., Lampel, ., & Quinn, . (2003). The Strategy Process. [University of Phoenix Custom Edition e-Text]. New Jersey, NY: Prentice Hall. Retrieved September 3, 2009, from University of Phoenix, ORGANIZATIONAL LEADERSHIP.

Enron, board governance and moral failings (2002). Corporate Governance, 2(2), 16-19. Retrieved September 3, 2009, from database Emerald.

Antecedents and consequences of failed governance: the Enron example (2005). Corporate Governance, 5(5), 84-98. Retrieved September 3, 2009, from database Emerald.

Organizational disasters: why they happen and how they may be prevented (2008). Management Decision, 46(1), 32-45. Retrieved September 3, 2009, from database Emerald.

MSM. Encarta. (2009). Enron Scandal. Retrieved September 2, 2009, from http://encarta.msn.com/encyclopedia_701610398/Enron_Scandal.html

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