Enron Business Failure

Specific Organizational Behavior Theories That Explain the Failure of Enron

Specific Organizational Behavior Theories That Explain the Failure of Enron

The Enron Corporation was organized in l985. At the very beginning of the establishment of the corporation, top executives were able to enter into debt obligations with lenders, and not report the debt on its own financial balance sheet. The company was able to use the sales of its assets and specific operations to generate an immediate profit to add to its income statement.

This method of dishonesty kept the shareholders in the dark. However, the Enron executives and employees were caught up in the desire to report ever-increasing earnings that they didn’t really have; in order to keep stock prices rising, to protect their jobs, their wealth, and their retirement plans.

Early in his career, the behavior of Kenneth Lay, the CEO at the beginning of Enron, showed all the signs of being a “transformational leader.” His leadership style advocated “free markets.” He had a vision for Enron to have a free energy market that would be more profitable than the encumbered government-regulated market (Lietan, 1944).

Most of Enron’s planning was informal. Important decisions in large organizations typically require the support and authorization of many different people at different subunits of the organization. It is a common practice for a manager to consult with subordinates, peers, or supervisors about import decisions (Janis & Mann, 1977). The different people involved in making a decision often disagree about the true nature of a

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problem and the likely outcomes of various solutions, due to the different perspectives, assumptions, and values typical of managers from different functional specialists and backgrounds (Mintzberg, Raisinghani, & Therot, 1976).

Kotter (1982), found that general managers developed agendas consisting of...