Enron Case Study

Dear Mr. President,

The information you have received and will continue to collect from organizations like the FBI and SEC will explain how the fall of Enron occurred and who was responsible. As consultants in the field of Organizational Behavior, we are providing you with a unique analysis of the failure of this multinational organization and presenting some recommendations to prevent reoccurrence.

Leadership “I am Enron”

CEO Jeff Skilling and, to a lesser degree, President Ken Lay were charismatic leaders. They presented extreme confidence in their activities and were very excited about the vision they articulated for Enron: profit for all employees who contributed to the “best energy company.” Skilling’ created an inner circle or “in-group”2 that received special privileges and treatment like lavish vacations, thus increasing their personal devotion to him and the cohesiveness of the group. Despite the charisma and vision of Lay and Skilling, Skilling and CFO Andrew Fastow were so committed to achieving the goal of ever increasing profit and share price that the work environment was one in which human elements were suppressed to be minimally disruptive to operations. On the Leadership Grid, this denotes that Lay and Skilling were “authority, compliance”2 managers who did not tolerate dissent well. Enron’s shift to energy trading transformed the business and created a new unsustainable model from which to profit. Implementing mark to market accounting rules allowed huge profits to preclude performance but also laid the foundation for the ethical lapses that later occurred. When the profit momentum began to fade, Skilling’s team used their power to control information, build image, and instill a sense of complacency in “outside experts” like auditing firm Arthur Andersen. All of this political behavior was focused on an escalating stock price. Via these tactics Kenneth Lay, Jeff Skilling and Andy Fastow had the ability to make top down decisions that...