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The Fall of Enron

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Kenneth Lay was the chief executive officer of Enron Corporation at the time of its collapse in 2001. The crisis was not exclusively due to poor corporate culture, but the corporation’s entire department directly contributed in the operation of the company’s corporate ethical principles and values. It is the executive under the leadership of Kenneth Lay that bear primary responsibility for the lack of corporate culture, corporation’s transparency, and clear accountability. If he had ensured that the operations management of the company had its works done in a proper manner, and if he had made it possible to work in such a manner, then, there could have been a chance of evading the crisis. Some of the major management principles that the chief executive officer failed in is “Centralization and Decentralization.” Whereas the enterprise was so highly praised and highly rated by the external observers, internally, we find that it had a highly decentralized structure of decision-making and financial control (Lynn, 2002). This actually rendered it really difficult to get clear and logical, or coherent view on the operations together with activities of the enterprise. It goes without saying that the disaster in Enron did not occur accidentally. However, enhancement to the same was brought by a corporate culture that greatly facilitated and encouraged fraud, as well as insatiability, as shown by the traders of energy that extorted the consumers of energy from California. Instead of putting its focus on the creating of real value, the sole goal of management was in the maintenance of the value appearance, thus leading to an increase in the stoke price.

Lay did ignore the principle of “Party of Authority and responsibility”, that is, externally; the rationales together with attitudes behind the decisions and events that resulted to the downfall appear to be rather simple. The environments of corporate arrogance lead to the formation of individual and collective greed. As the reputation of the corporation in the global environment grew bigger and bigger, it’s internal culture started worsening considerably. Skilling, established the PRC (Performance Review Committee), which earned the reputation of the most insensate system of employee-ranking in the entire nation. Notionally, the preparation of this review system was on the basis of the corporation’s values; respect, communication, integrity, and excellence.

“Discipline” is also another major principle of management that the executive showed ignorance of. Being apparently a strong business with a clear hierarchy and powerful management, the internal organization of the corporation had a number of weaknesses.  The executive failed in the offering and further development of positive control atmosphere, and did not contribute in the shaping of the company’s ethical value, strict accountability, integrity, and philosophy of management. The corporate policies in communication and formulation, whereby the operations management of the corporation took part, were erroneous and not in compliance with the corporation’s initial values. In ignoring the principle of “Sub-Ordination of Individual Interest to General Interest,” we find that the Harsh and strict hierarchy, as well as the system of performance appraisal whose creation was done by Skilling, distorted the initial ethical base and values of the business, which included excellence, integrity, respect, and communication; thus replacing them with the priority of gaining revenue regardless of the means thereof (Collins, 2006). This greatly motivated the workers to engage in various dubious practices, and was given rewards for bringing revenue to the company. The entire managerial machine took part in this process, thus reducing the functions that it had in the fulfillment of the newly-formed value and philosophy of the corporation. In addition, Fastow, the then Chief Financial Officer took the position as a chance for himself, together with his friends and relatives, benefiting themselves by involving in some dubious behaviors which rendered the company bankrupt.

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