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Enron Company: Governance and Strategic Purpose Essay

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Updated: Jul 26th, 2021

The role of governance in influencing the strategic purpose of the organisation is always very critical. According to Deakin and Konzelmann (2004, p. 135), the events which took place at Enron demonstrate the lack of conformity between the role of governance and strategic objectives of the organisation. As Campbell and Yeung (1991, p. 18) note, it is the role of the management to believe in the strategic purpose of the organisation before it can influence its stakeholders towards achieving the set vision. In most of the cases, it is always the top managers that understand the vision and strategic objectives of a firm. These managers always know the specific issues that will drive the organisation towards achieving a goal set in the vision statement. They must believe in this vision for them to drive their organisation into achieving it. However, this was not the case at Enron. The top management knew that the firm was on its way to bankruptcy, but kept motivating its stakeholders that all was well at the firm. The management played a critical role in the path that the firm took in the market. It demonstrates that the role of governance was crucial. The only problem that comes out is that the management played a major role in consciously to make the firm fail in the market. The problem could have been addressed if the governance was not shrouded in corruption and other unethical business practices.

Given the outcome, it is evident that this should have been less of a role. According to Moncarz et al. (2006, p. 24), governance requires integrity. In this century, companies face numerous challenges, such as competition, economic fluctuations, and terror threats, among others. To succeed in governing a firm to succeed in such a turbulent environment, the management unit must realise that every action they take matters. As Munzig (2003, p. 45) notes, making losses and being heavily indebted is normal as a firm struggles to find a footing in the market. It is not a crime to make a loss, and in governance, this should always be taken as a setback that can be addressed when the strategies are re-evaluated, and new market approaches developed. Hiding losses and a firm’s debt is less of a governance role and more of a criminal act which aims at stealing from the shareholders of a firm. This is what happened at Enron when the governing unit decided to use misleading financial accounts to hide the true status of the firm. The outcome of this action was disastrous. Many investors lost their money when the firm was finally declared bankrupt.

Developing a strategic purpose is one of the major tasks in governance because it involves defining the direction that the firm will take as it seeks to achieve its strategic objectives. As Longan (2003, p. 664) says, developing strategic policies will require the participation of the key stakeholders whose decisions must be taken into consideration when making strategic plans. At Enron, the top governance unit had the board of directors. The board of directors, on behalf of the shareholders of the firm, was responsible for making key decisions at the firm. They had to approve all the strategic purposes developed by the executives. As Deakin (2003, p. 45) notes, the actual development of the strategic purpose was done by the executive directors. They included the chief executive officer, chief financial officer, chief operations officer, and other top managers at the firm. These top managers were directly involved in the normal operations of the firm. They were responsible for the actual process of coming up with new policies based on what they encounter in the market. Their decisions had to be informed by the reports they get from various heads of departments in the various industries where the firm operated. Once these top managers had developed the policies, it was the responsibility of the board of directors to approve or reject them based on how well they are convinced that they will help improve the performance of the firm.

The stakeholders might have elevated some of the issues present in the purpose if they had remained ethical in their actions. As mentioned above, the problems at Enron started when the governing unit decided to hide the truth by using misleading financial accounts. These top executives started offloading their shares in the market while misleading the shareholders that the future looks great. The state of affairs witnessed at this firm when it was finally declared bankrupt would have been elevated if the executives were moral in their acts (Johnson et al. 2014, p. 78). They did not believe in their strategies, and this means that they could not achieve what they promised their shareholders. The problem would have been solved by various stakeholders interested in the firm, such as the government of the United States and major financial institutions. However, the secret was kept for so long that by the time it was revealed, the firm had been reduced into a shell that could not be rescued. This is a demonstration of the highest level of poor governance.

List of References

Campbell, A & Yeung, S 1991, Creating a sense of mission, Long Range Planning, vol. 24. no. 4, pp. 10-20.

Deakin, S & Konzelmann, S 2004, Learning from Enron, Corporate Governance, vol. 12. no. 2, pp. 134–142.

Deakin, S 2003, Corporate Governance: Lessons from Enron, Journal of Corporate Governance, vol. 34. no. 5, pp. 1-36.

Johnson, G, Whittington, R, Scholes, K, Angwin, D & Regnér, P 2014, Exploring strategy text & cases, Pearson, Harlow.

Longan, P 2003, Lessons from Enron: A Symposium on Corporate Governance, Mercer Law Review, vol. 54. no. 1, pp. 663-665.

Moncarz, E, Moncarz, R, Cabello, A & Moncarz, B 2006, The Rise and Collapse of Enron: Financial Innovation, Errors and Lessons, Enero-Abril, vol. 6. no. 1, pp. 17-33.

Munzig, P 2003, Enron and the Economics of Corporate Governance, The Wall Street Journal, vol. 5. no. 1, pp. 1-56.

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