In the functioning of all businesses, strong corporate leadership is crucial. Nevertheless, many corporations and smaller organizations fail to recognize ethical norms and standards, making great leadership mistakes from which the business might never recover. One such example is Enron, the organization that became endorsed not only by other sector-dominating firms but the government. Enron accumulated significant respect and trust from the masses to fail considerably later and file for bankruptcy. The biggest mistakes the Enron leaders made that led the company to collapse were a lack of transparency and hubris, making CEOs think that they were invincible and accepting only positive information regarding organization operations.
Hubris is an overinflated sense of pride or self-assurance that frequently leads to unregulated leadership and risks to the company. CEOs of Enron took excessive risks, disclosed false statements, and exaggerated their chances of success, as will be explained later. Enron was destroyed by the actions of two senior executives engaged in fraudulent schemes. Researchers believe that human beings and their arrogance were to blame for Enron’s demise, while others contend that Enron was a striking example of vanity and the blind acceptance of praise (Eckhaus & Sheaffer, 2018). Energy, commodity, and service firm Enron Corporation was founded in Huston, United States (Kabeyi et al., 2020). Enron had a staff of about 20,000 people before declaring bankruptcy in 2001 (Kabeyi et al., 2020). It operated in a number of different worldwide economic sectors, with claimed sales of up to $111 billion in 2000, virtually entirely based on its alleged trading income (Eckhaus & Sheaffer, 2018). Enron is one of the companies that serve as an example of what can result from poor leadership skills.
To start with, many materials that cover the topic of leadership always encourage transparency within the workplace and for other stakeholders. Developing an effective, comprehensive, and honest information system for promptly delivering all relevant information is one of the goals of corporate governance (Kabeyi et al., 2020). As soon as a company fails to comply with this objective, there might be a conflict of interest. Similarly, the label of an innovative company concealed Enron’s intra-organizational business culture, which was disorganized, turbulent, and too aggressive. The year when the company declared bankruptcy, an institutionalized, systematic, and creatively planned accounting fraud was discovered in Enron’s stated financial portfolio. In this situation, two of the executives encouraged a lack of transparency and refused to listen to advisors.
Jeffery Skilling was the first man who contributed immensely to Enron’s failure. Skilling was the one who sent messages to investors wherein he claimed Enron’s net income to be $1.3, but in reality, it was merely $978 million (Eckhaus & Sheaffer, 2018). This is only a minor example of his fraudulent and deceiving statements and creative accounting schemes. Another entrepreneur and Chief Operating Officer of Enron was Kenneth Lay. After Skilling’s dismissal, Lay took over as CEO and assured investors that Enron had no financial difficulties, transaction challenges, or capital concerns (Eckhaus & Sheaffer, 2018). Narcissistic CEOs frequently make the mistake of listening exclusively to those whose perspectives are similar to their own and dissuading from open discussion (Eckhaus & Sheaffer, 2018). Enron is ultimately a narrative of failing governance, although Ken Lay preferred to claim that he was deceived. He was the one who did not wish to hear negative information, and in numerous respects, he fostered and nourished those who gave him the news he wanted to hear and report.
Hence, overconfidence and a lack of openness were the greatest errors committed by the Enron management that led to the company’s demise. Skilling was the one who approved of false and misleading claims as well as inventive accounting techniques. Likewise, Lay frequently makes the error of listening only to those who share their viewpoints and discourage free conversation. Enron’s reputation as an innovative enterprise was actually a cover for a chaotic, volatile, and overly aggressive intra-organizational corporate culture.
References
Eckhaus, E., & Sheaffer, Z. (2018). Managerial hubris detection: The case of Enron. Risk Management, 20(4), 304-325. Web.
Kabeyi, M. J. B. (2020). Corporate governance in manufacturing and management with analysis of governance failures at Enron and Volkswagen Corporations. American Journal of Operations Management and Information Systems, 4(4), 109-123. Web.