Enron Pipeline Company came into being in 1985 with its main role of delivering gas to firms at a cheap price. The company later diversified by engaging in energy brokerage and did business in electrical power and related products (.docstoc.com, 2013).
We will write a custom Essay on International Business: The Enron Case specifically for you
301 certified writers online
Reasons for the Collapse of Enron
Two major reasons led to the collapse of Enron under lay and skilling. As per the case study, the reasons included corruption among the leaders and failure to abide by the established regulations. Lay had declared that he was knowledgeable concerning legal, moral and ethical ramifications of being at the helm of an organization. However, his conduct did not portray his knowledge at all.
Lay and Skilling oversaw the creation of a corrupt alliance among composed of Lay, Skilling, Fastow and a number of business people dealing with the company (.docstoc.com, 2013). Deep-seated corruption among the leaders without the knowledge of their junior staff led the company to insolvency. Values espoused by leaders and juniors as well matter a great deal. The leadership displayed negative values of selfishness, extravagant and rigidity and these led them to misuse the company’s resources through corruption.
Undermining the Foundational Values of the Enron Code of Ethics by the Leadership
The top leadership undermined the foundational values of the code of ethics in various ways. The top leadership consisted of Jeff Skilling, Ken Lay and Andrew Fastow. Their conduct displayed utter contempt for the code of ethics, which emphasized such values as esteem, communication, probity and distinction.
For instance, Skilling failed to communicate effectively after an investigative journalist asked him to explain Enron’s financial statements, which were almost inconceivable according to the journalist. Skilling casually dismissed the journalist as unethical instead of communicating effectively. Later on, some top executives met the journalist to clarify the issue of the financial statements but it was a flop (.docstoc.com, 2013).
Enron espoused a decentralized structure, which made it hard for information to flow freely to all stakeholders. Information was a preserve of the few and Fastow made it worse when he tried to hide the fact that Enron was trading to avoid becoming insolvent.
In addition, Lay insistence that he had no idea of what was transpiring implied that the leadership was not committed to communicating (.docstoc.com, 2013). Lastly, Enron’s top leadership designed sub standard performance and pay systems that encouraged the executives to rob the company through increasing the value of their contracts.
Lack of communication especially to the lower cadre employees meant that they had no idea of the rampant corruption in the company (.docstoc.com, 2013). In addition, the company used to pay them promptly thus they could not be any suspicious. Therefore, the employees expected continued and sustained growth in the company as well as provision of their benefits and promotions.
To the employees, Skilling, Lay and Fastow were good leaders because the three succeeded to conceal their corrupt deals. In addition, the company had continuously won various awards and the audit reports reported no malpractices in the accounting processes (.docstoc.com, 2013).
As long as the channels of communication were not clear, the employees in Enron would not be any suspicious, looked upon the leaders to steer the company to prosperity in terms of profits and staff growth through allocation of benefits like incremental salary, and paid leave. The happenings of the company remained hidden to the employees until it was clear that Enron faced imminent collapse after the whistle blowing.
Enron’s Corporate Culture
Enron’s corporate culture promoted unethical decisions and actions in various ways. First, the culture failed to promote the values envisaged in the code of ethics. It culture was defined by the company’s insistence on a decentralized structure, the methods of staff appraisals and the pay systems (.docstoc.com, 2013).
This laid the foundation for rampant corruption since it became hard for anyone to understand comprehensively how the whole company was moving forward. As such, any malpractice would go unnoticed in most of the units. In addition, the company lacked a functional control system, which made it possible for top executives to embezzle funds through misrepresentation of the value of their contracts.
The Role of Investment Banks
It is still not yet clear if the investing banking community contributed to the ethical collapse of Enron since the United States District Court for the Southern District Texas found the banks with no liability whatsoever (.docstoc.com, 2013). However, several actions by the banks continue to fuel the debate with some people maintaining that the banks were guilty of the collapse of Enron.
It is possible that the banks had foreknowledge of the dealings in Enron but went ahead and gave loans to the company with the aim of winning business from the company. J.P. Morgan and Citi deliberately lowered the lending rates to get more business from Enron and this in itself is unethical (.docstoc.com, 2013). The banks ought to play an oversight role concerning the bank but they abdicated this role by failing to regulate the company even during their scandalous dealings (.docstoc.com, 2013).
Get your first paper with 15% OFF
docstoc.com. (2013). Enron Unethical Business Practices. Web.