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There are many documented examples of leadership challenges in the business world. Enron leadership crisis stands out as a major failure in leadership. In an article relayed by the New York Times, Labaton (2002) asserts that Enron bankruptcy came about due to lapses in leadership. Before its bankruptcy, the company had enjoyed unparalleled success until the end of 20th century.
Indeed, the company had emerged as one of the largest company not only in the United States but also in the world. However, leadership at Enron did not match this success. At the outset, the leadership overlooked the importance of adhering to set out accounting standards and procedures.
The company’s leadership led by Kenneth Lay seemed to have been oblivious of the misdeeds that were going on within the accounting department. Failure to disclose huge amounts of debts that the company was facing led to increased investors’ confidence. As the investors continued to buy shares in the firm, the company collapsed due to the misdeeds.
Many people would absolve the leadership of Kenneth Lay but in 2006, the court found him guilty of conspiracy and fraud. This shows the level of leadership lapses that had engulfed the company whereby the CEO was aware of malpractices but failed to act on them in order to salvage the organization.
Instead, the CEO conspired with the ‘quack’ auditors for selfish gains. It is imperative to note that the role of leadership ought to influence the entire team to achieve the organization’s objectives.
Enron’s collapse qualifies to be one of the greatest business failures of 21st century. Apparently, leadership of the company played a significant role in the demise of the company. First, the leadership lacked objectives. The CEO of the company seemed to have enjoyed immense success in the years preceding its collapse and as such, failed to come up with objectives of the company.
This led to ‘goal shifting’ where managers in different departments procured and made decisions that were not necessarily in line with the best interests of the company. Particularly, the leadership in the accounting department was not accountable and transparent in order to achieve ethical leadership.
Second, the leader of Enron was not honest. For an organization to thrive, it is important for the leader to be honest with the entire team and be held accountable. In fact, Labaton (2002) says that majority of the employees in various department were unaware of the sad fact of a possible collapse.
The collapse led to job losses and many employees lost their livelihoods. Third, the leader of the organization exhibited lack of effective communication with the members of staff. As aforementioned, the collapse of Enron caught the internal stakeholders with a surprise.
Effective communication is an important aspect of leadership that not only motivates the members of the staff but also leads to increased productivity. To that end, Enron’s leadership allowed the accounting department to contract auditors without understanding their professionalism. Finally, Kenneth Lay was a selfish leader whose concern was mainly on selfish gains through conspiracy and fraud.
Enron’s employees are partly to blame for the unexpected collapse of the organization. From the onset of the malpractices in financial statements, employees from the department of accounts should have raised an alarm on possible emissions of debts in the balance sheet of the company. The rationale could have been fear of the leader. Nonetheless, it led to unprecedented bankruptcy that they could avoid.
It is important to notice that the style of leadership that Lay exercised was authoritative. In such a scenario, the leader issued instructions and expected the employees to play their roles without questioning the authority. Undoubtedly, the communication was ‘top down’ whereby the employees were not in a position to disregard the leader’s strategy. Authoritative leaders tend to distance themselves from the employees.
This might have been the reason why the CEO conspired with some of his employees especially in the department of finance without the latter raising any questions.
What comes out clearly in this case is ethical leadership. Despite the potential adverse consequences, the employees could have embraced work ethics and distance themselves from the fraudulent activities of the leader. As such, the followers lacked the audacity to stand with the organization’s objectives.
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Proposed Qualities of Leadership
The collapse of Enron could have been averted if the leadership had exhibited various qualities. First, the CEO ought to have been transparent and honest to the stakeholders. The stakeholders should have understood the situation of the organization. Consequently, the investors would have had prior knowledge of the bleak financial future of the problem.
This would have precipitated actions that would avert the hitherto impending crises. Second, the leader ought to have adopted ethical leadership during his reign. To the contrary, Lay was selfish and gluttonous. He conspired with some of the employees to carry out fraudulent activities. Finally, the leader ought to have been supportive of his follower and to the entire team of stakeholders.
Labaton, S. (2002, Jan 18). Enron’s Collapse: The Overview; SEC Leaders Sees outside Monitors for Auditing Firms. New York Times, p. 1-2.