Enron Scandal Case Study

Anna Romo

South Texas College

ORGL-3332: Behavior/Ethics/Leadership II

Christopher Gomez

September 9, 2022
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Enron Scandal Case Study

Building trust in the market aids ethical leaders in maintaining a productive workforce

and clientele base, which are crucial to an organization's survival, even in volatile markets. When

Enron began operations, it was a young, ambitious company—expanding its energy sector

market share and investment. Enron ensured ethical leadership before the scandal in 1985.

Reforms to structures that practice integrity, professionalism, and ethics would have been crucial

to maintaining an ethical culture within the workforce. Business ethics facilitates the formation

of trust and credibility in the market and is essential to maintaining market performance. Enron

had the opportunity to build a market base by attracting high-performing employees. This paper

investigates the complexities of implementing new and legitimate business practices while

emphasizing the importance of ethics, integrity, and professionalism in marketing.

Before Enron withdrew from the market, the company had demonstrated market

penetration for more than 25 years. However, the company's finances were drained due to the

leadership's greed and unethical information control procedures. With market liberalization and

access to offshore partners, businesses could implement innovative market-to-market strategies,

which the new chief executive officer, Jeff Skilling, took advantage of. Enron reported enormous

earnings while trading and transferring profits to offshore accounts. Its assets remained largely

intact in the mother company, but the leadership hid company losses in small subsidiaries

(Cameron, 2019).

In 2001, when accounting audits were performed, Enron disclosed massive unethical

behavior and the declaration of nonexistent profits, causing share prices to plummet. The

devaluation of Enron's stock to less than a dollar resulted in massive job losses without
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compensation. Jeffery Skilling's actions as CEO of Enron revealed his avarice, desire for power,

wealth, control, and need for leadership. Because of his desire for Jeffery Skilling desired

financial gain. Skilling acted inappropriately. He discussed his "success," Enron's success, and

the company's rising stock price. However, his poor performance in the energy sector made him

and several others look bad. Skilling helped himself and a few deplorable-dependable people, but

he. Left employees in constant anxiety about the security of their jobs, which fell victim to his

fraudulent leadership (Cameron, 2019).

A business decision is a conclusion reached on behalf of an organization through

business logic and the will to succeed. The business logic required to make a business decision

can be analyzed, organized, and managed using the decision model. In most cases, the structure

and flow of a company's daily operations depend highly on its decision-making. At Enron,

Skilling's decision-making style led to the company's demise and the financial ruin of many

employees and shareholders. To save Enron should have approached the company's problems in

a structured, logical manner. Additionally, Skilling's morals and values should have been

founded on better ethics. This would have prevented the adverse events that occurred while he

was in command. For instance, the company's leaders appear to have attempted to cover their

tracks to save the company, resulting in the loss of numerous 401(k)s and pensions. This

treatment of employees at Enron created a culture that embraced unethical business practices,

leading to the company’s fall in 2001 (Cameron, 2019).

Based on Aristotle's theory of virtues, all these characteristics are awful. According to

Aristotle (384–322 B.C.), moral integrity is the desire to do the right thing and the ability to

strike a balance between excess and deficiency. Enron's leaders, in contrast, overreached in their
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desire for power. When Skilling became CEO of Enron, the company's accounting reporting

strategy, measurement of market-to-market share values, and profit growth (Cameron, 2019).

Enron could conceal derivative market losses in diverse global regions through numerous

sister corporations and subsidiaries. The company falsified its subsidiaries’ financial records,

boosting its confidence. Enron then sought investors for its subsidiaries to expand its market

share. This accounting fraud caused more investors to invest. You can follow Enron's meteoric

rise through the energy industry until its demise in 2001. A formal leader holds an official

position, whereas an informal leader recognized by peers does not. Per Fielder’s theory,

situations and leadership styles impact leadership effectiveness. This model identifies leadership

styles based on the least preferred colleague scale, which reveals relationship- or task-oriented

types. Enron's parent company's profits remained relatively high, whereas the subsidiaries hid the

losses (Cameron, 2019).

In contrast, influence alone does not always compel others to comply with a leader's

wishes. Normative ethical systems must govern referential power to prevent abuse. Milgram and

Asch examined the influence of group and authority conformity on decision-making. Both

authors indicate that statistically, authority and influence are more likely to be followed than

ethical principles. Research shows weak ties significantly affect individuals within social

networks. Conformity refers to a person's propensity to behave according to social norms,

whereas impression management is a technique for influencing how employees perceive others.

To understand the reasons for people’s differences in handling situations, Asch argues that

opinions, attitudes, cultures, and values are not consistent in every situation (Kyrlitsias &

Michael-Grigoriou, 2018).
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Ethical leadership demonstrates an individual's high regard for values. Integrity, honesty,

fairness, and respect are indispensable components of moral leadership. When leaders are

trustworthy and honest, their team relationships are positive. Ethics was unrelated to skill.

Ethical egoism asserts that people should act in ways most advantageous to themselves. This

type of leader would make decisions to help the group achieve its objective of earning money. A

moral leader at Enron would have reported the company's finances with greater discretion and

used accurate data and numbers to build and lead a successful business. A moral leader at Enron

would not have sold company stock for a profit before revealing problems, as the new CEO of

Enron would demonstrate ethical conduct. An ethics code and regular training for employees

would be essential. Providing seminars and online and in-person instruction on ethical leadership

and decision-making (Greenwood, 2018).

As the new leader and CEO, I can clean up the mess by forming an audit team and

correcting the errors of the previous leader. This would provide direction for the organization.

The business environment, which includes external factors like legal, financial, social,

regulatory, and cultural factors, is the organization's context. The internal environment consists

of internal structures, management, and resource capabilities. In addition, a thorough background

check must be performed on all prospective employees before hiring decisions. Employees must

be encouraged to discuss issues and concerns, and all ethical considerations should be addressed;

weekly departmental updates should be provided.

Enron has always attempted to undo and rectify the mistakes of its former leaders.

Recognizing that Enron owes a social obligation to its shareholders and employees, I would

create a modern and ethical business environment. Enron could establish a social network that
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promotes ethical behavior by fostering situations aware of moral principles, rewarding ethical

behavior with formal and informal incentives and opportunities, and incorporating work ethics

into everyday behavior. The energy market reforms created a gap in the law, which Enron's

management exploited to increase their stock shares and "diversify" their productivity in the e-

commerce sector. Thus, Enron's stock purchasing practices showed no illegalities. Jeff Skilling's

market-to-market trading is unprecedented outside the energy industry. They are Presently

utilized in many economies to protect businesses from recording losses when trading in a single

sector (Cameron, 2019).

Preferential employee treatment, financial document hoardings, failure to file the required

tax returns, and derivative losses incurred by Enron's leadership represent egregious business

ethics violations. The Aristotelian view on vices, character development, unethical conduct, and

corruption are discussed. Scams for attracting investors violate U.S. trading laws and regulations

and international law. Employees may have been unaware of the company's illegal activities.

Enron CEO Skilling would falsify financial statements using the mark-to-market (MTM)

accounting method. However, I am afraid I restfully have to disagree that employees behaved

inappropriately due to immense pressure. Sherron Watkins, vice president of corporate

development, demonstrates that there has always been an ethical way to conduct business. She

informed the public about the wrongdoing at Enron by blowing the whistle (Cameron, 2019).

In the 1950s, Solomon Asch conducted numerous studies to determine how others'

thoughts and actions influence individuals. Conformity occurs when an individual modifies their

behavior to fit in with the group, despite disagreement. Milgram argues that following the rules

is another persuasive technique. A person is obedient when they modify their behavior based on
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superior directives. People usually comply with requests out of fear of repercussions of

disobedience. Employees comply with their superiors' demands out of fear of being fired for the

wrong thing. It is unethical, but in this case, as with the Enron corporation, no one was aware of

what was happening (Greenwood, 2018).

Skilling worked tirelessly to exploit regulatory loopholes to maintain Enron's

marketability. Although he was illegal, Skilling's insatiable desire for wealth drove him to

engage in the activity. He thus failed the credibility and integrity tests, which are critical in

determining a candidate's future market success and maintaining international organizations'

market credibility. Ethical leadership Considers professionalism and honesty essential to

maintaining a company's image. Truth in reporting fosters a culture of respect and upholds the

highest ethical standards. This helps companies maintain high-performance levels. Ethics-based

leadership ensures accountability and transparency in all aspects of a company's operations and

interactions with its stakeholders (Mcleod, 2020).

On the other hand, maintaining business growth and profit levels necessitates the

involvement of numerous business management experts. Even when they see opportunities in

morally ambiguous areas, business leaders must exploit such opportunities with as little greed as

possible. Corruption and greed may help you build a business empire quickly, whereas slower

growth and expansion may result from ethical leadership. However, industries reduce the

likelihood of separation due to client mistrust, litigation, and accusations of unethical business

practices.
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References

Cameron, S. (2019, April 29). The Enron scandal & ethics. Bizfluent. https://bizfluent.com/info-

7747847-enron-scandal-ethics.html

Greenwood J. (2018, July 25). How would people behave in Milgram’s experiment today?

Behavioral Scientist. https://behavioralscientist.org/how-would-people-behave-in-

milgrams-experiment-today/

Hartman, L. P., DesJardins, J., & MacDonald, C. (2011). Decision-making for personal integrity

& social responsibility. Business Ethics, McGraw Hill International, New York,

NY10020.  academia.edu

Kyrlitsias, C. & Michael-Grigoriou, D. (2018). Asch conformity experiment using immersive

virtual reality. Computer Animation and Virtual Worlds, 29(5), e1804.

https://doi.org/10.1002/cav.1804

Mcleod, S. (2020). Stanford prison experiment. Study Guides for Psychology Students – Simply

Psychology https://www.simplypsychology.org/zimbardo.html