Enron Case Study

Groupthink is a phenomenon that was first brought to the attention of the psychological community by a social psychologist named Irving Janis. According to Janis (1972), Groupthink happens when a group of people makes flawed decisions because group pressures lead to a breakdown of "mental efficiency, reality testing, and moral judgment" (p. 9). Some

In 1985 The Enron Corporation came into existence after a successful merger between two gas pipeline companies. The company nurtured a very competitive culture, which encouraged employees to win at any means necessary. Enron’s culture led employees to “cast loyalty and ethics aside in favor of high performance” (Ferrell, p. 494). The executives of Enron covered up their increasing debt by using special purpose entities. Meanwhile, Enron continued to report increasing profits to their investors, which led to more investors giving Enron their money. There were many factors that aided Enron in their demise, but the largest was the greed of Enron’s executives, the auditors, and the attorneys. The corporate culture of Enron, their auditors bankers and attorneys and their Chief Financial Officer played vital roles in the fall of Enron.

Enron had the largest bankruptcy in America’s history and it happened in less than a year because of scandals and manipulation Enron displayed with California’s energy supply. A few years ago, Enron was the world’s 7th largest corporation, valued at 70 billion dollars. At that time, Enron’s business model was full of energy and power. Ken Lay and Jeff Skilling had raised Enron to stand on a culture of greed, lies, and fraud, coupled with an unregulated accounting system, which caused Enron to go down. Lies were being told by top management to the government, its employees and investors. There was a rise in Enron 's share price because of pyramid scheme; their strategy consisted of claiming so much money to easily get away with their tricky ways. They deceived their investors so they could keep investing their money in the company.

Fortune used to rank Enron as the most successful business in the United States. The collapse of Enron was shocked the whole world energy trading market. It caused significant losses to investors. In this paper shows analysis reason of factors that lead to Enron demise and also lessons can be learnt from Enron case study. The approach which have used in this paper to respond, the case study question are the background of the case organization and how business structure had been use by the case organization. Reviewing some lessons that can be learned from this case study to avoid any failure another Enron whether in the financial market, as well as in the auditing and accounting professions.

Enron made greater use of social control as a means of guiding employee action, however, the company did have limited methods of formal control in place. By using social influence tactics, limiting dissenting opinion, and inflicting a sense of high cohesion among employees, Enron deceived millions into believing the company was more profitable than it actually was. Because Enron’s values and norms were not conducive to a successful, ethical company, the employee’s targets, attitudes, and behaviors led to Enron’s undesirable outcomes. (O’Reilly and Chatman 165) Enron’s downfall can be largely contributed to its norms and values, of which were not strategically appropriate. Enron valued money above all else, which was

The story of Enron is truly remarkable. As a company it merely controlled the electricity, natural gas and communications sectors of the world. It reported (key word, reported) revenues over one hundred billion US dollars and was presented America’s Most Innovative Company by Fortune magazine for six sequential years. But, with power comes greed and Enron from its inception employed people who set their eyes upon money, prestige, power or a combination of the three. The gluttony took over sectors which the company could not operate proficiently nor successfully.

required a sort of group think” (Chaffin and Fidler 2002, 2) and “that you had to ‘keep drinking the Enron water’” (Stephens and Behr 2002, 2). A myth of smooth, flawless operations was perpetuated

The fall of the colossal entity called Enron has forever changed the level of trust that the American public holds for large corporations. The wake of devastation caused by this and other recent corporate financial scandals has brought about a web of new reforms and regulations such as the Sarbanes-Oxley Act, which was signed into law on July 30th, 2002. We are forced to ask ourselves if it will happen again. This essay will examine the collapse of Enron and detail the main causes behind this embarrassing stain of American history.

The top managers operated in a corrupted fashion They did not even try to produce a positive symbolic management within the organization. Thus, the failure of the company was also the reflection of their moral failing. As a matter of fact, not only there was an aggressive and arrogant culture, but managers were mainly driven by corruption, and greed. They had no space for ethics; their main goal was trading for financial gains. Managers at Enron did not focus on long term goals. Moreover, they did not take care of their shareholders. Executives had neither an open relationship nor a shared vision with their employees. Instead, they were only interested in enriching themselves; according to their philosophy any situation could bring profits, even though this might involve crossing ethical lines. Indeed, the culture of pride, arrogance and greed at Enron made executives look for whichever solution in order to get more and more profits. Because executives wanted to benefit themselves first, all the decisions they took in the board room were made on the only account of how they could earn more. For all the above-mentioned reasons, operational and financial controls were inadequate,

Groupthink is a theory from a social psychologist, Irving Janis. It is when a group makes faulty decisions because of group pressure. This eventually leads to a lack of mental competence, enabling one from making decisions solemnly on their own ideas. Groupthink also lowers the level of one’s morals and ethics. People affected my Groupthink discard alternatives and tend to take irrational measure and “go-with-the-flow”. “A group is especially vulnerable to groupthink when its members are similar in background, when the group is insulated from outside opinions, and when there are no clear rules for decision making.” The concept of groupthink is to depict a particular form of excessive concurrence-seeking in cohesive groups associated with several U.S. Policy fiascoes

The tale of Enron presents a unique perspective on success. In the short span of 24 months, Enron transformed from being the top firm in its industry to one that filed for bankruptcy. The reflection about how the tides changed in such a short period uncovers many surprising truths. In its glory days Enron beamed billion dollar profits each quarter, however this success was all a part of an elaborate scheme. Behind the veil of smoke and mirrors was a series of deceptive and unethical accounting practices. For Jeff Skilling and Kenneth Lay it was always about outward perception and to them this revolved around the stock price. If the stock price kept rising, as far as they were concerned Enron was doing just fine. The case of Enron is the

The first important factor in the Enron case advanced interests on share price. The second factor how the company was liberalized over the past 20 years along with the reduction of legal responsibility of investment banks and accounting firms. The third factor, which is the most important, was the immediate alteration of pay packages given to investment bankers, executives, and accountants (Barreveld, 2002). In this case, the factors mentioned above was a result of the culture implemented by the executive leaders whom were influenced by unethical behaviors they engaged in. One could agree that Enron was definitely reaping the bad seeds that the

The entire downfall of the giant Enron was brought about due to various ethical lapses that, in the end, would muddy the reputation of anyone who had a connection with the company. Even according to Gibney (2005), it was widely known that Enron’s CFO Andy Fastow would tend to implement and use less than ethical financial practices. The unethical behavior, though, does not usually just occur with one person or one position. Gibney (2005), throughout the entire documentary, hints at the idea that all Enron management/leadership knew of and were complicit in the unethical practices. In the end, Enron had betrayed the trust of thousands of employees and investors. Both of these betrayed parties would try to seek some level of justice in what had become one of America’s worst economic blunders (Gibney, 2005).

The groupthink model is a term that been coined by (Janis, 1972) which states that “a group makes a faulty decision because group pressures lead to the deterioration of mental health, reality testing and moral judgment”. Groupthinks mainly affect groups that take irrational decisions and avoid thinking about any alternatives while taking a decision. When the members of the groups are relatively from the same background and is more isolated when the group does not get any external opinions for taking a decision and does not have any clear rules for decision-making, the group gets more vulnerable for being affected with groupthink.

In this case of Enron the corporate culture played a vital role of its collapse. It was culture of full of moneymaking strategies and greed, in the firm Greed was good and money was God. There was no or very little regards for ethics or the law, they operated as there was no law and ethics in the world (Enron Ethics, 2010). Such culture affected all the employees of the firm from top to down. Organizational culture supported unethical behaviour and practises, corruption, cheating and those were all widespread. Many executives and managers knew that the firm is following illegal and unethical practises, but the executives and the board of directors did not knew how to change this unethical culture, the firm used creative accounting and were making showing misleading profits every day. Reputation management enabled them carry on their illegal and unethical operations. Moreover if the company made huge Revenue in the unethical way then the new individual who joined the firm would also have to practise all those unethical practises to survive in the company. All of the management was filled by greed and ambition, their decisions became seriously imperfect, thus the firm fell back and managers had to pay in the price in the form imprisonment and fines. Greed is the main key factors that brought the Enron “the most innovative company” to downfall. Enron was looking into the ways of