Running head: FINAL CASE STUDY

Jesenia Siller

Final Case Study

Behavior/Ethics/ Leadership I
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Enron’s Ethical Collapse

In November of 2001 Enron filed for bankruptcy and that was the beginning of learning

how leaders, like company founder Kenneth Lay, Jeffery Skilling who was Kenneth Lay’s

replacement if anything was to happen to Kenneth, Andrew Fastow who was the chief financial

officer for Enron, and Michael Kopper who was Andrew Fastow’s top assistant at the time

abused their power and privileges (Johnson, 2003, p. 45) .They manipulated information,

engaged in inconsistent treatment of internal and external constituencies, put their own interests

above those of their employees and those of the public, and failed to exercise proper oversight or

shoulder responsibility for ethical failings (Johnson, 2003, p. 45).

According to the wall street journal, an analyst at Howard Weil by the last name

Followill was quoted saying “ I truly do not understand all their financial arrangements, and I’ve

sent information on their deals to accountant friends and they don’t understand them either”

(Shannon A. Bowen, 2005, p. 89) .Referring to the misuse in the accounting department.

According to Gale, it is said that Kenneth Lay and Jeffery Skilling never really cared about each

other and when the trail came, they blamed one another for 4,500 jobs being lost and 70 billion

dollars of the investors’ money gone (Gale, 2007, p. 11).While everyone involved was losing

here and there, Kenneth Lay, Jeffery Skilling, and other top executives came out richer with

hundreds of millions of dollars (Gale, 2007, p. 11)

Both Kenneth Lay and Jeffery Skilling abused their power callously (Johnson, 2003, p. 46).

Kenneth Lay would fire any of his successor’s if they wouldn’t follow his every word, thought,

or command which eventually leading to a failed organization as Kenneth was only thinking of

himself and not the organization nor the public (Johnson, 2003, p. 46). Jeffery Skilling was a
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bully because he would remove any competition Enron had with any other organization and

intimidated his fellow employees (Johnson, 2003, p. 46).

Leaders and employees at Enron would have additional privileges that were not necessary

but flattering. According to Johnson, Kenneth Lay once told a friend of his that he didn’t want to

be rich he wanted to be world-class rich, and his wife Linda one time went on a 2 million dollar

plus decorating spree for a new home in Houston (Johnson, 2003, p. 47). Kenneth and Linda

knew they had excess to so much money that they borrowed 75 million dollars for the company

which they paid back in stocks (Johnson, 2003, p. 47). Not only did the leaders of this

organization get to enjoy the lavish privileges but so did the workers and employees of Enron

such as extravagant Christmas parties, aerobic classes, free taxi rides from home to work and

vice versa or to meeting somewhere outside of Enron, plenty of refreshments both at parties and

also at work in the breakroom, and the services of concierge like a doorman (Johnson, 2003, p.

47).

Enron administrators took advantage of their gullible employees and the members of the

board as well. Enron officials were very unethical when they manipulated information to protect

their interests instead of looking out for the best interest in the organization and to deceive the

public (Johnson, 2003, p. 48). According to the Senate Permanent Subcommittee on

Investigations who were the ones who investigated the company’s downfall into bankruptcy and

making history, determined much that was wrong with Enron was known to the board and also to

Kenneth Lay and Jeffery Skilling who did little to nothing to improve the situation (Johnson,

2003, p. 47). Employees always look at the example that their bosses are showing them and

intend to follow in their steps and the employees at Enron were no different, they started to hid

expenses, claimed nonexistent profits, deceived energy regulations and so on. In October of 2002
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the former chief trader of Enron’s west power desk Timothy Belden entered a plea bargain with

the D.A for his participation in conspiring to drive up California’s energy costs through

fraudulent trading practices (Shannon A. Bowen, 2005, p. 86).

Leaders at Enron were so greedy and only thinking about their own needs rather than the

needs of the public and of the business. Average employees were forced to vest the retirement

plans in Enron stock and then during the most crucial time when the stock was in free fall, the

employees were blocked from selling their shares (Johnson, 2003, p. 47). Meanwhile, the greedy

top executives were able to unload their shares as they wished. They were able to sell and make

their money as they pleased. According to the journal of public affairs Enron purposely moved

electricity out of California only so they could bring it back and sell it back to the residents at a

higher, out-of-state energy rate. Enron Officials did not follow any of the ethics guidelines such

as honestly, loyalty, and not being greedy.

Enron officials misplaced and broke loyalties with pretty much everyone that came into

contact with them and put the loyalty to themselves and not to others, for example, stock holders,

business partners, rate payers, local communities, foreign governments, and the employees who

worked for Enron. They broke one of the most important codes of ethics which is being loyal to

your employees and to be honest. According to Thompson prosecutors in the trail said that after

becoming CEO in 2001, Kenneth Lay continued the role to mislead the world about Enron

because he had learned that the company was in deep trouble. Kenneth Lay was informed by

several employees of Enron on the financial situation that was mounting and undisclosed amount

of financial and operational problems and according to Kenneth Lay he was very desperate to

cover it up and away from the public eye.

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Kenneth Lay and other top officials acted irresponsibly by failing to take the necessary action

needed to keep Enron out of bankruptcy, failing to exercise proper oversight, and failing to

shoulder responsibility for the ethical misuse in their organization (Johnson, 2003, p. 48). Many

top officials including Kenneth Lay and Jeffery Skilling knew the problems rising in their

organization but only thought of themselves and the organization went bankrupt.

After the collapse of Enron nobody came forward to take any blame on how and why the

organization failed not even Kenneth Lay. According to Enron’s employee Sherron Watkins,

said she was ignored after her memorandum to founder and CEO Kenneth Lay raised some

serious questions about Enron’s accounting practices and creating false partnerships (Shannon A.

Bowen, 2005, p. 92). Sherron Watkins pleaded with Kenneth Lay to investigate deeper into the

Condor and Raptor partnerships, further explaining herself to Lay that she was worried that all

her hard work and dedication she put in the eight years with working for Enron’s would be

worthless and discredited due to fraudulent accounting practices (Shannon A. Bowen, 2005, p.

92) . Furthermore, Sherron Watkins also said she was ignored another time when she provided

the names of five Enron executives who should have been questioned in connection with the

deals to Vinson and Elkins which is a law firm to review Enron’s accounting practices for

anything illegal and fraudulent (Shannon A. Bowen, 2005, pp. 92-93).

It wasn’t what Kenneth Lay and Jeffery Skilling didn’t know that panicked Wall Street, it

was what the two men did know and had repeatedly authorized the notion that Enron’s CFO

Andrew Fastow was doing private deals with his own company and those deals might be hiding

about Enron’s financial condition (Gale, 2007, p. 16). If only the leaders, board members, and

employees would have followed a stricter ethics code they could have prevented the Enron’s

ethical collapsed. According to Shannon A. Bowen and Robert L. Heath as an organization

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operates from outside-in, it has many choices to become increasingly transparent (Shannon A.

Bowen, 2005, p. 88). It is the organization’s culture to commit to the interests of its stakeholders

and stake seekers. The way it works from the outside-in is by listening as well as, selling itself

to- its external audiences, markets, and publics. Corporations, such as Enron, need the guidelines

of moral philosophy (Shannon A. Bowen, 2005, p. 90). Issues managers need to be conversant

with ethical theory to shoulder the responsibility borne by the function rather than naively to rely

on legal counsel (Shannon A. Bowen, 2005, p. 90). Enron’s culture was known to be as being

brutally selfish and has an aggressive self-interest, materialism and ethical egoism. The company

would not have collapsed if only Enron had obeyed to the steady and demanding ethical

guidelines. Enron as well as other organizations need a set of ethical principles to guide decision

making (Shannon A. Bowen, 2005, p. 92). According to Kurt Eichenwald, the ultimate lesson of

Enron is the picture it presents of “a corporate culture poisoned by hubris, leading ultimately to a

recklessness that placed the business’s survival at risk” (Gale, 2007, p. 28). Following the trail

and the verdict, Sean Berkowitz the head of the government’s Enron task force, said that it “sent

an unmistakable message to boardrooms across the country—you can’t lie to shareholders, you

can’t put yourself in front of your employees’ interests”. Enron’s corporate culture that

encouraged creativity and risk taking originated thru the destructive power of an individuals

greed and pride.

Kenneth Lay, Jeffery Skilling, Andrew Fastow, and other top high-level executives have

a lot of the blame when it comes to the Enron’s ethical collapse, but it was also their employees

and followers that also played in the organization going bankrupt. We as leaders must influence

others if we are to fulfill our roles if we don’t, our organization will suffer (Johnson C. E., 2016,

p. 133). University of Virginia business professor Edward Freeman and his coworkers urge
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everyone in business to focus on creating value for all stakeholders (Johnson C. E., 2016, p.

371). What happened in Enron was unethical, leaders should have moral thinking and make

ethical decisions.
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References

Gale, T. (2007). Corporate Corruption. Farminton Hills, MI: Christine Nasso.

Johnson, C. (2003). Enron's Ethical Collapse: Lessons for leadership Educators. Journal of

Leadership Education, 45-56.

Johnson, C. E. (2016). Organizational Ethics.

Shannon A. Bowen, R. L. (2005). Issues management, systems, and rhetoric: exploring the

distinction between ethical and legal guidelines at Enron. Journal of Public Affairs, 84-

98.