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Enron, Ethics and Today's Corporate Values

Rachel Roth

South Texas College

Behavior/Ethics/Leadership II

Prof. Sparrow

May 8, 2022
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Enron, Ethics and Today's Corporate Values

The Enron case demonstrates Skilling as a morally wrong, shortsighted and

charismatic leader, an individual who can inspire others to accomplish his expected goals.

Due to the company’s possible failure, he used morally wrong tactics and became

opportunistic by using his position to change the accounting practices that could lure

investors that the company had a positive performance record (Silverstein, 2013). The levels

of optimism and compliance resulted in the compromise of moral and professional standards;

the accounting fraud could eventually be revealed. The leader should be considered to have

exhibited two major traits; an opportunistic and a charismatic leader but a wrong decision

maker, he was not futuristic. Another major issue was that Skilling was short-sighted, as he

could not foresee the consequences of his accounting approach. Until his questionable

resignation, he had not noted that the accounting system had put the company in a financial

mess, as the leader consistently hid failed transactions and projects. As an effective leader, he

should have noted such flaws and taken immediate necessary action to ensure that the

company could start a cost cutting drive and regain from the financial decline. Character

matters to people and is important in the successful running of organizations. If the quality of

performance could not be attained, then professionalism had to be compromised. Skilling

failed as a leader, a significant issue why the company could not achieve its financial goals.

Based on the Aristotelian theory of virtues, Skilling was wrong in lying, as he was

determined to meet the right reasons; ensure organizational continuity. Notably, the decision

resulted in organizational failure; the futile goals was to make the company maintain its

positive image as they were working on suppressing the identified weaknesses. The primary

objective was not for Enron's continuity, but for his personal interests. The leader lied but and

was not determined for the right reasons; he had to be charged based on the ultimate effects

of the scandal. Effective decision-making needs to follow a standardized and coordinated

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process. Skilling did not manage to meet this requirement, as his decisions were merely based

on being exposed as a good leader at the expense of the company and its investors. From the

perspective of Aristotelian theory, he was wrong. Even if the decision could result in

organizational success, there could be question marks on the level of risk that the investors

were exposed without their knowledge.

The power of conformity in groups is a major attribute or influencer of performance

and behavior. Based on Milgram and Ash's experiments, it is necessary to note that they apply

to the Enron case, particularly after recognizing that employees had to conform to the orders

from their leader. In some situations, employee interests and expectations may conflict with

those of their manager, as manifested by the leaders’ decisions. Still, they have to follow the

applicable norms to be considered individuals who follow the appropriate standard models.

The Milgram experiment was based on the concept of obedience to authority, a significant

reason why the employees had to follow Skilling’s orders. After working for Enron for a

considerable period, most of the staff had built trust in the leader and expected that the

change of accounting practices was a significant step towards realizing a financial

breakthrough. Even if they later discovered that the leader was unethical, they could not resist

his orders due to their need to express obedience to authority (Kemmelmeier, 2015). The

Asch paradigm can also be applied in this case, as people are more likely to follow and

conform to their groups. The leader focused and optimized his charismatic skills as the

principal foundation of organizational success and attaining the expected goals.

Based on the ideologies of group conformity, I can affirm that Milgram and Ash's

experiments apply to the Enron case. During decision-making, employees are more likely to

follow orders either right or wrong, and they aim to ensure that every aspect of performance

meets the assigned roles and the anticipated performance standards. Even if they understood

that the accounting principles were not supposed to be changed, they had to follow the
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applicable norms. The power of group conformity was the major influencing variable that

resulted in the following and implementation of orders that Skilling had set. Enron’s failure

should be pegged on the leader, as he used his power and influence to change the operational

dynamics and assign the staff the critical roles they needed to execute.

The major differences between Skilling’s leadership style and an ethical leader are

based on the ability and willingness to embrace professionalism amid a dilemma. The leader

knew that by using the accounting loopholes, the company could give a piece of false

information that it was profitable and performing, an issue that resulted in major accounting

fraud. Based on the ideologies of ethical leadership, he could have maintained the preferred

accounting standards and worked on the significant aspects of boosting performance and

cost-cutting. For instance, an ethical leader could have suspended some spending lines like

bonuses and incentives and ensured that employees worked optimally. However, for the

charismatic leader, his focus was on realizing positive results and ensuring that the company

looked afloat. Ethical leaders are always passionate about what they do and how they need

their goals to be accomplished. In case of divergence from the anticipated outcomes, they can

report the matter and involve the key stakeholders. For instance, during the annual report

making and presentation, the stakeholders could have been involved and informed of the

challenges that the organization had undergone and the possible intervention measures.

Skilling remains an unethical leader, an individual who must bear the burden of the financial

mess he put on investors and other stakeholders, including employees of Enron. Based on the

standards of effective management dynamics, leaders need to adhere to ethical leadership

guidelines and ensure that the ideologies of professionalism are followed and attained.

Based on the ethical dilemma that the CEO had to solve, I consider it necessary to

follow a predetermined framework for solving the puzzle. The first step was to embrace a

democratic form of leadership. The staff and the stakeholders should be involved in decision-
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making. From a professional perspective, I will have to explain why the company is not

performing, possible options to take, and the expected outcomes from such a financial mess.

After outlining the challenges, the parties involved will have a chance to brainstorm and

determine the preferred mode of intervention. Among the major issues that must be avoided

include blame games, and there shall be a need to support employees and the subordinate

staff in their decision-making. Every option should be made based on the truthful

presentation of facts and ensuring that information delivery is based on logic. Every financial

challenge must also be ascertained and the foremost priority areas identified. Other options

include a freeze of dividends, bonuses and engaging business partners to settle for differed

payments. Embracing professional ethics should consist of financial disclosure, a significant

determinant of practical and incremental performance standards. Maintaining investor

confidence is necessary, as Enron’s case was more likely to affect the operations of other

companies in the industry (Fry, 2016). As an ethical leader, it will be vital for me to

acknowledge that apart from serving the company's interests, other social and economic

dynamics have to be considered (Cameron, 2019). Skilling’s decision was also wrong, as he

failed to consider the impacts of the financial fraud on the financial stability in the industry

and among the investors. When the scandal was revealed, the whole financial sector had to be

shaken.
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References

Cameron, S. (2019). What caused Enron to collapse? Bizfluent. https://bizfluent.com/how-

does-4911332-what-caused-enron-collapse.html

Fry, M. D. (2016, July 3). Enron, ethics, & the dark side of leadership. Sites at Penn State -

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https://sites.psu.edu/leadership/2016/07/03/enron-ethics-the-dark-side-of-leadership/

Kemmelmeier, M. (2015). Milgram, Stanley (Experiments). The Blackwell Encyclopedia of

Sociology. https://doi.org/10.1002/9781405165518.wbeosm105.pub2

Silverstein, K. (2013). Enron, Ethics and Today's Corporate Values. Forbes.

https://www.forbes.com/sites/kensilverstein/2013/05/14/enron-ethics-and-todays-

corporate-values/?sh=673b5c585ab8