Examining a Business Failure
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Examining a Business Failure
When approached with the idea of business failure, one might describe this event as an organization’s inability to make sufficient earnings as a means of covering its expenses; as a result, said organization would be forced to cease its operations. The following paper will examine the business failure of one of the largest energy trading and communications companies in the United States, Enron. This paper will further describe how management and leadership behaviors could have potentially predicted or explained the organization’s failure, and also compare and contrast contributions of leadership, management, and the organizational structures which led to its failure.
Failure within a large organization
The collapse of Enron in late 2001 was described as one of the largest scandals in American history. Giroux (2008) explained that at its height, Enron had a stock price of over $90, which gave it a market value of almost $70 billion dollars. Before its collapse in 2001, its revenues for 2000 were well over $100 billion, making it the seventh-largest American corporation (p. 1208). A direct result of the company’s high performances was enormous return payments to Enron’s chairman and CEO, Kenneth Lay. Along with a base salary of $1.3 million, Kenneth Lay received a $7 million bonus, in addition to 782,000 stock options for the year (Grioux, 2008). The failure of Enron was attributed to a number of different factors; in particular, investigators found that Enron’s failure was caused by falsified accounting practices, which allowed the company to exaggerate its earnings and conceal its mounting debts. As described by Giroux:
In terms of scandal, Enron had it all: gigantic executive compensation incentive packages; management dedicated to meeting all quarterly earnings forecasts to maintain the compensation—often by accounting manipulation; a CFO enriching himself through related-party partnerships and hidden side agreements;...
When approached with the idea of business failure, one might describe this event as an organization’s inability to make sufficient earnings as a means of covering its expenses; as a result, said organization would be forced to cease its operations. The following paper will examine the business failure of one of the largest energy trading and communications companies in the United States, Enron. This paper will further describe how management and leadership behaviors could have potentially predicted or explained the organization’s failure, and also compare and contrast contributions of leadership, management, and the organizational structures which led to its failure.
Failure within a large organization
The collapse of Enron in late 2001 was described as one of the largest scandals in American history. Giroux (2008) explained that at its height, Enron had a stock price of over $90, which gave it a market value of almost $70 billion dollars. Before its collapse in 2001, its revenues for 2000 were well over $100 billion, making it the seventh-largest American corporation (p. 1208). A direct result of the company’s high performances was enormous return payments to Enron’s chairman and CEO, Kenneth Lay. Along with a base salary of $1.3 million, Kenneth Lay received a $7 million bonus, in addition to 782,000 stock options for the year (Grioux, 2008). The failure of Enron was attributed to a number of different factors; in particular, investigators found that Enron’s failure was caused by falsified accounting practices, which allowed the company to exaggerate its earnings and conceal its mounting debts. As described by Giroux:
In terms of scandal, Enron had it all: gigantic executive compensation incentive packages; management dedicated to meeting all quarterly earnings forecasts to maintain the compensation—often by accounting manipulation; a CFO enriching himself through related-party partnerships and hidden side agreements;...