Examining Enron's Failure
Organizational-behavior theories help to understand the effects of leadership, objectives, individual characteristics and action, and employee behavior and attitudes within an organization. It also explains the effects of internal environments, such as culture, the structure of the organization, resource and task allocation, and external environments such as competition or government regulation. These factors contribute to the performance, success or failure, and survival or fall of an organization. Organizational-behavior theories help to explain the collapse of Enron and how leadership, management, and organizational structure contributed to its failure.
Organizational Structure
With a market capitalization of nearly $74 billion, Enron was one of the world’s leading energy companies by the late 1990s. However, it had gained this status through the perpetration of illegal activities at the very highest levels of the organization. Enron’s fall was because of the organizational-level corruption that grew from its structure and trickled down to the collective behavior of its employees. Enron’s top-down, hierarchical structure by unit grouping meant that the top management team either directly or indirectly through their subordinates influenced the actions of the organization. For example, the structure of the accounting department allowed it to disregard legal requirements through “structural secrecy” that Enron’s executives could exploit (Beenen & Pinto, 2009, p. 283).
As part of its strategy to grow its business, Enron’s leadership engaged in aggressive political lobbying to convince the government to deregulate its business activities (Kulik, O’Fallon, Salimath, 2008, p. 706). Organizations like Enron, whose activities are controlled by external factors, such as the government, tend to centralize power at the apex of the structure and